2017 was in many respects an excellent year for a.s.r. We achieved full privatisation, posted an operating result of € 729 million and can take pride in a strong solvency ratio of 196%. Our customers and intermediaries awarded us a higher Net Promoter Score (NPS), and we welcomed Generali Nederland, among others, to the group. ‘Pride in what we achieved in 2017 is certainly appropriate, but we are also resolutely looking forward.’
2018 looks set to be another interesting year for a.s.r. We will continue to shape the integration of Generali Nederland, and its contribution to our results will become visible as a result. We will in the meantime also carry on seeking out more opportunities for organic growth and acquisitions. We will closely monitor developments of the financial markets in order to gauge their consequences for our investment policy. Extreme weather events are another aspect we must take into account, especially following the winter storms of January 2018.
The Distribution and Services segment delivers fee revenues and has grown organically and through acquisitions in recent years. a.s.r. has acquired specialist distribution companies and its aim now is to unlock the earnings potential that a.s.r. envisages for each of these companies.
To conclude, the a.s.r. foundation helps people with financial self-reliance through the voluntary dedication of knowledge and skills of its employees.
Value creation model * The above model provides a simplified representation of the a.s.r. business model.
Sustainable employer a.s.r. strives for an inclusive culture, in which the diversity of employees is recognised, valued and put to use, and in which people with a distance from the labour market also have a place (SDG 8). Specific targets have been set in the context of gender equality (SDG 5). Read more about a.s.r.’s diversity policy on page 35.
The coming years may bring changes that could have a major impact on a.s.r. The most important of these will be driven by technological innovation, economic developments and their impact on global financial markets, social and demographic trends, politics and regulatory supervision, climate change and a declining insurance market.
About a.s.r. | 2.3 Key trends 24 levels, especially in the Eurozone, driven by the ECB’s policy of quantitative easing. On the back of ECB activity and compounded by strong economic growth, there was a further tightening of credit spreads. The investment portfolio consequently performed strongly in 2017, but conditions for insurers and other institutional investors remained challenging, with low interest rates and low risk premiums resulting in reduced investment returns. Against this background, a.s.r. expects the search for yield to continue. Central Banks, including the Federal Reserve in the US and the ECB in the Eurozone, have begun reducing their monetary expansion of past years, and are likely to continue doing so in the years ahead. Margins on traditional, capital intensive spread-based products have become thin. At the same time, regulators require insurers to hold more capital to ensure that policyholders’ interests are safeguarded at all times. Products with guaranteed minimum returns have become highly expensive. This is causing insurers to move from capital-intensive to capital-light products, such as defined contribution pensions and asset management propositions.
Consumer behaviour is shifting away from owning items and towards sharing them. There is a trend towards individualisation: ‘Why should I pay for the risk incurred by someone else?’ This development is intensified by what is termed usage-based insurance (UBI) and the growing availability of data, which allows for a radical differentiation which could lead to further individualisation. This is putting pressure on the solidarity principle, potentially resulting in ‘uninsurable risks’ at the peripheries of society.
Opportunities • Solvency II and increased scrutiny of the capitalisation of insurance companies may speed up consolidation in the Netherlands and enhance the opportunity-set for possible acquisitions for a.s.r.; • IFRS17; • Quicker reporting on Solvency II; • Privacy / AVG.
Risks • Further consolidation of other insurers affecting a.s.r.’s position and resulting intense competition in the Dutch market. For more information see Chapter 3.3.1 (Risk Management); • Acceleration of decline, fuelling ‘cost squeeze’ at a.s.r. life.
Determining a.s.r.’s most material topics a.s.r. compiles an annual materiality matrix. This is done to determine reporting themes and to map out stakeholders’ interests and expectations, which serves as relevant input for policy design and implementation. The materiality analysis takes issues into account that influence stakeholder assessments and decisions, and topics that are important for a.s.r.’s overall business performance. This also includes the impact a.s.r. has on the economy, the environment and the society, both positively and negatively. The results are shown in the materiality matrix below.
L Sustainable employment Encouraging employees to develop themselves with the aim of maintaining and or increasing their opportunities in the internal and external labour market.
1 The NPS is calculated by subtracting from the percentage of promoters (rating 9-10) the percentage of detractors (rating 0-6) on a scale of 0-10.
Socially Responsible Procurement policy a.s.r. imposes additional requirements on its suppliers in the areas of the environment, human rights and working conditions. These requirements are part of the procurement contracts concluded between a.s.r. and its suppliers. The main objective of the Social Responsible Procurement (SRP) policy is to be in dialogue with suppliers on these socially relevant themes. This subject is therefore a recurrent agenda item in the (board) meetings between a.s.r. and its suppliers. For 2017, the Procurement department’s objective was to add a specified SRP supplement to the contracts with the ten most strategic suppliers. This target was achieved by a.s.r. Since medio 2017, this annex has also been a standard part of the contract set used by a.s.r. In this way, all new suppliers automatically implement the SRP policy.
Based on its raison d’ être helping by doing, a.s.r. wants to help customers avoid payment problems. a.s.r. makes every effort to ensure that customers are financially self-sufficient. This ties in with ‘the story of a.s.r.’ and with the core values. Signing and complying with the ten rules of the ethical manifesto fits in very well with this. In this way, a.s.r. wants to reduce the number of customer cancellations due to payment arrears and problems. It also wants to reduce situations in which customers are confronted with cost-increasing measures. In all cases, a.s.r. strives to avoid non-payment. If that happens, a solution that suits him or her will be considered together with the customer.
The direct carbon footprint of a.s.r. itself is limited and therefore not defined as a material theme by the management of a.s.r. and its stakeholders when it comes to impact on the environment and its business. However, a.s.r. thinks it is important to pay attention to its own footprint to set a good example as a responsible organisation and limit its negative impact on the environment. a.s.r. therefore sets the ambition to become 100% carbon-neutral by 2020.
With a reduction of 6.8%, the target of achieving a 5% reduction in emissions from the a.s.r. fleet was achieved. As mentioned above, this is due to the use of fewer and more economical lease cars. Translated into kilometres, the reduction of carbon emissions is 21.9% per kilometre.
Combined ratio entities 1 Source: DNB- At the moment of writing, the market share figures for 2017 are unknown.
• Sickness Leave: - Products for employers to cover the costs associated with the employers’ obligation to continue to pay wages in the event of employee sickness. • Group Disability: - Products for employers to cover their own WGA risk carrier status; - Products for the benefit of employees (taken out by employers) to cover loss of income due to the inability to (fully) perform work as a result of disability according to the WIA (Dutch Work and Income (Capacity for Work Act).
Insurers are obliged to accept all Dutch residents for basic coverage. A government-run system of risk equalisation enables this obligation and provides insurers with compensation for excessive costs resulting from their customer base. The government is continuously seeking to improve the system of risk equalisation in order to provide the same starting position to every insurer. Consumers are free to decide whether they purchase supplementary coverage. Supplementary coverage is usually offered in packages and varies per insurer. The number of customers that switches per calendar year has been relatively stable over the past four years, a little over 6%.
As at 31 December 2017, the funeral portfolio consisted of approximately 6.4 million policies and 3.8 million customers. Approximately 98% of the funeral GWP was attributable to premium payments and 2% against purchase price. Based on the volume of premiums, Ardanta is the second funeral insurer in the Netherlands.
In addition to a.s.r.’s residential mortgage lending proposition, a.s.r. bank has issued bank guarantees related to mortgage applications as from the fourth quarter of 2017. The introduction of this product has allowed a.s.r. to be a one-stop shop for an individual’s mortgage application without any additional effort by either the customer or the financial intermediary.
Efforts of a.s.r. bank has further improved its service level to customers. This is demonstrated by the continued improvement of the NPS in 2017 which increased from +38 in January to +41 in December 2017. As a result of our customer acquisition objective, the number of a.s.r. bank’s customers rose to 148,000 (2016: 141,000).
Strategy and achievements a.s.r.’s investments are aimed at long-term value creation: in its investment activities, a.s.r. strives to take into account the fact that this generation has inherited the world and will pass it on to the next. Sustainable investment is of importance. a.s.r. applies the same strict criteria when it invests for its clients as a for itself.
In 2017, a.s.r. introduced additional criteria for its ESG best-in-class selection of countries based on their SDG performance, according to the SDG country ranking published by the Sustainable Development Solutions Network (SDSN) and the Bertelsmann Stiftung: the weighted average score of a.s.r.’s sovereign portfolio will be positioned within the first quartile (best-in-class) of the SDG Index.
Target Result 2017 Result 2016 > 7 engagement projects per calendar year a.s.r. participated in 11 engagement projects for influencing purposes¹
De Amersfoortse Under De Amersfoortse brand, a.s.r. offers disability and health cover, mainly aimed at the commercial market. De Amersfoortse products and services are sold exclusively through intermediaries.
Risk priorities The risk priorities of a.s.r. are annually defined by the Executive Board based on the Strategic Risk Analysis and bottom-up Control Risk Self-Assessments of the legal entities. The most recent status of the risk priorities and progress on the defined actions are reported to the a.s.r. Risk Committee quarterly.
Information (cyber) security risk Information (cyber) security risks have increased due to new technological developments – such as cloud computing, bring-your-own devices, social networks and online transactions with customers. In order to prevent cyber attacks and information security breaches, a.s.r. must be sufficiently aware of the potential threats posed to the organisation. a.s.r. runs the risk of new technological developments requiring different and increased expertise and other mitigating measures. The potential of confidential information becoming available to third parties, intentionally or unintentionally, is a risk facing both a.s.r. and its customers, and one which could ultimately lead to significant reputational harm. All our employees are therefore expected to be fully aware of the risks associated with the handling of confidential information regarding our customers, employees, financial information and strategy, and are asked to do their utmost to protect our assets.
Chris Figee earned a degree (with honours) in Financial Economics from the University of Groningen and is an EFFAS Certified Investment Analyst. He also studied Risk Management at Stanford University. Chris Figee started his career at Aegon, where he held various positions, including that of Senior Portfolio Manager. In 1999, he moved to McKinsey, where he rose to the role of partner in 2006. After ten years at McKinsey, he joined Achmea as Director of Group Strategy & Performance Management in 2009. He also served as a member of the Achmea Group Committee. Chris Figee’s last position at Achmea was Director of Group Finance.
A ud it , r is k, c om p lia nc e, le g al
The Supervisory Board continuously assesses and evaluates the remuneration policy for the Executive Board and will continue to do so in the coming period, with caution taking precedence over speed. This will include conducting extensive consultations with various stakeholders including shareholders, clients and employees. These consultations will take place in the course of 2018. The Supervisory Board will submit the remuneration policy for the Executive Board to the 2019 AGM for a shareholder vote.
E q ui ty a tt ri b ut ab le to s ha re ho ld er s
Total cash and cash equivalents as at 31 December 3,749 3,581
5.3.3 New standards, interpretations of existing standards or amendments to standards, not yet effective in 2017
Programme In 2017, a.s.r. started a combined IFRS 17 and IFRS 9 programme to implement IFRS 17 and IFRS 9 Financial Instruments and has performed a high level impact assessment. The programme in 2017 has focused on the following activities: • Project organisation and communication structures have been set up; • Training of key staff; • Drafting Technical Implementation Documents to gain a better understanding of the detail and complexity in
R. Securities lending a.s.r. participates in securities lending transactions, whereby collateral is received in the form of securities or cash. Cash received as collateral is recognised on the balance sheet and a corresponding liability is recognised as liabilities arising from securities lending in ‘Due to banks’. Securities lent remain on the balance sheet. Securities received as collateral are not recognised in the balance sheet.
Financial statements 2017 | 5.4 Group structure and segment information 157
Segments Banking and Asset Management and Distribution and Services The outcome of the goodwill test on step 1 showed that the difference between the recoverable amount and the carrying value may not be sufficient to support the amount of goodwill allocated to the CGU. Therefore the step 2
The deferred tax asset is mainly caused by additions which have been made to the liabilities arising from insurance contracts and have already been recognised in the income tax expense.
Position as at 31 December 2017 2016 Coupon date First possible redemption date
Diluted earnings per ordinary share from continuing operations (in €) 5.92 4.14
In 2016, past service cost has been recognised in other income amounting to € 100 million, resulting from the amendment to the a.s.r. post-employment benefit plan for future inflation indexation for former employees.
The amounts due to banks decreased from € 2,835 million to € 2,254 million primarily as a result of the decrease in liability recognised for cash collateral received under ISDAs (International Swaps and Derivatives Association) concluded with counterparties (see Chapter 5.5.11 Cash and cash equivalents). There is no significant difference between the carrying amount and the fair value of these liabilities (see Chapter 5.7.1.2).
Level 3: Fair value based not based on observable market data - 1 - 1
The sensitivities of the investment property held on behalf of the policyholders have been included in the sensitivities related to investment property included in Chapter 5.7.1.3.
Transactions in the income statement for the financial year a.s.r. is listed on Euronext Amsterdam since 10 June 2016. At the end of 2016 NLFI held approximately 63.7% of the shares. During 2017 NLFI sold shares in a.s.r. in several tranches. With the sale of NLFI’s 20.5% stake in a.s.r. on 13 September 2017 the Dutch State has completed the full divestment of a.s.r.
Financial statements 2017 | 5.7 Other notes 212 organisations, such as the Consumentenbond and Stichting Geldbelangen, to continuously gain media attention for unit-linked life insurance policies. These organisations argue, amongst other things, that consumers did not receive sufficient compensation based on the compensation scheme.
The principal group companies and associates are located in the Netherlands. For notes to equity interests in associates and joint ventures, see Chapter 5.5.4. The list of equity interests which are required under Sections 379 and 414, Book 2 of the Dutch Civil Code has been filed with the Trade Register of the Chamber of Commerce in Utrecht.
4 ASR Nederland N.V. has a minimum SCR ratio of 120%.
Double leverage ratio = Total value of associates / (equity attributable to shareholders + hybrids and subordinated liabilities)
Excellence in pricing, underwriting and claims handling The group intends to maintain a disciplined pricing strategy focusing on further expanding its knowledge of customer behaviour and continuing to enhance and further develop its experience and skills in respect of pricing and underwriting.
Through a top-down strategic risk analysis at group level and bottom-up control risk self-assessments from the legal entities, the most important strategic risks are identified. For each of these risks an estimation of the likelihood and impact is made to prioritise the risks. The outcomes of these analyses are used as input for defining the level of risk the organisation is willing to take in order to achieve strategic goals. The risk appetite is formulated to provide guidance and direction to the management of the strategic risks. The risk appetite contains a number of qualitative and quantitative risk appetite statements. The statements point out the risk preferences and tolerances of the organisation and are viewed as key elements for the realisation of our strategy. With the use of hard and soft limits the boundaries for accepting risks are objective and evident. Soft limits are used as early warning signals to prevent risk taking beyond the hard limits. The performance against these statements is monitored in the risk committees. The statements and limits are evaluated regularly to maintain alignment with the strategy.
Value creation by efficient allocation of capital resulting in realizing value and return objectives.
Financial Risk Management Financial Risk Management (FRM) is responsible for the second line financial risk and supports both the Actuarial Function and Risk Management Function. An important task of FRM is to be the countervailing power to the Executive Board and management in managing financial risks for a.s.r. and its legal entities. FRM assesses the accuracy and reliability of the market risk, counterparty risk, insurance risk and liquidity risk, risk margin and best estimate liability. Other responsibilities are model validation and policies on valuation and risk. FRM is also responsible for the actuarial function. As part of the actuarial function, FRM reviews the technical provisions, monitors methodologies, assumptions and models used in these calculations, and assesses the adequacy and quality of data used in the calculations. Furthermore, the Actuarial Function expresses an opinion on the underwriting policy and determines if risks related to the profitability of new products are sufficiently addressed in the product development process. The actuarial function also expresses an opinion on the adequacy of reinsurance arrangements.
Non-Financial Risk Committee The Non-Financial Risk Committee (NFRC) discusses, advises and decides upon non-financial risk policies. The most relevant risk policies are approved by the a.s.r. RC. The NFRC monitors that non-financial risks are managed adequately and monitors that the risk profile stays within the agreed risk limits. If the risk profile exceeds the limits,
Index-linked and unit-linked insurance Best estimate 7,743 11,085 Risk margin 92 164
Income Protection This component is calculated for policies for which an increase in mortality rates or morbidity rates or disability rates leads to an increase in the best estimate. There are three scenarios, which are calculated for all SLT Health and portfolios. • Mass accident scenario
In this scenario, an accident takes place during a major public event. The risk is that 10% of the attendees are killed, 1.5% are permanently disabled, 5% are disabled for 10 years, 13.5% are disabled for 12 months and 30% need medical attention.
Premium- and reserve risk The premium risk is the risk that the premium is not adequate for the underwritten risk. The premium risk is calculated over the maximum of the expected written premium for the next year, and the written premium for the current year. The Premium and reserve risk is derived at the level of a legal entity based on the Standard Model. For the calculation of the Premium and reserve risk, several input data and parameters are necessary, as described in the Standard Model. The geographical spread, when a (re)insurer underwrites products in different countries, is not relevant for a.s.r. Schade as there is no material exposure outside the Netherlands.
In recent years, measures have been taken to improve profitability and reduce risk. Examples are: premium increases, stricter acceptance criteria, shorter claims filing terms and making use of the claims reassessment arrangement between the Dutch Association of insurers and social security institute UWV. Effects are being monitored closely and assessed to be effective. New legislation causes flex-workers to become in scope, in force from 1 January 2017. This will invoke market-wide changes to the product design, pricing and conditions, thereby creating both additional market opportunities and additional risks for a.s.r.
(incl. UFR 4.2%) Measured as the impact of a parallel 1% upward and downward movement of the interest rates.
The equities are diversified across the Netherlands (including participating interests), other European countries and the United States. A limited part of the portfolio consists of investments in emerging markets and alternatives. A portfolio of put options with an underlying value of € 14 million is in place to mitigate the equity risk.
Composition property portfolio 5.8.3.4 Currency risk Currency risk measures the impact of losses related to changes in currency exchange rates. The policy of a.s.r. is in principle to hedge the currency risk excluding investments in equities and investments that are externally managed. However, certain currency exposures are permitted from a tactical perspective within a specific risk budget.
Composition fixed income portfolio by rating 5.8.3.6 Market risk concentrations Concentrations of market risk constitute an additional risk to an insurer. Concentration risk is the concentration of exposures to the same counterparty. Other possible concentrations (region, country, etc.) are not in scope. The capital requirement for concentration risk is determined in three steps: 1. Determine the exposure above threshold. The threshold depends on the credit quality (CQS) of the counterparty; 2. Calculation of the capital requirement for each counterparty, based on a specified factor depending on the credit quality; 3. Aggregation of individual capital requirements for the various counterparties.
The table above shows the exposure to reinsurers per rating. The total exposure to reinsurers at year-end 2017 was € 549 million (2016: € 656 million).
The solvency ratio stood at 196% as at 31 December 2017 after distribution of the proposed dividend of € 230 million and is based on the standard formula as a result of € 6,826 eligible own funds and € 3,479 million SCR.
In accordance with a.s.r.’s dividend policy, the liquidity of the underlying entities is not taken into account for the liquidity position of the group. However, the capital is recognised in the capital position of the group, since a.s.r. has the ability to realise the capital of this OTSO, for example by selling the entity. Specifically regarding Basis Ziektekostenverzekeringen N.V. in 2017, no dividend or capital withdrawals have taken place.
Rating reports can be found on the corporate website: 5.9.3 Dividend and capital actions
5.10.3.18 Auditor’s fees With reference to Section 2:382a(1) and (2) of the Dutch Civil Code, the following fees for the financial years have been charged by EY Accountants LLP to the Company, its subsidiaries and other consolidated entities. Fees for audit engagements: these include fees paid for the audit of the consolidated and company financial statements, quarterly reports and other reports.
5.10.3.20 Contingent liabilities Joint and several liability ASR Nederland N.V. forms a fiscal unity for corporate income tax and VAT with nearly all of its subsidiaries. The company and its subsidiaries that form part of the fiscal unity are jointly and separately liable for taxation payable by the fiscal entity.
We consider the non-economic assumptions used to be within a reasonable range.
Level 2 assets, and Level 3 assets where valuation techniques are applied in which unobservable inputs are used (of the assets carried at fair value in the balance sheet 9% are Level 3 assets; year-end 2016: 8%). The company has comprehensive procedures and internal controls in place to determine the valuation of the investments and related disclosures.
Our audit approach We assessed and tested the design and operating effectiveness of the controls over valuation, including independent price verification and model approval. We performed additional procedures for areas of higher risk and estimation, involving our valuation specialists. This included, where relevant, comparison of judgements made to current and emerging market practice and re-performance of valuations on a sample basis. We also assessed the impact of other sources of fair value information including gains or losses on disposal. Finally, we assessed and tested the design and operating effectiveness of the controls over related disclosures including the disclosures in note 5.7.1.
sufficiently reflects the valuation and risk-based capital requirements of the Solvency II regulatory framework and the capital management disclosure requirements of EU-IFRS.
Article 35 35.1 A distribution can only be made to the extent that the Company’s equity exceeds the Non-Distributable
35.9 A claim for payment of a distribution shall lapse five years after the distribution has been declared. 35.10 For the purpose of calculating any distribution, shares held by the Company in its own capital shall not be taken into account. No distributions shall be made to the Company in respect of shares that it holds in its own capital.
Other information | 7.1 Report of Stichting Continuïteit ASR Nederland 273 7.1 Report of Stichting Continuïteit ASR Nederland
Goodwill An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognised.
Annex A Notes to the reader 102-55 GRI content index Annex F, GRI Content Index 102-56 External assurance Annex A Notes to the reader