EUR 850.00 For Business Accounts Only

Morningstar | NN Group Reports Decent 3Q

NN Group reported operating profit of EUR 463 million for the third quarter of 2018. The result was a little better than the comparable period and a little light versus the prior quarter. But ultimately, the prior quarter is a very tough comparable and overall, we think these results are pretty good. As usual, there are some special items that need to be accounted for. We are maintaining our EUR 44 fair value estimate and no-moat and stable moat trend ratings.

While the Netherlands life operating margin looks light versus the prior period, it is probably actually bang in line with what it should be on a normalised basis. This does include EUR 48 million of private equity dividends, a lumpy line that we don't like. We essentially bag this with the lower-quality income items of realised gains and losses, because we think private equity dividends are not really income but more a result of the realised gains on the underlying private equity entity. We think EUR 40 million-50 million does seem to be about right to be included within this line item, though nonetheless, we would prefer to see it elsewhere. If we exclude these dividends, investment margin is actually down EUR 5 million against the comparable period . So the Netherlands life investment margin has come in at 94 basis points.

While fee and premium-based revenue may seem only marginally light, the technical result has declined quite significantly, and with it the margin to less than 4 basis points, which is quite alarming. Though the comparable period included EUR 12 million of nonrecurring benefits and favourable experience related to the mortality result, accounting for this, the margin is still approaching 6 basis points.

There is nothing to report in terms of administrative expenses and deferred acquisition cost amortisation.

The Netherlands nonlife business reported a pretty solid operating result of EUR 211 million. Below-the-line items have been minimal. The claims ratio is good, and the long-term trend of the expense is improving. In terms of gross premium, there is a continued trend in shift away from disability and accident and towards motor. We have some hesitation regarding the strength of the Dutch motor market. However, some of this improvement might be rate improvement based, and so the trend could settle and rebalance in the early part of next year. The result of all this is a lower operating result on D&A than we have come to expect. However, the profitability of more general property and casualty items looks better.