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Executives

Bart De Smet – CEO

Christophe Boizard – CFO

Frank Vandenborre – Group Head of IR & Performance Management

Filip Coremans – Chief Risk Officer

Antonio Cano – CEO of AG Insurance

Analysts

Ashik Musaddi – JPMorgan

Francois Boissin – Exane BNP Paribas

Albert Ploegh – ING Financial Markets

Matthias De Wit – KBC Securities

Farquhar Murray – Autonomous Research

William Elderkin – Goldman Sachs

William Hawkins – KBW

Benoit Petrarque – Kepler Cheuvreux

Jason Kalamboussis – Societe Generale

David Andrich – Morgan Stanley

Ageas SA/NV (OTC:AGESF) Q2 2014 Earnings Conference Call August 6, 2014 4:30 AM ET

Operator

Ladies and gentlemen, welcome to the Conference Call for Ageas’ Six Months Results 2014. I am pleased to present Mr. Bart De Smet, CEO; and Christophe Boizard, CFO. For the first part of this call, let me remind you that all participants will remain on listen-only mode and afterwards there will be question-and-answer session.

I would now like to hand over to Bart De Smet and Christophe Boizard. Gentlemen, please begin.

Bart De Smet

Thank you. Good morning ladies and gentlemen, thank you all for dialing in into this conference call and for being with us for the presentation of the first half 2014 results of Ageas.

As usual, I’m joined in the room by Christophe Boizard, our CFO; and I also welcome Filip Coremans, our new Chief Risk Officer since the 1 July. He was formerly our CFO and CRO in Asia. Furthermore, we also have Antonio Cano, the CEO of AG Insurance in the room, and of course our Investor Relations team is present as always.

Ladies and gentlemen, the first six months of this year have definitely been marked by a few rather exceptional weather related events. The storms and the floods hitting U.K. badly in the first quarter received quite some press conference but also in the second quarter severe hailstorms left our mark on Belgium causing a significant cost.

These types of events are typically moments for our customers who want to be helped immediately and want to have professional and high quality support.

In total, almost 50,000 families in the U.K. and Belgium have been helped by our colleagues, in spite of the costs related to the adverse weather our net insurance results came in above last year’s level held up by very good life results and a non-recurring tax credit in Belgium.

So altogether, I’m pleased to say that the underlying trends are good and should set the tone for the rest of the year.

The historically high level of unrealized gains on our fixed income portfolio has further driven up shareholders’ equity and this has a negative impact on our return on equity.

Ladies and gentlemen, when browsing of the main headlines of the results announced today which you can find on slide 1 of the presentation, I would like to highlight a few items. And Christophe will as usual provide more details afterwards.

First of all, the net insurance profit amounted to €340 million compared to €320 million last year with a strong second quarter net results of €195 million. The severe hailstorm hitting Belgium in June let to a net impact on the result of some €25 million which we already reported at the end of June. This was around €60 million in the first half year.

At the same time, the net results benefited from the release of a deferred tax liability of €23 million in Belgium, and we also realized higher capital gains compared to last year including the impact of some recalibrations over our fixed income portfolio in Belgium, the latter two being elements you couldn’t take into account for your consensus.

Secondly, the group combined ratio improved somewhat in the second quarter but remained for the half year about 100% at 102%, with the adverse weather events having a negative impact of 4.6%. The overall prior year releases decreased to 3.7% compared to 4.4% last year.

Thirdly, life overall operating margin improved to 85 basis points driven by a very strong margin on guaranteed products of 99 basis points while the margin on unit-linked products turned around 20 basis points in-line with the trend since the end of 2013.

Fourth element is the group result that amounted to €31 million with a negative result in the general account of €309 million related to the further increase of the RPNI liability and the €130 million legal provision related to the FortisEffect case period in Netherlands.

And fifth and finally, our shareholders’ equity increased in the second quarter to €9.2 billion or €41.11 per share including unrealized gains of €2.2 billion as already mentioned.

I’m also pleased as well to announce a new share buyback program, the fourth program in four years and I’m now on slide 2. The board of directors have decided to increase the size of the program to €250 million. The decision is I believe in-line with our intention to deploy our net cash for growing our business and if we do not find opportunities that meet our targets to continue our policy to return cash to shareholders.

I’m also pleased to report progress on the strategic front, which is at slide 3 and 5 of the presentation. In June we acquired to remain in shares in the Portuguese non-life entity allowing us to further develop this business, while keeping an excellent relationship with our local business partners and primary distributor Millenniumbcp, we now have the possibility to explore other distribution opportunities allowing us to further strengthen our market position.

And today we also announced two other transactions. In Italy, where we acquired jointly with BNP Paribas Cardiff, the remaining shares in UBI Assicurazioni, owned by UBI Banca. This transaction allows us to explore in Italy also, other distribution opportunities which should allow us to strengthen and expand the Italian business.

And in the U.K. we agreed on the sale of our local U.K. life business Ageas Protect, for a total consolidation of approximately €228 million. This decision fits within our focus in the U.K. on the non-life market and distribution and there we have considerable scale and we hold significant market positions.

And lastly, before handing over to Christophe, I would like to comment briefly on the judgment we received last week in the so called FortisEffect case. As you will have read, the court concluded that the sale of the Dutch activities of the Dutch State should be unaffected. But it also ruled that Fortis did not communicate correctly in connection with this matter during the period of 30 September till 1 October 2008.

Meanwhile we have confirmed that we will launch an appeal with the Dutch Supreme Court and that we will constitute a provision of €130 million with respect to the period caused by this case.

I would now like to give the floor to Christophe for a more detailed look at the results by segment before we move to Q&A. Christophe?

Christophe Boizard

Thank you, Bart. Further to Bart’s opening remarks, I will provide you with some additional comments on two things. The operating results by insurance segment and the general account. I will not touch upon the investment portfolio as the situation is rather stable there.

So, first, our insurance operation, and I am on slide 7 of the presentation. Bart already highlighted the net profit of our insurance operations of €340 million. For life, net profit increased by more than 40% amounting to €285 million.

Strong results in Belgium, and the 30% higher net profit in the non-consolidated partnerships were the main drivers. This more than compensated for the lower results in non-life and latter, amounting to €55 million against €128 million last year. This includes the €60 million of exceptional weather related costs.

Furthermore, poor results in third party liability in Belgium and some reserve concerning cost for the segments also explained lower overall results excluding the weather.

Gross inflows grew by 10% to €13.8 billion mainly in life and driven by Asia and Continental Europe. It has become almost tradition that inflows in China in Asia and in China in particular show amazing growth path. And this year is no exception, the inflow is up by 14% over the same period of last year.

Inflows in Luxemburg also grew significantly driven by strong wealth management sales in Italy. As a result, inflows in Continental Europe grew by almost 20%.

Life technical liabilities and I am on 100% basis here, so something similar to the definition of the gross inflow. So with life technical liability continues to grow and amounted to €117.5 billion at the end of June, of which €72 billion in the consolidated entities and €45.5 billion in the non-consolidated partnerships, the latter driven by the continued growth of the business.

In the consolidated entities, the higher liabilities relate to among others the inclusion of the Fidea Group life portfolio acquired in Belgium in the second quarter and among that stake is around €450 million.

If I move now to some specific comments by segment, the Belgian operation to start with. So, I am on slide 8 now. So, where, however Belgian operations reported net profit of €193 million, up 21% compared to last year and with the net life result of €186 million and a non-life result of €6 million.

The life operating result increased by 18% driven by a solid investment result with higher capital gains on both equities and fixed income. This resulted in a steady guaranteed margin of 98 bps partly offset by a lower operating margin on unit-linked products of 27 bps, margin of 27 bps.

The better net result was also helped by higher financial result on the assets backing own fund and the release of differed tax liability, the latter amounting to €23 million mostly allocated to life.

As already mentioned, non-life suffered from the severe hailstorms in June, having an impact on net result as already mentioned of €24 million. It suffered – it also suffered from the adverse results in the other segment closed by the aforementioned third party liability business line and this as a result of claims inflation and some changes in events that we have observed.

We have initiated pruning action on this portfolio, and rate increases to help remedy the situation. All this resulted in a combined ratio of 105.7% close to 100% if we exclude the adverse weather impact.

On an adjusted basis, motor and household would actually have performed very well with a combined ratio of 98.8% and 19.6% respectively.

Gross inflows were down 3% with an increase in guaranteed and decrease in unit linked phase. It is worth mentioning here the further reduction of the guaranteed interest rate on our main project in Belgium, as of 1 June and we are now at 1.25% and we had 1.50% before.

Moving on to the second segment, the U.K. so slide 9. We recorded net profit of €32 million with net result of €38 million in Q2, and recovering from the negative result in Q1, we were at minus 6. This was closed by the storm and floods.

A strong non-life operational performance in the second quarter resulting in combined ratio of 95.5% led to a year-to-date combined ratio of 100.7%. Both household and motor remained below 100%, despite the first quarter weather with the underlying, we were 111.2%.

Gross inflows increased by 5%, driven by a positive currency impact. In motor, as this is of some interest in the U.K. context, the average price declined by 3.2% year-on-year comparing positively with the market.

Finally, the net result in other insurance amounted to €6 million including a positive one-off of the same amount €6 million related to a legal settlement already reported in the first quarter.

In our third segments slide 10 of the presentation, Continental Europe, the net results decreased from €46 million to €37 million taking into account the size of last year results included capital gain of €9 million realized in Turkey in the second quarter, now you will remember that this capital gain was relative to the sale of some building in Turkey.

The life result of the region increased slightly, taking into account positive tax credit in France in the first quarter and higher contribution for the partnership in Luxemburg.

The life operating margin on guaranteed products declined but remained strong at 82 basis points while the unit-linked margin dropped to 17 basis points. This is the same thing it is like Belgium, this is in-line with the previous quarters.

In non-life, the operating performance in Turkey deteriorated due to a higher amount of claims and reflected in higher combined ratio of 99.8%. You would also remember that last year non-life result benefited from the capital gain realized on real-estate in Turkey as already mentioned but it benefited non-life.

Lastly, Asia, last segment so I am on slide 11 now, too many items. The net result up by 19% and inflows up by 40% so two positive pieces of information. The net profit grew especially in life plus 25% becoming plus 38% at constant exchange rate with a good operational performance in all the non-consolidated partnership but especially China. And with higher net result from Hong Kong, driven by higher capital gains.

The non-life result was marginally down because of slightly lower realized gains and with the combined ratio of 89.1% which is absolutely excellent.

Inflows grew by 22% at constant exchange rate with higher sales, mostly coming from China and Thailand. In both countries, we are benefiting from the significant efforts to develop our agency channels as evidenced by a jump of new business for this channel by more than 30%. Renewals were also up by almost 20%.

And finally, the mix of regular versus single premium business also moved further in the right direction. This brings me to the general accounts on slide 12.

As already indicated, we continue to suffer from an increasing RPNI liability influenced by the market price of the CASHES. The total increase year-to-date amounted to €157 million of which €53 in the second quarter. The liability stood at €527 million at the end of June.

The net cash position decreased to €1.6 billion. The main reasons for this decline are the share buybacks as you can imagine and the amount is €103 million. And the fact that some upstream dividend will be received later this year whereas the full dividend paid together to our shareholders was already paid at the end of the period.

The provision now as already announced by Bart, we have also decided last week to constitute a provision of €130 million for litigation. This amounted based on the assessment of the terms of the cost decision and on method and assumption commonly used in the market. This amount has been reviewed by our auditors.

Slide 13 and 14 respectively provide you with the traditional value of shareholder equity and solvency. Unrealized gains on our investment portfolio increased by almost 70% in the first half, up to €2.2 billion, part of them are restated in the life technical reserve. And the impact of shareholder equity is the €945 million, you would remember that in the change in shareholder equity, the unrealized, the change in unrealized capital gain and losses is restricted with non-controlling debt and the corresponding taxes.

Ladies and gentlemen, I’d like to end my comments here. And to hand over to Frank.

Frank Vandenborre

Thank you, Christophe. Ladies and gentlemen, this concludes the introduction. And as usually, we open all the lines for questions. As we have a lot of people on the phone, we insist on limiting to three questions by person and by preference two questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question is from Ashik Musaddi from JPMorgan. Please go ahead, your line is open.

Ashik Musaddi – JPMorgan

Thank you, this is Ashik Musaddi from JPMorgan. Just couple of questions. I mean, in terms of deciding a buyback of €250 million why can’t that be a bit a higher number?

Because it looks like you are generating more cash from disposal of the UK life business announced this morning as well. And your dividend that you have been receiving from subsidiaries has been pretty strong as well, as flagged at the full-year results. So any thoughts on that?

And secondly is how comfortable are you with the €130 million of provision that you have set aside for the litigation risk? Any thoughts on that?

And thirdly, with respect to underlying improvement in Belgium, 98 basis points, can you remind us of your target and are you still comfortable that this 98 basis point of this quarter, or should we be thinking around 90 basis which you have guided in the past? Thank you.

Bart De Smet

Okay, Ashik, thank you for your questions. I’ll answer on the first and the third potentially with some help from Antonio and Filip will take the second one. The first one I think the, with respect to the buyback, first of all you can imagine that the fact whether we launch a buyback in the amount of the clear as all we should do it is something that’s always a result of a lot of reflections, also a lot of discussion internally with management and ultimately with board.

And that we thought at in let’s say looking to on the one hand our strategy where we each stand repeatedly want to keep some flexibility for insurance development, on M&A on the one hand. And secondly, not staying too long with too much cash that is not yielding a lot on our account that we try to find a fair balance.

And we were of the opinion at the end of all this let’s say reflections that higher amount than last year slightly higher was justified. On the other hand, we also did not see the real let’s say necessity to increase this amount spectacularly at this stage, so that’s the reason why we came to this €250 million.

And of course the disposal of U.K. life is a surplus in terms of cash-in, on the other hand we have this cash-out for a limited amount of course in Italy, some €40 million. And we will continue in the moving forward with each time assessing all possibilities. Filip, can you take the second one?

Filip Coremans

Okay, thanks for that question which is not unexpected obviously giving the circumstances in the events of the last week. Allow me to elaborate a little bit of your question by trying to give you some color on why so many figures float in the market. And where and how we came up with the €130 million from where.

So, of course it’s also and always a challenge to quantify this type of claims and hence therefore we have so far refrained from it. But in the context of this ruling, the ruling is very, very specific. And so the first observation maybe is that this provision is recognized specifically for the alleged effective communication covered in the FortisEffect case. And actually the FortisEffect case period.

So, this may in itself already be a difference between some figures floating in the markets and under our provision of €130 million. So, obviously, since we are listed company and we are bound by strict criteria when we may quantify the estimates such as this, we did not make up our mind overnight. We studied this for quite some time.

We have looked very carefully through what type of methods assumptions have been used in older court cases we studied what has happened in mitigation cases in the U.S. And in fact also in a few cases in the Netherlands. So, this is not on thin ice.

The most important assumptions that we make and then we doubt going obviously into the details and the figures. But the most important assumptions that we have to make when we make provisions like this relate to first and foremost an estimate of the number of shares.

And I don’t mention shareholders but the shares, who, qualify or are eligible for damage. And there, I’ll come back to that in a second but there is one important assumption you have to make.

The second one is obviously the relative performance of the share over that period, because and also there I’ll come back immediately because that period was very volatile, not only for Fortis at that time but to many of its peers.

And obviously there were a lot of contaminating factors and not to say the least the events which evolved after the rig that is covered by the rest, the nationalization by the Dutch State let’s say over the Dutch activities of Fortis is not something that in the period of miscommunication we feel that are representative at the time, could have been aware of, so that is definitely contaminating factor, which falls beyond the scope of what we think is included in there.

And then, finally another important dimension is the number, the percentage of eligible claimants would then affectively reclaim. Also there we have looked as past cases what are the efforts that fix on that. So, this type of assumptions have been included.

Now we have to note down that in Ivory Tower, we’ve been in contact to it first and foremost some experienced outside parties who have been elaborating on these methods for us. We have done that in fact by internal and external independent consultants to make sure that we are top or model validation on that.

We are obviously under this in the context of the approval of our annual or semi-annual accounts. We have a discussion with our auditor who has given his concern to the way we have come up with this provision. We discussed it with our legal advisors both internally and externally. They had a lot of work lately.

So, as far as we can see, we think that this is a fair estimate. What we do not know obviously is how all our counterparties come up with their numbers. But to summarize, we believe that we are a fair estimate at this moment based on what I just said. We also believe or we know actually that maybe three main reasons, lie at the basis why you see so many over-estimates float in the market.

And I can maybe elaborate on that also because the question would otherwise probably come by the next participant. First and foremost, as I said, we only provided here for the FortisEffect period. So we did the ruling and the period covered by it. So, which does not include the older popular periods let’s say the AFM1 and the AFM2 ruling.

Secondly, we have been looking at this previous or should I say court cases and settlements of similar nature. And how the claims there have been substantiated. They have mainly been substantiated by pointing towards the traders rather than the holders of the shares. And this is something that we have also taken into our account.

What we mean by that is we think that predominantly those claimants with both the share at an inflated price or a price inflated or upheld by the miscommunication has actually an alleged right to claim. That is be that we have still to determine damages.

That is, the only shares that we have taken into account so we do not assume that we have to pay every shareholder, we think there is something as the normal shareholder would take his normal risk when he invest in the share.

Also they would, if we would definitely means communication, these effects would have been in the price immediately. So you know the reasoning I think you are probably familiar as we are with these types of disputes.

And finally, the dirt effect which obviously leads to quite significant differences, sometime with figures you see in the market is the arithmetic’s of what is I would say, how they come up with the claim per share.

As I said, there are other movements in the markets in that period than just the – how should I say, the effect of the Fortis miscommunication. So, we had a very volatile market other companies were going under. So the normal market trends have volatility in that market, of course that incorporated that as a factor in determining the claim size per share.

And as I said before, let’s be realistic when we look at what transpired in the week after that the three days. So after the 29th, 1st, and the 30th, that we come into the weekend where everything was hit with a reset button where the Dutch states and all of the states in fact started to look at their own growth when the nationalization of the activities in the Netherlands happened.

And hence we do not think and we don’t feel that this is entirely something that the – I should say the Fortis management at the time was being responsible for.

Now, this is I think as much as we can share on how we have come with the provision. I just want to say it is not something that we did as I said overnight. And we have obviously very, very – we did our homework I would say.

Frank Vandenborre

Maybe shortly, sorry.

Ashik Musaddi – JPMorgan

No. I was just saying, thanks a lot. That’s a very clear answer. It has been a very clear answer and very detailed one as well. Just one follow-up. You just mentioned, just to be clear, you mentioned you were mainly looking at the traders during those, miscommunication period and not every holder.

So, for example, if one person has been holding for one year, he would not have come to that shareholder, right? But just trying to be clear on that one.

Filip Coremans

Well, to me, 100% clear and transparent. We do not mean traders. We mean people who bought, so traded in the share or bought shares at an inflated price. And only sold after the moment that we feel the effects of miscommunication were fully incorporated or out of the market, yes.

Antonio Cano

Okay. Then maybe to give also room for other people to ask questions I think, a short response on your third question. So, in Belgium it’s clear of course that capital gains are not equally spread over the years. But you can have what we have this half year some cap gains on bonds because of our opportunities.

The second element is that profit sharing over the year in terms of provisioning can move, which means that we are quite confident that we will have by the end of the year margin that is in the range of 85 to 90 basis points which is our promise. If for better we will do better.

And also don’t forget that for new business as Christophe mentioned, which are lower the guarantee if markets are consensus changing. So that also helps us protect in guarantee the margin we are striving for.

Ashik Musaddi – JPMorgan

Okay. Thanks a lot. That was very clear. Thank you, fellows.

Christophe Boizard

If you want to quantify the one-off they can be estimated at 15 bps. So if you would deduct 15 of 98, you are well in the range. So, it means that on 12-months at the end of the year we would be comfortably within our range of sense of 85 to 90 bps.

Ashik Musaddi – JPMorgan

Okay. Thank you.

Operator

Thank you very much. And moving on to Francois Boissin from Exane BNP Paribas. Please go ahead. Your line is open.

Francois Boissin – Exane BNP Paribas

Yes, thanks very much. Good morning everybody. I have two, let’s say three questions at this point. The first one really is on legal risk. Again, you said you just provided for the FortisEffect case. I just wondered if and when you would have more visibility on the other claims which presumably are quite similar to the FortisEffect one. So that’s question number one.

Second question on the Italian JV. You said initially that it would open up new growth opportunities. I wondered what those were. If you could provide a bit more detail on that. And the third question on the UK disposal. Can you highlight what you intend to do with the cash remitted at holding? Thank you very much.

Bart De Smet

Okay. Filip, you start with question one.

Filip Coremans

Yes, Bart, I will. So, actually your question is why that we provide for the FortisEffect case and not for other cases or why do we try to validate one and not the others.

So, first and foremost, I think under IFRS you know the rules there, more likely they’re not a reliable estimate. But first and foremost, the other cases are, and that is I think most important thing in their very early stages. So we’re not in appeal, we cannot measure or we don’t have specific period, etcetera, etcetera.

So, the second thing is that the, so these cases it is not only we have not been completed, we were at early stages. There may be very distant in time. And they relate to completely different events so one for instance, one set relates to the AFM 1 period and other set relates to the AFM 2 period, meaning the disclosure in the – when the capital raising happens in – that was the AFM 1 period just to be sure that was in May and June of 2008.

That was the communication regarding the solvency situation where we had an administrative fine, but where the period and the movement of the share is rather limited. But we have not been convicted in any of the disputes related to that AFM 2, are contrary where the amount was actually more relevant or the period is more important. That was the disclosure of sub-prime exposure as in the context of the capital raising where the finance being annulled.

So, I think if we take all that together I think it’s – the reason is very clear. It is long but certain that we will be convicted. And the yes, this much as I can say on it. So, there are positives and negatives in there but we will see where it goes.

Bart De Smet

Maybe at one point Filip is that indeed business the first time that there has been a decision in an appeal where also not only that has been a decision like in this case about incorrect leading communication during three days. But the results were linked made to the fact that the GS might be entitled to compensate who introduce the claim.

So there is a link made towards compensation, of course each of the claimants will have to show that indeed it has suffered damages. And the damages are yet to be estimated. So we consider that that’s sufficient to say it’s more likely than not in IFRS terms to set up a provision.

We’ve acted in a prudent approach and okay going forward. This is a reflection we will have to make at every moment when something happens in this litigation portfolio. Let’s say and that’s I think the main conclusion. Second…

Francois Boissin – Exane BNP Paribas

Maybe just a follow-up on this. What is the timeframe, what is the best estimate of the timeframe you’re looking at?

Bart De Smet

Let’s say and it’s of course, it’s not mathematical. We believe that whatever claim before there will be decision it will take one year, year and half, two years. And it’s clear that then the one or the other party will repeal. So it will not be in the first years.

Francois Boissin – Exane BNP Paribas

Okay. Thank you.

Bart De Smet

Then the GP in Italy, so I think what we well, we’ve talked about new opportunities in Italy. It is as of now we are in full control together with Cardiff of this legal entity. And also the old infrastructure. So, we will reload and it will start quite rapidly to third parties including BNP in Italy so be another subsidiaries. We also look to other banks in Italy to provide them with more life insurance cover. So the first ones will be BNS in domestic.

Then the U.K. life disposal as mentioned in the press release it’s about an amount of above €220 million, €228 million to be precise. Part of it will be used to payback debt. It’s something like a bit more than €30 million. There are of course cost for the operations. And the resulting amount will be up-streamed to AGS.

Francois Boissin – Exane BNP Paribas

Okay. And maybe just lastly, does the regulator have a say on your buybacks in light of legal risk or where does the Belgian regulator stand on this issue?

Bart De Smet

Well, if you look to the announcement on the buyback, and that’s what we also did the previous times and what we are expected to do, and even did with U.K. life disposal and the GB in Italy or the operations in Portugal. We are in quite close regular contact with Belgian regulator meaning that we every each month go with them to what could be considered strategic decisions.

The National Bank always asks the board – management and board to give an assessment whether a decision is strategic or not. And then gives its approval. So the previous buyback programs have been approved by the National Bank.

And also now we inform them quite in time early and also officially now about this operation with the message that the board considered this a non-strategic operation in the context of Fortis non-strategic in the Belgium legislation.

As non-strategic would be for instance an acquisition of €2 billion or a merger or a very huge disposal. So we don’t expect any issues from that side. Of course with two other operations, Italy, U.K. they’re both subject to local regulatory approval. And let’s be clear on that.

Francois Boissin – Exane BNP Paribas

Sure. Thank you very much indeed.

Operator

Thank you very much. And moving on to Albert Ploegh, ING. Please go ahead, your line is open.

Albert Ploegh – ING Financial Markets

Yes, good morning all. Three questions from my side as well, the first one on the upstream of dividends in the first half. If I take out the Millennium transaction, basically it was around €235 million. Last year, on a full-year basis, if you adjust for the leverage impact mainly on Belgium, it was around €440 million.

You do mention in detail further up-streaming to be expected in the second half. What is your best guess at this stage, would it be similar basically to the clean €440 million last year or could it even be a little higher than that? That’s the first question.

The second one is on M&A and disposals. Can you give some color on, let’s say, on the buyback of potential how deals, is there anything significant in the pipeline you might have mentioned in the past? I take from no comments so far that there’s nothing material.

And also, on the decision for the U.K. are there any other areas that might be potentially refueled as well, I’m thinking of, for example, France. If you could maybe give some comments.

And finally, we are coming back to the legal angle again. What effect, and I think also on the Dutch side, ConsumentenClaim has said that they are open for any form of settlement.

I know it is still fairly early stages, but now you have basically set yourself a provision so you’re comfortable on the way you calculated it. Is it feasible that you will indeed enter in discussions before, let’s say, the, really the case on the compensation starts? That were my questions.

Bart De Smet

Okay, I can start with the dividend. Because as I said in the presentation, in the introductory comments. So where there is a decrease in the cash position, which is partly explained by the difference between what we paid in excess of €300 million and what we received.

So, two elements, first, AG, so the main contributor paid slightly less than last year in terms of payout ratio, last year it was 75%, this year we accepted 50% payout ratio. And this was aimed at strengthening the capital position of AG, which is slightly and I will insist on this slightly below the 200% the group objective. And since we had no spreads on the liquidity, we accepted the payout of 50% that’s the first element.

The second element about what will happen in the second half of the year. So, as already mentioned we are waiting for some dividends and to give you a precise example, I want to be extremely precise but U.K. didn’t pay dividends at the end of June. And a dividend coming from the U.K. is expected in the second half of the year and amount is rather significant.

So, all-in-all, what I have in mind is but in the second part of the year, we will receive something like €100 million as incoming dividend.

Albert Ploegh – ING Financial Markets

To be clear on China, basically, there’s basically still, I guess, no dividend or injection foreseen?

Bart De Smet

No, two things. First, as regards, capital increase, there is nothing anticipated for this year. So, nothing. On the dividend, you remember I think I explained this last time, for the so called state owned enterprise, there is a kind of a new hole which state but at least 10% of the profit has to be paid as dividends. So it means that out of China, dividend will come, but the amount is rather smaller, it is in the range of €5 million to €6 million, so something small.

But then you may ask, that due to the fact it’s a fast growing entity, obviously what we received will be given back with an increase of capital in the coming years by the same amount. But, nothing this year on China, a small dividend but frankly as the back half is more increasing the means of the entity, this will be reimbursed if I can say in the following year. So that is the situation.

Antonio Cano

The second question, and I would be short. Pipeline disposals or M&A, it’s always the same response, sorry for that. We look to opportunities that fit with our strategy. I think we took these two opportunities in Portugal and Italy to improve or to strengthen our position knowing that we know these markets and we see possibilities to be profitable in these markets.

In U.K. we have been able I would say in a quite serene context, not too much further around in the market to come to a correct deal. I think the buyer AIG has the intension to re-enter that market, as seen in the quality of our entity, the quality of our people. And so, for them it’s win for us, it’s a win because it was not of high strategic priority for us and not really fitting in our activities in the U.K.

So, this is the way we intend to go forward is to look selectively where we can buy or increasing or decreasing or buying something, go more to the profile, we are looking for. And also of course by doing so increase our return on equity.

But making public statements about maybe other entities we are looking for disposal would not benefit the operation. And so, we prefer to be – to stay quite discreet from that. The last one Filip.

Filip Coremans

Okay. Obviously, as a company we have to balance the interest of all our stakeholders. And so, if an opportunity comes up to have a sensible discussion with the party to discuss potential settlement of this type of dispute which obviously would reduce the volatility around our share and uncertainty around our company. We would always talk and look at it.

But so far, of course it takes two people to talk, so the fact that you mentioned that ConsumentenClaim would be interested to talk to there for sure, not spoken to us about this yet. But if that were to happen we will consider that but with the best interest of our shareholders.

Albert Ploegh – ING Financial Markets

And then maybe one follow-up question on the legal side. If you as a shareholder basically be represented by the FortisEffect, do you then give up your shareholder rights also to claim under, let’s say for example, the Dutch VEB case, so does it work like that? So you cannot get the compensation twice, basically, even if the periods are different?

Christophe Boizard

Yes, that I cannot comment upon like that. But of course I can just say that if we were to look at settlements, that is important in that context, of course we would like to look at full and final settlements and not something that is hanging there in mid-air, so we can claim again. So, that is logic.

Bart De Smet

But I think it’s also quite obvious that you can only if BUR compensated for a proven loss you can only paid once of course for the same thing. And that seems quite evident.

Albert Ploegh – ING Financial Markets

Okay. Thank you.

Operator

Thank you very much. And moving on to Matthias De Wit, KBC Securities. Please go ahead. Your line is open.

Matthias De Wit – KBC Securities

Yes, good morning. Two questions, please. Just to come back on the litigation, if I may. I understand that it’s the relative performance of the shares which matters in setting any compensation, but what might be the timeframe to analyze such a relative performance versus peers?

I understood it should be quite long, possibly even up to the moment of any verdict in proceedings dealing with compensation. So if that would be correct, then the damages suffered would be quite limited considering the point you mentioned that the banking index also went down quite significantly. So could you provide your view on this and whether or not that reasoning would be correct?

And then a second question regarding the U.K. disposal. I have difficulty in reconciling the gross with the net proceeds. You mentioned that, you mentioned gross proceeds of €228 million and net of €33 million. How was the delta explained by the internal loan? How big was that internal loan and was this accounted for as a matter liability?

And will you therefore benefit from book value increase, or any improvement in the deployable capital on top of what the €33 million net proceeds would suggest? Thank you.

Bart De Smet

Starting with the second question. I think the growth in margins is indeed the amount that has been mentioned as I said its €228 million. The €33 million for the sub-debt, it is a sub-debt that was recorded by the U.K. group, so it goes back to the group then. And at that moment, the remaining amount is free to be up-streamed after of course some costs for the whole operations, bankers and legal advisors and so on.

And so, it means that you pretend that there is something like under €90 million to €200 million that will flow back to the channel account.

Matthias De Wit – KBC Securities

That’s it. So, yes, I thought the €33 million referred to net proceeds, so it’s in fact referring to the costs. Yes, okay. That’s clear. Okay.

Filip Coremans

And so you can estimate that the cap gain is something slightly above €20 million. The other question, I think on a timeframe and the relative performance it’s quite complex and we also want to avoid to have the old reasoning in the public. This is something we will bring up in court if we are at that stage.

We have made our assumptions, which is not on easy mathematics of saying share price was mixed at the end it was 5, the difference is so much. And so this is what the claimants could claim. We have quite sophisticated methods and models behind it. And be sure that it’s quite intense and detailed to our guess.

Bart De Smet

I think on the legal dispute of governments again, I must say we have disclosed I think a fair amount of information today. I don’t think we should go, the interest also of our shareholders and our company in much more detail at this moment. Let it be said that it is clear that this – though we have been completed, the claimant still have to go to individual procedures and this may take up to one to two years to come up with any quantification on these claims.

So, this is a period, a process that will take some time. And so, at this moment, we stick to the factual reading of what you can see in the rest on which the basis, we don’t speculate on any longer or shorter periods I think this is what it is.

Matthias De Wit – KBC Securities

Okay. Thank you.

Operator

Thank you very much. And moving on to Farquhar Murray, Autonomous Research. Please go ahead. Your line is open.

Farquhar Murray – Autonomous Research

Good morning gentlemen. Just two questions from my side. Firstly, obviously, thanks for the help you’re trying to give us around the litigation provision. And actually, my questions still relate to that.

Firstly, when you discuss the provision of €130 million, can you just clarify whether that provision covers the underperformance after the stock suspension? So that would be like almost the middle of October.

I’m just a little bit confused around some of the comments you made around time period, and also get the impression you’re making some other kind of adjustments within that number; but just understanding if you’ve gone all the way through the suspension would be quite useful.

Then secondly, with regards to capital distributions and buybacks, what is the risk that the litigating parties object to these capital distributions? And have they made any expressions of issues with the distributions you’re making at the moment? And do they have any legal routes to objecting to those? Thanks.

Bart De Smet

Permit me to answer quite shortly. I think the first one I only repeat what Filip just said is that I think we have given quite some color about the big lines how we came to this provision. So I believe also in the interest of the procedure, we don’t want to go more in the details. It is clear that when we make a provision that is somewhere weighted average of a number of potential or possible scenarios. That’s one.

The second whether there is a risk of litigation for this objective against the buyback, okay we are in democratic country, everybody can do what he thinks he wants to do. And it’s a question that should ask to them.

In any case, what our piece should also take into account that lot of the clients that have opted to make use of them are current shareholders. And I’m not sure that the current shareholders were that pleased with their lawyer opposing something that is considered being into certain interest of the company and the current shareholders.

Farquhar Murray – Autonomous Research

Just a follow-up on that second question then. When you think about the amount of buyback you were doing, obviously, the €250 million is slightly higher than the year before, does that have to balance the risk of perhaps from this year?

Bart De Smet

I can assure that the decision or the preparation of decision of the buyback has been taken before we were aware of the outcome of the FortisEffect case. So, we will continue in all seriousness looking to all potential elements that let’s say impact the company, positive negatively to take the best decision in the interest of all stakeholders.

And so, I would say even without this case, we would of course have bit under return to the buyback. And I’m not sure that would have been for a bigger amount.

Don’t forget that our conviction is that this under €30 million provision is proven provision for this case and the period that it relates to. So, we say this is an amount that of course we have somewhere to ring fence in our cash position, it’s about €130 million. It’s less than 2% of our shareholders’ equity. We announced the buyback of €250 million. These are not the amounts that fundamentally change the position of the company related to all these developments.

Farquhar Murray – Autonomous Research

Okay. Brilliant. Thanks very much indeed.

Operator

Thank you very much. And moving on to William Elderkin, Goldman Sachs. Please go ahead. Your line is open.

William Elderkin – Goldman Sachs

Thank you. Good morning everybody. Really just two follow-ups. Can we, just from the way the provision has been booked, whatever happens in the future, is that always going to be charged to the general account where effectively gross is nest? In other words, there’s not going to be any tax shield on a litigation cost, however those turn out to be?

And then completely differently, can you just give a sense of what the capital gain in the Hong Kong business was and an idea of the extent to which that is a one-off versus sustainable in nature?

Christophe Boizard

And so the provision in general account by definition for general account it is front of the top reading and it seems all these litigations are gone by – are being older provision and older potential payment will be made out of the general accounts that’s the first thing.

As tax, so there is, we already have huge part process so it means that there is no relief coming from taxes. So of course loans are picked to net amount but simple. And then, as regards the capital gain in Hong Kong, the amount was huge and it was €4.5illion in the first six months in Hong Kong. And it was plus free last year for the same period. So the increase is I would say negligible €1.5 million.

I like to say that capital gain went off if you take some asset classes like equity or real-estate well there is no equity in Hong Kong. But with these capital gains our business as usual.

William Elderkin – Goldman Sachs

Thank you.

Operator

And moving on to William Hawkins, KBW. Please go ahead. Your line is open.

William Hawkins – KBW

Hello, thank you. Hopefully I’ve got two quick questions. You commented briefly on this, but can you just say the second quarter impact of weather on the Belgium combined ratio, could you just clarify that number for me? And do you think the first-half experience makes you more or less comfortable in ultimately obtaining the 97%?

And then secondly, because I’d feel an idiot if I didn’t also ask a question on litigation risk, am I right that in your roll forward of the net cash, you have not deducted the €130 million charge you’ve just taken? And shouldn’t strictly speaking you do that? Because it seems pretty comfortable this is now incumbent cash in some way?

Christophe Boizard

For the first question, the gross impact after reinsurance was €49 million so that’s €24 million. It has an impact of 5.5% on the combined ratio of Belgium for the first half of the year.

And if you would exclude the hailstorm, the combined ratio for motor would have been 98.8% for household 90.6%. So, it means that if okay, what we expect in the second half of the year is that we will move to a combined ratio in Belgium that normally should be below 100%. Second question..

Bart De Smet

Yes, the second question of course the regional cash impact because there is no cash outlay. And so, if there would be a cash outlay then it probably would have reached the settlement. But although it will just be a provision like for RPNI so there should not be a direct impact on our cash position.

William Hawkins – KBW

Well, I suppose that, if I may follow-up, then that begs the question of whether there are other encumbrances on your cash that you’re not recognizing in your net cash figure. Because most people tend to assume that’s a totally liquid figure.

Bart De Smet

No, I think, I think we always said in whatever communication is that we look to the two elements of solvency and cash in such a way that we avoid to be one day in what I would call in sufficient solvency or a lack of liquidities. It means that when we talk about the cash we always say that we will use it to further develop the group by acquisitions and/or give it back to shareholders.

But we also each time repeat it that we in any case will keep a kind of certain prudence level which has not necessarily relate to litigation in order to be not in short of cash one moment.

We never disclosed this amount, this is also something that can move over time. But for this case, you can say that we know that let’s say the €130 million when we provision in it, it will not be cash out next year or the year after because as I said, we don’t expect to be decided in the first two or three years.

But on the other hand from a prudence point of view, we will have to take into account that maybe one day we’ll be this amount to pay if we are followed in appeal probably no amount to be paid. So that’s part of the prudent approach we have with respect to the cash.

And we also have the two other liabilities in channel account, the AG and foods option for AG insurance and RPNI, also there. One day it could be that cash could be used to do the one or the other or to reduce the RPNI whoever knows.

William Hawkins – KBW

Okay, cool. Thank you.

Operator

Thank you very much. And moving on to Benoit Petrarque from Kepler Cheuvreux. Please go ahead. Your line is open.

Benoit Petrarque – Kepler Cheuvreux

Yes, good morning everybody. Just first question on Belgium life. If I look at the pre-tax profits in the second quarter, €160 million, then take out the cap gains of €51 million and Ageas full impairments of €20 million, I still come to a very strong Q2, about €130 million pre-tax for Belgium life, and we were more used to see around €100 million to €110 million.

So is there any at pre-tax level, is there any one-off specific items for, relating to the Belgium life business?

And then could you talk about your margin on the new business. We have seen gross inflows below €1 billion this quarter, but what about guaranteed rate going forward? Are you able to lower them? And also margins on this new business, could you talk a little bit about that?

And then just to come back on the RPNI you just mentioned, do you have any intention to come to a settlement, we have seen the price of the CASHES going up significantly, so it will have been a good deal to actually do a deal a couple of years ago. Now it starts to be expensive potentially. So do you have that in mind currently? Thanks.

Bart De Smet

Okay. So the first question on the – what you do kind of underlying results for Belgium life in Q2. I think an element that you always have in the second quarter is the dividend set a pace on the equity portfolio.

And so that’s a bit, the investment income over the year is not equally spread of course it’s okay for bonds and real-estate but you have done a division season in terms of cap gains we already commented previous that part of the cap gains comes out of real-estate operations. So you cannot spread them over the years. So, I think that’s a bit more the explanation for a strong Q2 after let’s say taking out exceptional elements.

I believe that the main message for Belgium life is that what myself and Christophe said that we in any case of no indications that we will not be able to achieve over the year margin between 85 and 90 basis points.

Christophe Boizard

Okay, maybe on the profitability of new business. Some element of context first. So, as I said in the comments, we deceased minimum guaranteed rate as of June 1 or we are now at 1.25% but we’re to advert the low interest rate.

Then, the other element to be compared to this is the yield. We obtained on new money during the first part of the year. So, the figure are the following. So we’ve achieved a 3.17% over the first six months. And obviously, we have different figures for Q1 alone and Q2 and due to the trend. So, we were at 3.34% in Q1 and 2.80% in Q2. So, at the end, my comment is as following.

We have the investment return on new money let’s take you to 2.80%. And the minimum guaranteed rate is 1.25%. So, it means that we still have some own but we have to be honest and concerned this business is on the first. And we cannot leave for a very long period of time. We follow the pension government bonds at 1.53% on 10 years. And then in 10 years, I should even take the 8 years, which is even lower.

So, we are well protected, you know the fact that we have this much duration based of lot. And quarter-after-quarter we have this good result. But the sector is under stress.

Bart De Smet

For the new business.

Christophe Boizard

For the new business. And as I said, well covered on the existing book but the new business is under stress even though we have still margin between the word 2.80% I mentioned and the 1.25%.

Benoit Petrarque – Kepler Cheuvreux

But the 2.80%, how do you make that because with the OLO at somewhere between 1.5% and 1.8%, I mean, it should be a very big change in the mix currently under new production. You were used to invest most of your inflows, there are large part of inflows in OLO. But how can you receive 2.80% with a similar mix?

Bart De Smet

But we are not magician and we are not great seen in the investment management. So there are two elements I answer. First, as I said, the 2.80% is the mean over Q2. And frankly, and to be perfectly transparent, I am expecting a further decrease in Q3 because the trend is there. It’s an average and the latest week was the worst. So, that’s the first element of answer.

Then this relates to asset management. Obviously, we don’t invest all our money in government bonds and I would say that the allocation in Belgian government is very small of new business. We invest heavily on corporate bonds. We play with we play. We optimize the duration it’s a better world.

So, on govies we tend to go longer on the course and we are shorter on duration on the corporate bonds. But obviously the hidden cost point is much higher. And so that’s a mix of all but my conclusion and coming back on the main point, this 2.8% will go down. And we trying to do our best with the diversification with corporate bond loans. The loans we are still up something slightly below 4%.

So, we are doing our best with this, I think good results so far. But again, therefore the book of business another thing is pulling to underlying that margin s secured for even taking into account investment risk. And that for new business when engaged we achieve goes down a little further. And that’s the guarantee as we have done over the past two years, six times if I remember well. RPNI Christophe?

Christophe Boizard

On RPNI any intention to come to a settlement, we have let’s say we pay continuous attention to the FPNI but the thing is following. It’s true perpetual instrument, and the real cash burden is extremely small. And you can visit in the different slide we pay something like 1% or 1.1%, so it is slightly above €5 million a year.

So, when you have liability who cost real perpetual liability with a cash outflow of 1.1% a year. A lot of motivation to settle. And I think we have to live with the productivity. Having said that that’s a constant concern. And if we find adequate solution, obviously with the other parities BNP Paribas we will do it as soon as it makes sense from a shareholder standpoint.

Benoit Petrarque – Kepler Cheuvreux

Okay, thank you.

Christophe Boizard

Thanks.

Frank Vandenborre

Okay, gentlemen. For the sake of time, we still have a few people that want to ask questions. We would really insist on limiting to two questions and otherwise we might also need to cut and choose out of your three questions. Thank you.

Operator

Thank you very much. And moving on to Jason Kalamboussis from Societe Generale. Please go ahead. Your line is open.

Jason Kalamboussis – Societe Generale

Yes hi, there. Two quick questions, one is from the expense ratio. You were mentioning that it was, it has gone up, notably because you continue to have the U.K. restructuring in there. When are we going to see this changing? I thought that was the second half we would see the expense ratio in the U.K. coming down.

But also, when I’m looking at the Belgium expense ratio, it’s one of the highest we have seen, so there is a clear deterioration at Group level. So could you give the explanations in Q2? And what should we expect going forwards, because clearly, it is quite substantial for you to meet the yearly target?

And the second thing is on this 2015 yearly target. What is your confidence in meeting the yearly targets? Do you feel comfortable that you would be meeting your 2015 yearly target, and do you have, with what element of unrealized gains, if it’s something you could share with us, that would be great. Thank you very much.

Bart De Smet

Okay. Point one, expense ratio, first of all expense ratio is a combination of costs and commissions. Commissions are in many cases driven by on one end market circumstances and market practice but also the composition of your portfolio to give a clear example.

We are in Belgium primarily big in the household market where commissions are above 27%, commissions in motor insurance are 15%. If you balance your portfolio bit more to household your expense ratio goes up, that’s one.

Secondly, in each of the markets where we are, we try to – we check our cost ratios which is the cost we really have at service end. We check them with peers and see that and take care of the fact that we are in the let’s say in the top-class in terms of lower cost ratios in that market.

Thirdly, we include in our cost ratios which is not everywhere in every group, in every market case. All costs like for IP development also see through development. Most of these are not spread over time, they’ve taken up from in our costs. And that can also temporary to, you might sell off correctly in U.K. where we are for instance reviewing or restructuring the retail activities also, where we are in the aftermath of the group integration kind of an impact.

Of course we are aware of the fact that in the combined ratio target we’ve got, there is not only the element of loss ratio but also expense ratio. So when going forward, in order to arrive at our 97%, which is our goal, which is completed, we have to stay vigilant on that part and we will take the necessary actions when they are let’s say needed or when they are clearly necessary to be in-line with competition.

The second question was on the return of equity. If you look to return on equity, with or without the unrealized capital gains and of course the target we have set of 11% was the one on the shareholder equity including the unrealized capital gains of 11%. We are not at that stage. We are at 8.4%.

If you exclude unrealized capital gains, we are at 10.7%. So this continued increase of the unrealized cap gains primarily in the Belgium, it’s certainly not helping. And that we continue to work towards this 11%. And for instance the divestment in U.K. is clearly an element of that, trying to please the scale of distribution in older markets is also an element we see that. We’re working hard to get the combined ratio around the 97% is part of it.

So, we’re still at – I would say 16 months to go. We would of course be extremely helped by increasing interest rates but don’t expect that that will happen in the next quarters. You can say if for this year, it would have excluded the impact of weather and also to be honest tax credit, we would already have been slightly above 9%.

With the operational protect we would be more in the range 29.5%. So I think this shows that we make progress and of course the end sum or the judgment has to be made at the end of next year.

Jason Kalamboussis – Societe Generale

Thank you. If I may just add one thing. Do you find that, so are you satisfied with your Belgian expense ratio at this stage? Because when you look at some peers, the distance with some peers has actually widened.

So I can accept, on both sides, you have the weather events, which is something we know to keep in mind, but specifically on the combined ratio with peers, the distance seems to be widening, and it looks like expense ratio is where the difference is.

Bart De Smet

Well, I propose to pass to Antonio, CEO of the Western Operations.

Antonio Cano

So, on the widening of the combined rates compared to our peers, please bear in mind as Bart was saying that we are relatively large in households with about one third of the Belgian households. So any weather related events, hurt has relative more than some others, that’s on the claim side front.

On the expense ratio as Bart was saying, it is a combination of commission and operating costs. If you just look at the operating cost, we do benchmark ourselves with our competitors. Then we actually see an advantage in terms of cost rates. That we don’t see a decrease, so we remained at advantage.

When you see expense ratio going up, that has more to do with our product mix, again more tilted towards the retail lines and the household where commissions are higher. So you should try to adjust for the portfolio mix when you compare expense rates.

But again, if we look through that and just look at the costs that we are today, quite satisfied, we can do more. But also in mind that we do still have a few large IT projects on the way waiting on the cost ratio that we don’t amortize over time and we take it immediately.

Jason Kalamboussis – Societe Generale

Thank you very much. That’s very helpful.

Operator

Thank you very much. And moving on to David Andrich from Morgan Stanley. Please go ahead. Your line is open.

David Andrich – Morgan Stanley

Hi, good morning. Thank you for taking my questions. My first couple of questions are on the life side, particularly with the unit-linked margins. I was just wondering if you could give a little bit of color on that and how those have developed through the year versus last year. They seem to be quite a bit lower between in the Portuguese business?

And then the secondly, I was just wondering, in the U.K. non-life market, it looks like you were able to grow in terms of motor around 2% while many of your peers have been shrinking due to the rate declines. And you mentioned new niche products which you have on offer. I was just wondering if you could maybe give a bit more detail on that. Thank you.

Bart De Smet

You want to take this first one?

Christophe Boizard

Yes, on the amounting of unique things, so you are right. And here we had disappointing figures and disappointing in terms of volumes and in terms for margin. But on the slide 7, we read that the margin is at 20 bps, which is below what we have as a target so the element of explanation.

First, the unit-linked market has shift a little bit and the product which were proposed were to so called structural products where you give to the client guaranteed on capital. And this is built basically with zero coupon plus codes. The fact that the rates are so low, prevent you from having sufficient margin when you buy the zero coupon to buy the codes.

So it means that it’s extremely difficult to present attractive products to the client. Now for the quarter design, it’s very difficult. So it is, it means that since it was the main product over there, we are exceeding the volumes and with small margins is due, is a direct consequence of the very low rates and where to present this still attractive product we have to lower our margins by second unit link.

Bart De Smet

Well, this is also phenomena in the market. So although the return clients can get on savings accounts, on guaranteed business in life, we do not see in Belgium, in Portugal, strong take up of unit-linked as we don’t see it either in mutual funds in these markets.

So the second question is the U.K. motor, I think that indeed you’re right on one hand. We see our volume going slightly up and the decrease of the rates lower than the market. The main explanation is that we have increased a number of cars that we ensure. We are probably at a bit prudent approach also in segments where the price sensitivity is bit lower than in that, categories where prices are really still far below the normal levels. So, we continue to opt for a profitable growth but the growth is not the primary objective.

David Andrich – Morgan Stanley

Okay. Thank you very much.

Frank Vandenborre

Okay. Thank you very much. If there aren’t any questions left then we would conclude or ask Bart to conclude.

Operator

There are no questions left from the audience. And with that in mind, I would like to turn the conference call back to Mr. Bart De Smet.

Bart De Smet

Okay, ladies and gentlemen. Thank you for your good questions. And to end the call let me summarize very shortly the main conclusions. One, solid insurance is out with healthy growing inflows and the net profit impacted by a number of one-offs but in both directions.

The trend is up and this is positive in the light of our targets. At the same time we are confronted with increasing unrealized gains which are having a negative impact on our ROE. But I think we primarily are confident or pleased with the fact that the net profit on its own is increasing quarter-after-quarter.

Secondly, we have reported progress in a number of strategic files which should structurally enable us to have more capacity to develop our local activities in the case of Portugal and Italy. Or to focus more and better on the most material part of our business as what is the case in the U.K.

And lastly we launched the Fortis share buyback program delivering on our promise to return cash to the seller, if we consider this as to be the best alternative use of cash.

Then I would like to draw your attention to an investors’ dinner that we will organize in London on Monday 29, September, which is our annual appointment with the financial community. Contrary to the past years, we have no fixed content team scheduled today.

And therefore we opted for this formula which is more flexible, permits us to comment on the subject of actuality at that moment. That should also allow management to have sufficient time to talk to all of you. For further information you can of course contact the Investor Relations team at any time.

And with these conclusions, I wish you all the best. And for those still having some holidays planned, enjoy some time with your family. And we will be meeting soon. Thank you for your time. And good bye, bye.

Operator

Ladies and gentlemen, this concludes today’s conference call. Thank you very much for attending.

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