Executive Board chairman’s message
Looking back on 2012, there is little doubt it was a challenging year for the financial services sector, dominated as it was by economic uncertainty. Markets were volatile and consumers were reluctant to spend. However, the biggest impact on our business activities was from interest rates, which fell to all-time lows.
As we value our Life provisions at current market yields, something that is rarely seen in the industry, this resulted in considerably higher provisions for our policyholders. The strong decline in interest rates impacted our shareholders’ funds and our results. We seem to have entered a phase of prolonged low interest rates. However, our commercial approach and our commitment to transparency and prudence position us well for the future.
We took swift and pragmatic action where necessary in 2012. This included terminating loss-making underwriting in the international marine business and our gradual withdrawal from the Dutch partial disability insurance market (WGA ER). We also realised further cost savings as part of our ongoing cost-reduction programme and lowered our risk profile.
The completion of Aviva’s divestment from Delta Lloyd Group, and the strong demand from investors for Delta Lloyd shares, reflect broader confidence in our resilience and potential.
Putting customers first
From a business perspective, we consolidated our market leadership in Life new business and benefited from several large new contracts in 2012. Our pipeline remains well filled.
The implementation of revised IAS19 rules for pension schemes should see the Dutch pension transfer market improve further – particularly if interest rates continue to rise. We also saw growth in the defined contribution market via BeFrank, the first premium pension institution (PPI) in the Dutch market.
Much of our progress was due to having robust and diversified multiple distribution channels. We further strengthened our distribution during the year by signing new agreements with Deutsche Bank in the Netherlands and CRELAN (Landbouwkrediet/Centea) in Belgium, while we deepened our insurance joint venture with ABN AMRO Bank.
This commercial progress shows our approach of offering simple, innovative and transparent products is what customers want. It is central to our approach: we do everything possible to meet customers’ needs and put our customers first. We believe we are on the right path. Others agree: according to consultancy firm IG&H, Delta Lloyd was the best pension insurance provider in the Netherlands in terms of customer service in 2012. For this, I wish to thank our staff. It is their dedication and commitment that make Delta Lloyd a front-runner in customer service.
Working for a better society
We put our financial expertise to work for society through the Delta Lloyd Group Foundation. We activated more than 600 volunteering jobs in 2012, taking part in projects to educate adults and children on money matters, reducing poverty and debt prevention.
In 2012, we became one of the founding signatories of the new Principles of Sustainable Insurance. We identify strongly with the 10 principles of the United Nations Global Compact to encourage sustainable business practices, which blend seamlessly with our own vision of sustainable business.
Our efforts in this area were recognised by the Dow Jones Sustainability Index, which in its 2012 assessment of our sustainability performance rated Delta Lloyd as a top-scoring company in the insurance sector. This moves us a step closer towards inclusion in this leading sustainability index.
Markets are greatly influenced by political developments, and it is hard to predict what lies ahead for 2013. In the Netherlands, we anticipate the housing market will deteriorate further as a result of government measures to be introduced this year. In our view, the government should be doing more to improve consumer spending. The cumulative effect of measures taken, although directionally right, has dented consumer confidence.
While we don’t dispute that the Dutch housing market is ready for change, in our view the reforms should be introduced in a way that keeps disposable income at a sound level and limits the risk of homeowners falling into negative equity.
A further concern is ever stricter regulatory requirements, which in the short term could affect lending to our customers and harm the housing market. As it is, we were cautious about providing new mortgages in 2012, and volumes declined by 60%. This was in line with market volumes in the Netherlands and our commercial strategy to aim for low risk mortgages and margins above volume.
We are closely following developments in pension reform – which will also impact Delta Lloyd when they take effect in 2015. As yet, not all the proposals have been finalised. They include reducing the pension build up from 2.1% in 2014 to 1.75% in 2015. For our customers it will become much more difficult to build up a reasonable pension. Having a smaller than expected pension reserve to draw from could affect the financial security of people who are counting on their pension at retirement. And the question is: who benefits from the money saved? Will it go to the pension schemes to improve coverage ratios, or to consumers so they have more cash to spend in the short term?
In January 2013, Aviva sold its remaining stake in Delta Lloyd, a welcome development that puts us firmly on course to pursue our strategy as an independent company. We obtained a cross listing in Belgium and have been included in the BEL20 index, signalling the importance of the Belgian market as our second home market.
We have a single goal: to offer our customers security, now and in the future. We believe we are well positioned to do this, and to benefit from a future pick-up in market conditions, unlocking further value in the Dutch and Belgian life and pensions markets – both in 2013 and beyond.
Chairman of the Executive Board