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Good morning, ladies and gentlemen, this is the operator speaking. Welcome to NN Group's Analyst Conference Call on its First Quarter 2019 Results. [Operator Instructions] Before I hand this conference call over to Mr. Lard Friese, Chief Executive Officer of NN Group, let me first give the following statement on behalf of the company. Today's comments may include forward-looking statements such as statements regarding future developments in NN Group's business. Expectations for its future financial performance and any statements not involved in the historical fact. Actual results may differ materially from those projected in any forward-looking statement. Any forward-looking statements speak only as of the day they are made and NN Group assumes no obligation to publicly update or revise any forward-looking statements whether as a result of new information or any other reason. Furthermore, nothing in today's comments constitutes an offer to sell or solicitation of an offer to buy any securities.Good morning, Mr. Friese, over to you.
Thank you, Operator. Good morning, everyone. welcome to our conference call to discuss NN Group's results for the first quarter of 2019. I will start today's presentation by talking about the highlights and the business developments in the past quarter and then, Delfin Rueda, our Chief Financial Officer will take you through the details of the financial performance and talk about the free cash flow and the capital position of the group. After wrapping up the presentation, I will open the call for Q&A, our Chief Risk Officer, Jan-Hendrik Erasmus is also with us today to answer your questions. Let me start with highlights shown on Slide #3.The year 2019 has started off well with NN Group reporting an operating results for the first quarter up to EUR 468 million. This is up from EUR 330 million in the first quarter last year, which as you will remember, was impacted by a large storm in January. The Netherlands Life, Netherlands Non-life and Japan Life segments all posted improved results this quarter. In addition, we reduced administrative expenses by EUR 20 million, bringing total cost reductions achieved to date to EUR 310 million million. At the same time, we saw some pressure on the results in Europe on the asset management and the bank. Delfin will discuss the results in detail later in the presentation.In terms of capital, our solvency 2 ratio of 213% remains at the strong level, albeit down the end of last year, but please note, that the ratio was impacted this quarter by unfavorable movements in credit spreads and interest rates, the full deduction of the EUR 500 million share buyback and the lowering of the UFR to 3.9%. The holding company cash position and cash capital position stands at EUR 2 billion, with EUR 269 million of dividends received from subsidiaries in the first quarter. We saw strong increase in new sales to EUR 945 million, up 72% at constant currencies compared with the same quarter last year. The insurance business in the Netherlands, Europe and Japan all contributed to this increase. So let's now move to Slide #4.One of our priorities is to improve the performance our business unit, while continuing to help customers secure their financial futures. We do this by launching innovative new products to meet the evolving needs of our customers. We also continue to implement a range of measures to improve the financial performance of our Non-life business. This includes premium increases across different product lines as well as improved claims handling. As I already mentioned, we saw strong increase in new sales in the first quarter of the year. The Netherlands Life new sales increased 92% on a higher volume of group pension contracts. And sales in Japan more than doubled on the back of strong sales efforts as well as customer expectations over revision of tax laws for COLI products. The national tax agency in Japan recently published a proposed new tax regulations, which will reduce the tax deductibility of certain COLI products. These changes will only be applicable to new sales. While sales will be held back in the short term, we expect the changes to be favorable for the persistency of the existing in-force book. In line with the industry, we have suspended the sales of certain COLI products and are currently adopting a product offering to the new tax regulations. We operate in a heavily regulated environment often have to navigate changes in local markets like, the exchanges in Japan, I just mentioned. Recently insurance changes were also a proposed to the pension systems in Romania and Poland. We have extensive experience in both the European and Japanese markets, and have been successfully coping with such regulatory changes for many years now. We do this by differentiating ourselves in these markets through an excellent customer experience, continuous product innovation, and diversified distribution. So let's move to the next slide, Slide #5. We continue to increase efficiency across the organization. For example, by integrating teams and simplifying the IT landscape, by substantially reducing the number of applications. In the first quarter of the year, we reduced the expense base of the business units in scope of the cost-reduction target by an additional EUR 20 million, bringing the total cost reductions to EUR 310 million compared with the 2016 full year expense base. We're making good progress towards our target of reducing administrative expense base by EUR 400 million by the end of 2020. Having said that, I would like to caution again, that expense reductions will not be linear and that some units may see some expense increases in the coming quarters to support growth and make necessary investments. And with that, I will hand you over to Delfin Rueda. Delfin?
Thank you, Lard, and good morning, everyone. Let me start with the NN Group's operating result for the first quarter of EUR 2019 of EUR 468 million, which is up fro EUR 313 in the same quarter of 2018. There are a couple of nonrecurrent items influence in this result. The first quarter of 2018 was impacted by a storm in January for a total amount of EUR 89 million, and the first quarter of this year benefited from a EUR 63 million dividend from an stake in the former ING Life Korea.The first quarter net result was EUR 512 million. There are a few items below the line that I would like to highlight. Firstly, the nonoperating items mainly reflect positive revaluations of derivatives and private equity. Also, the result before tax of Japan Closed Block VA was minus EUR 10 million compared with plus EUR 15 million in the first quarter of 2018, mainly due to negative hedge-related results. The line acquisition intangibles and goodwill includes the recognition of negative goodwill of EUR 33 million on the acquired Czech and Slovak Aegon businesses as well as lower amortization of acquisition intangibles. And finally, special items, which mainly relate to restructuring expenses include in respect of the cost-reduction target went down from EUR 79 million to EUR 52 million in the first quarter of this year.On the following 2 slides, I will take you through the first quarter performance of the individual segments. As you all are aware, we have changed our segment reporting this quarter and now, show the results of the bank as a separate segment for the first time. The results of Japan Closed Block VA are no longer reported as a separate segment, but included in the segment Other. As usual, let's start with the Netherlands Life, which reported an operating result of EUR 268 million, up from EUR 212 million in the first quarter last year, mainly driven by the EUR 63 million dividend that I mentioned before.The first quarter last year included a dividend of EUR 7 million from the same stake. The current quarter also reflects lower administrative expenses as well as lower fees and premium-based revenues. The operating result of Netherlands Non-life improved to EUR 29 million. On the one hand, we saw a lower underwriting result in DNA, mainly due to an unfavorable claims development in the individual disability portfolio. However, the results in PNC were higher reflecting more favorable claims experienced and lower administrative expenses, partly offset by a EUR 9 million impact from a storm, which mainly hit Belgium in March 2019.The result for the same period last year was, of course, impacted by the January storm. The Non-life combined ratio improved to 97.9% compared with 106.3% in the first quarter of 2018, or 98.6%, if you exclude the impact of last year's storm.The operating result of Insurance Europe decreased to EUR 58 million from EUR 71 million a year ago, which included EUR 9 million of nonrecurring benefits. Lard already mentioned the pension reforms in Romania, and this had an adverse impact on the current quarter results. On a net basis, the acquired Czech and Slovak businesses had a limited positive contribution to the operating results. The operating result of Japan Life was EUR 94 million, up 23% from the first quarter of 2018, excluding currency effects, reflecting the contribution of the higher COLI sales. And we now move to Slide 9. The operating result of our asset manager decreased to EUR 36 million from EUR 41 million in the first quarter of 2018. Fees, continued to be under pressure in the asset management industry. However, we are partly compensating this with the expense reduction. Total assets under management increased to EUR 260 billion, mainly on the back of positive market performance. We also saw some asset, [indiscernible] including net new third-party assets. The operating result of the banking was EUR 30 million in the first quarter, down from EUR 33 million last year. The lower interest result was partly compensated by lower administrative expenses.Finally, the segment other includes the result of the holding company and the reinsurance business. The results of Japan Closed Block VA are also reported in this segment, but below the line. The operating result of the segment other improved to minus EUR 36 million from minus EUR 78 million in the first quarter of 2018, which included a EUR 33 million negative impact of the storm in the reinsurance business and nonrecurring items of minus EUR 15 million.On the Slide 10, I will like to talk about our cash capital position. The holding company cash capital remained stable at EUR 2 billion at the end of the first quarter of 2019. The free cash flow during the first quarter was EUR 183 million, driven by EUR 269 million of dividends received from subsidiaries. This was partly offset by the consideration of EUR 102 million paid for the Slovak businesses acquired from Aegon as well as EUR 38 million of shares repurchased under the EUR 500 million share buyback program that we commenced in March.To finalize my presentation, I will take you through the developments in NN Group solvency on Slide 11. NN Group solvency ratio was 220% at the end of the first quarter of 2019, before the deduction in full of the EUR 500 million buyback program that we announced in February. After the deduction of the buyback, the ratio was 213%, down from 230% at the end of the previous quarter. The operating capital generation for the first quarter added 5 percentage points to the ratio. Note that as from that this quarter, we deduct the accruals of qualifying debt from the operating capital generation.Let me remind you that this amounts to approximately EUR 160 million per annum. The ACR operating reflects a lower contribution from Japan Closed Block VA, in line with the expected runoff as well as higher sales in the insurance entities. Market variance lowered the ratio by 9 percentage points. Credit spreads had a negative impact mainly due to the tightening of the corporate bond spreads to which we are underway compared with the reference portfolio.Lower interest rates were also unfavorable for the ratio, partly offset by positive equity revaluations. Finally, the category other includes the negative impact of the reduction of the UFR by 15 basis points in January this year as well as the update of the reference portfolio. I will now pass you back to Lard for the wrap up.
Yes. Thanks, Delfin. NN Group has started the year well. Posted an operating result for the first quarter of EUR 468 million. We continue to strive to improve performance of all of our business units and increase efficiency throughout the organization. Our balance sheet remains strong with the cash capital position of EUR 2 billion, and the solvency 2 ratio of 213% at the end of the first quarter. Going forward our focus remains on successfully integrating and the Netherlands and Belgium as well as on further driving growth and improving the customer experience through innovation and our client-centric approach. Now let me finish by mentioning that we plan to hold a capital markets update in the Netherlands on the 4th of December 2019.I will now open the call for your questions. Operator, over to you.
[Operator Instructions] And the first question is from Mr. Cor Kluis from ABN Amro.
I have a couple of questions, but first of all about the Japan COLI business, can you give the possible earnings outlook or earnings impact of this tax change issue, of course, you will sell what this specific product taking into consideration you committed high single-digit growth targets or outlook for the Japanese life business. Related to that on dividend, also from Japan. It might help a little bit extremely less products there. Could you also give an idea of the expected from Japan in 2019? And second question is about the asset management business, we see that the fee and the revenues is somewhat less in Q1 as was in Q4, despite the fact that UAM has been rising somewhat, so I think the average is also a little bit higher, why is that commission income or fee income somewhat lower than we thought. And last question is about the roll forward of solvency 2, Slide 11 in the category to other, where we see minus EUR 0.1 billion and that, of course, includes 2 large minuses, a EUR 60 million probably from Slovak and EUR 260 million from UFR and EUR 300 million from minus, so there should be a plus also around EUR 200 million in it, what is the press included in the reference of other and EUR 209 million of profitability. Those are my questions.
This is Lard. So first, I'll address your discussion on Japan. As Delfin mentioned and I mentioned as well already, in my opening remarks, we're very pleased to report first quarter off of Japan. The exceptional sales results were a combination driven by a combination of 2 things. One is the strong distribution and sales momentum that we've seen already for a couple of quarters and that we've built out over the years. And as well as an expectation, which emerged later in the quarter that the tax rate products we changed, that helped us well Now the proposed tax changes are known to us now and we are adapting our products and sales approaches and that will take a bit of time.In the short term, we believe that this process of adaptation will holdback sales, but longer term, we believe our company is very well positioned to continue to serve the needs of the SME companies in Japan. And we also believe that these changes are in interest of a sustainable COLI market. And when it comes to the financial impacts, I think there's a couple of things to mention here. The full earnings impact of this IFRS basis is, we will take time to fully assess it as the market evolves and adapts. In general, we expect that lower COLI sales will impact VNB and IFRS earnings, while on the other hand, the better persistency of the in-force book, which is encouraged by these new tax rules will support earnings and value. All else equal, lower sales will also reduce the new business strain, as you mentioned yourself, or therefore, increase the dividend capacity in the short term. However, note that we prioritize a stable dividend pattern over time coming out of Japan. Then, Delfin will take the other 2 questions, Delfin? Thank you.
So starting with your question on the fees. Yes, you're right that -- of course, one has to look at the balance of assets under management at the end of the period, but the average, but I think, you have look into that already. And the reason for the increase in the fees is on one hand, the reflection of the ongoing fee pressure, but also the composition on the assets under management and also there was some replacing in 1 particular contract. But that is basically a reflection of pressure on the lower fees in general.On the solvency 2 roll forward, on the Own Funds movement in the segment other, where there is a positive, which is in relationship to the change in non-available Own Funds and that is related to, in particular Belgium, which the solvency capital requirement has increased, due to some relisting there. And with that, the amounts of transition also we could use for the purpose of group consolidation increase. So that is one of the positives within that bucket.
The next question is from Ashik Musaddi, JP Morgan.
Just a couple of questions, first of all is on M&A. I mean, recently there has been a little bit of noise about you looking at Aviva, which is not an old story, and secondly around as well that's now, I guess, you wouldn't probably done any speculation, but can you just remind us about your M&A discipline, what's sort of ROI shall we be expecting, will it be based on 1-year ROI, 2-year ROI, I mean, when do you plan to achieve those things. So any thoughts on your discipline on M&A would be great.Secondly on, I mean if i notice that the cash flows -- the cash flow to holding company was a bit lower, it was actually not there in the P&C business, that's P&C. So what is the reason for that, because you still delivered decent results in P&C. And thirdly, is around same P&C, the combined ratio was 98%, would remain comfortable with that number for the rest of the year. Any thoughts on that would be great?
I'll take the P&C business and M&A and then, Delfin would you be so kind to comment on cash flow to holding. So let me first talk about the M&A question you had. Maybe, I remind everyone that our main priority is to build our business out and focus on improved earnings, et cetera, on organic basis. So that's where our priority lies and that should be well understood. And when it comes to M&A, it's all, a situation where opportunity meets discipline. And we have -- we are looking -- we're always looking for opportunities to strengthen the business with the priority on markets where we already have a business. There is no template to hurdles we have to this, because we don't believe there's a template to M&A. It's all opportunity driven. We have a set of financial and not financial criteria, which we are very, very disciplined in adhering too. And we want to make sure that we understand business as well and that we also are for the potential risk that we're taking. So in that sense, there is no template for this, but discipline is, of course, absolutely, critical here.When it comes to P&C, let me -- so first of all, I'd like to mention that and we all know, we're on a program to improve structurally, our P&C business and our Non-life business towards our target of 97% or below. The good news is that we're seeing progress as we implement all our measures on the underwriting side, on the efficiency side as well so the expense ratio side. This is a fourth consecutive quarter now with the combined ratio below 98%. So I think, that's encouraging, but there's still a lot more work to do.So we are continuing to improve our underwriting, we're continuing to push through repricing where necessary, and we are continuing to build out a capability using data analytics, et cetera, to be able to consistently build a company that has a strong earnings profile longer term. That's our objective with this. And we're obviously not finalized and finished with the efficiency program that we have there as well. We saw this quarter a little bit of elevation in the D&A business, which we're mindful of and we're monitoring that closely, taking measures to address it. So we just continue the course towards our target of building a business, which is structurally below 97%
Ashik, on your question on the lower dividends or lower cash flows to the holding, particularly for P&C, well, if you compare the remittances of this quarter with those of the same quarter last year actually, it is slightly above that level. And also in the first quarter of last year, there was no dividend coming from property and casualty. So nothing special to mention here. Obviously, we pay dividends out of our subsidiaries based on their profitability, but also in terms of their excess capital over their levels. So I think, you should expect dividends coming from Non-life according to the profitability and the evolution of their share capital going forward. As you know, usually, the second quarter tends to be higher in terms of remittances, dividends coming from the subsidiaries and there is always some seasonality there.
And can I just have one follow-up question on M&A. Sorry to go back on that topic. I mean do you have any preference for P&C Life or asset management or you're a bit agnostic on that, it's just about the returns of...
It's, again, our priorities on organically building out our business. But if there are opportunities for us to strengthen the business through M&A, we look at it and evaluate it. And those things are always with the priority on existing markets, and if we can strengthen the business in particular market. But I would say, it's always opportunity-driven. So it could be P&C, could be Life, everything that would be a good thing to do, which we apply against our straight financial and nonfinancial criteria, which we will evaluate and invest there. If it doesn't mean it, then we don't.
The next question is from Mr. Matthias De Wit, Kempen.
Two questions from my side, please. First is on the banking business. You report, again, a pressure on NII, similar to what we've seen in the past. I noted that mortgage spreads are recovering, so just wonder whether you see a trust in or an inflection point in NII also considering the volume growth we've seen during the quarter. So that's question one. And then secondly on Insurance Europe. Regarding the acquisition of Aegon's business. I just wonder how big the contribution was of that operation. If I remember well, it used to be profitable under Aegon's ownership. So if that's still the case. And what do you expect for this business on a full year basis?
Delfin?
On the banking, I think depending on competitive environment and what is the absolute level of interest rates, the new production of mortgages can have slightly higher or lower -- or lower interest and margin there. Our bank is mainly a mortgage bank and therefore, very much dependent on the rates for mortgages and over time, and that's not new for the whole industry, we have seen competition, severe competition and actually, with the decrease of interest rates the margins decreasing and that's what you have seen reflected in this quarter as well.In terms of the acquisition of Aegon business. I think, I can -- I assure you that there has been a positive contribution in the quarter. We're saying it has been moderate because it was also a relatively a small transaction in itself and therefore, you can only contribute -- expect a moderate contribution for the quarter. There is also another factor to take a bit into account, which is the fact that, that and this is a bit technical, but with the acquisition on the day 1 balance sheet recognize some negative goodwill that, of course, results into a capital gain in the moment of the acquisition, which has been flat in the press release. And that, of course, is recognized in profits earlier and has a bit of a downward pressure on the actual contribution in the quarters to come. But still, we are very comfortable. Of course, it's very early days for the integration of the 2 activities. But we are confident on the double-digit return that we consider when pricing this transaction
The next question is from Mr. Johnny Vo, Goldman Sachs.
Just a couple of questions. Just obviously, you've grown quite strongly in the group insurance business in the Netherlands. So can you tell us what the new business margin for that business is? And also, can you just give us an outlook in terms of, is it a one-off, or is our condition is improving, such that you think the flow of new business is going to be at this level?
Yes, Johnny. First of all, the -- this business is a bit seasonal, in the sense that, it depends each year what -- from the history of how this pensions contracts been contracted in the past. Whether you have a big year of clients who are renegotiating their next period, if you will, or whether you have a more muted year. So your existing in-force book in the expiration of contracts which are up for renewal can be bigger or smaller any given year. In this particular year, it was strong, renewal season as we call it. So that means many contracts are up for renewal and we were happy to kind of to be quite successful in it. The focus that we have with all these renewables is on the VNB, and making sure that the business that we are renegotiating that in the pricing the margins exceed the cost of capital.Now the -- oftentimes, these contracts move from defined benefits into defined contribution, which is a completely different product obviously, for the accruals that would come for the benefits that they have for their employees and why, because to a larger extent the lower rates, longevity pressures, repricing an existing defined benefit products into a new contract duration is very high and therefore, companies often choose to go to the defined contribution. So margins are lower, but the capital allocated to that defined contribution is also much lower obviously, as you don't take the market risk. So again, repricing of cost of capital for this, but there is a pressure on the margins as a result of many -- of the clients choosing to move to defined contribution rather undefined benefit product.
Okay. So it's fair to say the margin is around 0. Is that fair or a little bit above?
No, it's a bit above.
The next question is from Farooq Hanif, Crédit Suisse.
Just returning to Japan COLI. Can you give us a little bit more information on what is happening with tax. And some of your peers have commented that they should be able to replace, if they can adjust the product. I mean, is that going to be possible. And related to that, what do you think -- so what do you think the potential is for you to reduce your earnings growth ambitions for Japan over time. I mean, do you stick by your earnings growth guidance there?
Yes, Farooq. So let me expand a little bit on Japan. First of all, what has -- what is happening now is something that in the last 33 years, I've been there with the business, has happened before. So we've seen multiple periods at which occasions, which tax regulation around the COLI products have changed. And what you see happening usually, is that from an adaptation present the underlying need, of course, has not changed the part is that you move on. And that's basically what we expect here to happen as well.Now what has happened is that there were -- the new rules are saying that there were some changes that impact certain type of products with high cash to rental values, while other products on the COLI space, which we're also carrying the products that are not affected by these rules. So as I said, it's an adaptation process, where we are currently in, we are experiencing this. We've done this before. What we expect, as I said earlier on an earlier question on the call is that, this adaptation process process takes a little bit of time. So on the short term, we expect sales to be held back. At the same time, we believe that we are very well positioned for the longer term. And also on the earnings side, please note that there is -- that these new tax rules are basically an encouragement for persistence in the book, which means that, that is an offsetting factor, which actually improves the potential earnings outlook. So I think, these things and how they will completely move in the earnings side on the IFRS is something that we need time for to assess. When it comes to the J GAAP earnings, which are important, because those are basically determining the dividend capacity, that you have. If you have a period of held-back sales your J GAAP earnings as a result of business stream will improve and as a result, your dividend capacity will actually also improve. So in that sense, it's a bit of puts and takes here, an adaptation process, which we've done before. We're very well positioned for this. The underlying need of the SME customers has not changed. And to see how the IFRS side exactly works out, we just need a bit more time to see how the market shapes up.
The next question is from Robin van den Broek, Mediobanca.
Two questions from my side. The first one is in relation to the bank distribution agreement with ING. I was just wondering ING, of course, went into partnership with the AXA. And I was just wondering, how comfortable are you in most of your regions, where you do work with ING that those bank distributions will be up for renewal. I think most of those are in 2024, so it's still a bit further out, but I think some will also lapse earlier. So any commentary there would be helpful? Second question is more relating to the UFR. I mean, due to the move year-to-date, your solvency is obviously down, but I also guess, the benefit from the UFR has grown quite a bit year-to-date. I'm just wondering if you remeasure your UFR drag on the quarterly basis, whether you do that on an annual basis, and I was wondering if you could give us a little bit of quantification on how much the UFR drag has basically gone up year-to-date?
So I'm going to ask Delfin to take care of the UFR discussion, but before that, the bank distribution agreement with ING. At the time of the IPO, we have basically renewed all our existing bank distribution agreements with ING. Market-by-market slightly different, but I would say on average, 10-year duration. The relationships that we have with ING on the distribution side in the markets locally are very good. And in that sense, it's going well. ING, indeed has partnership with AXA in a number of markets, but those are markets that we're not present. So in that sense, we have comfort -- and comfort and also confidence in the way that we work with ING already for a long time in the markets where we have built the collaboration.On the UFR dynamics, Delfin?
Absolutely, when the benefit of the UFR is every quarter resulting into and we monitor what is, what we call the UFR drag, we also, of course, look at other components of changes every quarter, including the risk margin release, which is very substantial and very important. And actually one tends to be compensated to a large extent by the other. So we do still have the net of the 2 effects negative impact on in terms of negative and indeed as the UFR reduces, the UFR benefit is lower. And we have seen already, some improvement on the lower UFR drag. Every quarter it changes, because the benefit, of course, depends on the ultimate level of interest rates. But maybe as a rule of thumb what you could think is that whenever there is a change on the UFR down that we expect it to happen every single year by 15 basis points, at least in the next years, that we expect to earn that back through higher capital generation over a long period of time. I would think between 10 and 15 years.
The next question is from Andrew Baker, Citi.
Just three for me, please. So appreciated that but are you able to provide an initial view on the potential impact from the 2020 long-term guarantee package specifically, around any moment liquid point or if there's any other positives or negatives that you're aware of at this point? And secondly on integration. Are you able to provide an update on the operational progress. So I know on the Non-life side, you are only going to from 44 systems down to 19, and presumably have a low Life migration as well. Are those migration started yet? And if not, when is sort of the largest migration scheduled to happen. Just in another way, when is the operational risk associated with the integration going to be the highest over the next couple of years? And finally, just on Netherlands Life. So typically on the fee and premium-based revenues, it's seasonably higher in Q1. If you look at this quarter compared to the last couple of that didn't really come through, does this mean there's a step down in expectation in this line going forward or was that something specific to Q1?
So let us do with this time with the 3 of us. So the first one of Jan Hendrik and then, I'll comment on the operational side integration and Delfin, can do the discussion in Life. So first, Jan Hendrik, over to you.
Yes, of course, we've noted the review of framework and that's exactly what it is. It's a framework. So it has a lots of components in it and we would caution against trying to isolate the impact of 1 element above another. What we would say is that it's a package and it's really too early to gauge the final effect of -- the impact of this on o business.
The integration. The integration is progressing well, a couple of comments on it we always report along the financial side around this. And that we are progressing well towards EUR 400 million expense-reduction target, with EUR 310 million already behind us, and the target needs to be achieved by the end of 2020. So we're well on our way. When it comes to the status of the integration, we have all the legal mergers have taken place. The end of last year, the large operating legal mergers have also taken place. The internal model expansion, that was quite important to us has been approved by the end of last year by our regulator. So basically all big milestones have been achieved. When it comes to all the application rationalization and the decommissioning road map and stuff like that, we are ongoing on this. This is not going to start. It has already started and we are on this. And last quarter, I think, we censored it, roughly 30 applications to give you an idea a little over it in fact, but it's something that takes time. This is step-by-step every month, every quarter. And our teams are working towards a situation where the IT landscape is simplified. We're also using the opportunities where we can to improve technology to make o processes also longer term, more flawless and more efficient. But this is a step-by-step process that we are taking in a very diligent and disciplined manner. So it's already started a while ago, and it's going to take a couple of years to get there, right? By the end of 2020, we aim to have achieved most of it.Then on the Life, the fees and premium-based revenues.
Yes. Andrew, on the fees and premium-based revenues, we have flagged in the past, the trend for these to decrease. The main driver of that is, I would say 2 aspects. The first one is, of course, the drain of the individual life book, that you are very much aware of, but also the lower margins in the pension business, as it moves from defined contribution, from defined benefit into defined contribution. Of course, the fees and the revenues is significantly lower and that is reflected within this line. Of course, I mean, that's a trend that we have identified very early on. We have given some guidance in terms of maintaining the operating result stable and that's why we are doing other activities like reducing the overall expenses and are working on our investment portfolio in order to compensate that trend.
[Operator Instructions] And the next question is from Jason Kalamboussis, KBC.
I had questions are the following. The one is, on asset management, you had an upstream of EUR 44 million last year and this year, it's about our EUR 22 million, so just want to have an idea what's drive the difference and if this excess capital or so any comments would be great. The second thing is on asset management, do you find that what we are seeing on the results is it more a consequence of the Q4. So are you more optimistic about second quarter? And will start at a certain stage translate into a review with potential for you to look for acquisitions in this area or to look at what you can do? And the third question is just around M&A. In the follow-up question-and-answer you gave earlier you said that the largest -- the priority was on existing M&As, which I still remember that you are saying, but your priority is in existing market. So how do you think about, if, for example, you go to a new market and the papers have been talking about Spain, doing a large deal in another market would effectively preclude you for a while to be able to grow in your existing markets. So what are your thoughts on this?
First, let me talk about your last question. Do you want to do the first, Delfin. We'll take them one-by-one. So Delfin will talk first about the first one and I'll come back later.
I think it's the other way around. So that in the first quarter of last year, we had remittances of EUR 22 million from asset management and in this quarter it is EUR 44 million in the quarter. And of course, what drives it is also, not only the profitability, but also the level of capital and solvency that this unit has.
On Asset Management, first of all, asset management is a business model, which, as you all know, is operating in a difficult environment globally. So the recipe that our NN IP, our investment partners group is following and implementing is a recipe of focus, focus and focus. The first one, focus on the emphasis on certain investment strategies, investing in those and honing those even further. Secondly, a focus on relentless client service in line with distribution efforts and sales efforts to the need for the investment strategies that we're focusing and placing emphasis on. And thirdly, efficiency, which is all about reducing expenses, et cetera. So that's just what they do. And this quarter, it was encouraging with a positive flows this quarter also for the total, but also for the third-party business, which is good.On M&A, in general, as I said, earlier on the call, we focus on organic growth, that's where our efforts are. If we find an opportunity, we'll look at it. It's opportunistic in the sense that we judge it at its own merits. And we have a priority and the priority is for existing businesses for existing markets, because -- for the obvious reason. Because we understand it. We can potentially benefit from synergies and scale, et cetera. So that's why we have a priority there. So what about new markets? Not a priority for us today.
If I could just follow up on the NN IP. Did you find exactly because of the pressures that you're seeing in the industry and you can see in headlines everywhere that you would help the unit by looking at potentially adding more in there and do even smaller scale acquisition or it's not something you don't find necessary at this stage prefer just to remain focused on what you're doing? And it's something that you would consider, but at a later stage?
As I said, we are focused -- our primary focus is organic, right? And for the asset manager it's fighting day, every day for focus, focus, focus. As I just said on the strategies, emphasis that they have on expenses and efficiencies on client service, et cetera, that's where the focus is. And just like any other business that we have, if there is an opportunity to strengthen the business inorganically, we'll look at it at its own merits and assess it against very strict financial and nonfinancial criteria. And if it makes sense, we act, if it doesn't make sense, we don't. That's hoaw we look at it. Our focus is on organic activity.
There are no further questions Mr. Friese, back to you, please.
Thank you very much, operator. And more importantly, thank you, everybody, for being on this call today. And let me conclude by saying that 2019 has started off well for us. However, we remain focused on delivering on our strategic priorities and on creating long-term value for all of our stakeholders. I want to thank you for all your questions, and I wish you all a pleasant day.