BB. Insurance premiums Non-life insurance premiums Non-life insurance premiums are accounted for in the period in which they are earned. As indicated in accounting policy I, invoiced but not yet earned premiums are included under liabilities arising from insurance contracts.
Rental income Rental income from investment property is allocated to the period to which they relate.
DD. Realised gains and losses Realised gains and losses include proceeds from the disposal of financial assets available for sale, associates and joint ventures and loans and receivables.
Fee and commission income relates mainly to asset management, distribution and services and reinsurance fees. These items are recognised as income in the period in which the services are performed. The asset management fees are periodically charged to the fund (or individual) customer for which the services were performed. The reinsurance and distribution and services fees are invoiced regularly with normal commercial payment terms.
Legal structure of the most significant a.s.r. group entities as per 31 December 2019
(through ASR Deelnemingen N.V.) • PoliService B.V.³ • ASR Real Estate B.V.³ • ASR Vastgoed Projecten B.V. • Van Kampen Groep
Groep Holding B.V.3: Van Kampen Geld B.V.3, Melching Assuradeuren B.V.3 and Melching Assurantiën B.V.3
• As part of Dutch ID B.V.: Felison Assuradeuren B.V.3 and Boval Assuarantiën B.V.3
• Supergarant Verzekeringen B.V.3 en ZZP Nederland Verzekeringen B.V.3 (through Certitudo Investments)
1 Registered Non-life insurance companies; 2 Registered life insurance companies; 3 Other Wft registered companies (included in the segments Asset Management and Distribution and Services).
Financial statements 2019 | 6.4 Group structure and segment information 164
• The Holding and Other segment consists primarily of the holding activities of a.s.r. (including the group related activities), other holding and intermediate holding companies, the real estate development business (ASR Vastgoed Projecten B.V.) and the activities of ASR Deelnemingen N.V.
The eliminations applied in the reconciliation of the segment information to the consolidated balance sheet and the consolidated income statement are separately presented in chapter 6.4.2 and 6.4.3.
Segment information has been prepared in accordance with the accounting principles used for the preparation of a.s.r.’s consolidated financial statements (see chapter 6.3). Goodwill and other intangibles are presented in the related CGU’s segment. Intersegment transactions are conducted at arm’s length conditions. In general, cost related to centralised services are allocated to the segments based on the utilisation of these services.
Financial statements 2019 | 6.4 Group structure and segment information 165 6.4.2 Segmented balance sheet
Financial statements 2019 | 6.4 Group structure and segment information 168
Financial statements 2019 | 6.4 Group structure and segment information 169
Fair value gains and losses 26 42 - - 1 -9 60
Financial statements 2019 | 6.4 Group structure and segment information 170
The claims, commission and expense ratio can be calculated based on the following information: Claims, commission and expenses
Adjustments: - Compensation capital gains (Disability) -13 -1 - Interest accrual on provisions (Disability) 73 66 - Prudence margin (Health) -3 -2
In December 2019, a.s.r. established the final acquisition balance sheet of Loyalis, in accordance with IFRS 3 business combinations, within twelve months of the closing date. The balance sheet is based on fair value and uses the following techniques and assumptions: • Liabilities arising from insurance contracts were remeasured to fair value as defined in IFRS; this resulted in a significant adjustment resulting from applying a different market consistent discount rate assumption, a risk adjustment using a cost of capital approach at the closing date and some changes in other best estimate assumptions. For Non-life, this remeasurement resulted in recognising an intangible asset (Value of Business Acquired or VOBA); • The other intangible assets recognised relate to the distribution agreement with APG, the Loyalis brand name and client relationships for income business. The valuation techniques used to measure the fair value are based on either the Multi-period Excess Earnings Method (MEEM) or the Relief from Royalty method; • Financial assets and liabilities (including investments and loans and receivables) were remeasured to fair value at the closing date.
Financial statements 2019 | 6.4 Group structure and segment information 173
The a.s.r. Solvency II ratio decreased by 7%-points as a result of the acquisition.
Financial statements 2019 | 6.4 Group structure and segment information 174
Certitudo Investments B.V. In July 2018, Certitudo Investments B.V. acquired 100% of the shares of two Distribution and Services entities. As a result, an amount of € 9 million is recognised as goodwill. a.s.r. established the final acquisition balance sheet in July 2019. No differences with the provisional balance sheet were identified, therefore no retrospective adjustments were made.
Financial statements 2019 | 6.4 Group structure and segment information 175 6.4.6 Discontinued operations and assets held for sale and related liabilities
The remaining part of a.s.r. bank is measured at the lower of its carrying amount and fair value less costs to sell. This nonrecurring fair value is presented as held for sale and amounts to € 28 million (€ 50 million per 31 December 2018). a.s.r. expects to end the remaining activities of a.s.r. bank during 2020.
Changes during the period Disposal of assets and liabilities 31 December 2019
Breakdown of financial assets and liabilities measured at fair value of discontinued operations
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 179
Segment Asset Management The goodwill is related to Asset Management activities, as such the impairment test was conducted at the Asset Management level as CGU. The result of the goodwill impairment test, using the multiples methodology, shows an excess recoverable value over the book value. As a result, a second step was not necessary and there is no significant exposure of goodwill impairment for sensitivities in the underlying assumptions. No goodwill impairment was recognised.
Segment Distribution and Services The goodwill impairment test was conducted at the CGU’s within the segment Distribution and Services as CGU. 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 some of the CGU’s. Therefore the step 2 additional analysis was performed in order to determine a recoverable amount in a manner that better addresses the specific characteristics of the CGU.
The second step as described above in the CGU’s of the segment Distribution and Services indicate that there is an excess of recoverable amount over the book value of all CGU’s to which goodwill has been allocated (buffer). A deterioration within reasonable limits on one of the above mentioned assumptions in isolation would not lead to an impairment. The buffer is also capable of absorbing a combination of negative factors. However, should circumstances on multiple factors deteriorate significantly, it could lead to a negative outcome for the buffer (the difference between the recoverable value and the book value).
Other intangible assets The other intangible assets mainly relate to Dutch ID, SuperGarant and the acquisition of Loyalis. The other intangible assets relate to trade name, distribution relationships and customer relationships. The other intangible assets are amortised straight-line over their useful life, which is determined individually (between 2 and 20 years). The amortisation charges on other intangible assets are recorded in the operating expenses (see chapter 6.6.8).
Accumulated depreciation as at 31 December -96 -28 -6 -130 -115
Accumulated impairments as at 31 December - -1 - -1 -
Net carrying value as at 31 December 150 19 19 189 172
Property and equipment consists mainly of assets expected to have a useful life of more than one year after the balance sheet date.
Changes in value of investments, realised/unrealised gains and losses: - Fair value gains and losses 53 46
Transferred between investments on behalf of policyholders and investment property -3 -4
Direct operating expenses arising from investment property amounted to € 13 million (2018: € 14 million). Given the overall low vacancy rate, virtually all direct operating expenses relate to investment properties generating rental income. Direct operating expenses of investment property are classified as other expenses.
Investment property consists mainly of assets expected to be recovered after more than one year after the balance sheet date.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 182 6.5.4 Associates and joint ventures
Associates and joint ventures ranging between 10% and 50% 99 67
The real estate equity funds consists of the ASR Dutch Mobility Office Fund (DMOF), ASR Dutch Prime Retail Fund (DPRF) and the ASR Dutch Core Residential Fund (DCRF). The mortgage equity funds consists of ASR Mortgage Fund. The interests in these funds are classified and presented as an investment at fair value through profit or loss. For more information, see chapter 6.5.5 and 6.7.1.
The total assets of the mortgage equity funds consist primarily of mortgages, € 4,186 million (2018: € 1,885 million).
Investments in Associates and joint ventures generally have a duration of more than one year after the balance sheet date.
Acquisitions mainly concern the additional investment in Human Total Holding of € 30 million, an entity actively working on sustainable employability within the Netherlands through several brands.
In 2019, loans to associates and joint ventures amounted to nil (2018: € 0.3 million). These loans are classified as related party transactions (see chapter 6.7.4).
For changes in investments available for sale and changes in investments at fair value through profit or loss see chapter 6.5.5.1 and chapter 6.5.5.2 respectively.
The equities consist primarily of listed equities and investment in investment funds (including open ended investment funds).
For the real estate equity funds and mortgage equity funds for which a.s.r. has significant influence, being ASR DMOF, ASR DPRF and ASR DCRF and ASR mortgage fund, the exemption of IAS 28 was used, thereby measuring the investments at fair value through profit or loss and presenting them as a separate category within the investments at fair value through profit or loss. For a breakdown of the real estate equity funds ASR DMOF, ASR DPRF and ASR DCRF, and ASR mortgage funds see chapter 6.5.4.
Based on their contractual maturity, an amount of € 24,403 million (2018: € 21,774 million) of fixed income investments is expected to be recovered after one year after the balance sheet date. For assets without a contractual maturity date, it is expected that they will be recovered after more than one year after the balance sheet date.
Changes in the composition of the group 2,441 2,448 a.s.r. has equities and bonds that have been transferred, but do not qualify for derecognition amounting to € 5,507 million (2018: € 5,174 million). The majority of these investments are part of a securities lending programme whereby the investments are lent in exchange for a fee with collateral obtained as a security. The collateral furnished as security representing a fair value of € 6,400 million (2018: € 6,188 million) consists of mortgage loans and corporate and government bonds. Please see accounting policy R about securities lending. Changes in the composition of the group relates to the assets acquired through the acquisition of Loyalis (2018: acquisition of Generali) (see chapter 6.4.5).
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 186 6.5.6 Investments on behalf of policyholders
Investments on behalf of policyholders at fair value through profit or loss
Transfer between investments on behalf of policyholders and investments 11 5
Transfer between investments on behalf of policyholders and investment property 3 4
Investments on behalf of policyholders are managed on behalf of policyholders on a fair value basis. Although individual instruments may (or may not) have a maturity depending on their nature, this does not impact the liquidity position of a.s.r.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 187 6.5.7 Loans and receivables
Notional amounts are not recognised as assets or liabilities in the balance sheet, however notional amounts are used in determining the fair value of the derivatives. Notional amounts do not reflect the potential gain or loss on a derivative transaction.
The fair value of interest rate contracts is calculated by first determining the cash flows of the floating leg based on the Euribor-curve corresponding the interest reset period (3 months, 6 months or 12 months) of the swap. Then the net present value of the floating and fixed leg is determined by discounting the cash flows with the Overnight Indexed Swap (OIS) curve.
Of the derivatives € 5,889 million (2018: € 2,443 million) and € 661 million (2018: € 365 million) are non-current derivative assets and liabilities respectively.
Deferred taxes are formed for differences between the carrying amount of assets and liabilities and their tax base at the enacted tax rate, taking into account tax-exempt components. The current tax rate is 25.0% (2018: 25.0%)
Liabillities arising from insurance contracts 1,497 549 212 99 - 2,357
Write-down of deferred tax assets - - - - - -
In 2019, changes in the compositions of the group mainly relates to the acquisition of Loyalis and the related technical provisions and investments (see chapter 6.4.5).
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 190
Financial assets held for trading -473 13 - - 1 -460
Liabillities arising from insurance contracts 1,621 -264 -78 218 - 1,497
The claim related to cash collateral paid on derivative instruments is included in the amount loans and receivables (see chapter 6.5.7). Debt related to cash collateral received on derivatives instruments is included in the amount due to banks (see chapter 6.5.19).
Ordinary shares - Authorised capital; par value of € 0.16 350 56 350 56
Unrealised gains and losses related to segregated investment pools -38 - -38
Unrealised gains and losses related to segregated investment pools -35 - -35
6.5.12.4 Treasury shares In 2019, a.s.r. repurchased 352 thousand shares under an open market share buyback programme for an amount of € 13 million (average share price € 35.54). 101 thousand shares for an amount of € 3 million were subsequently sold as part of the employee share purchase plan, leading to a decrease of € 1 million in retained earnings. The amount of treasury shares held as at 31 December 2019 of € 9 million (2018: nil) represents 251 thousand treasury shares (2018: nil).
For more information on the employee share purchase plan, see chapter 6.7.5.
The amount of treasury shares held in 2018 of nil is the result of a resolution by the AGM held on 31 May 2018 to cancel 6 million own shares repurchased in June and September 2017 (see chapter 6.5.12.1). The repurchased shares were canceled in August 2018 leading to a decrease of € 1 million in share capital, a decrease of € 42 million in share premium reserve and a decrease of € 145 million in retained earnings.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 193 6.5.12.5 Other equity instruments In 2019, a.s.r. redeemed the Hybrid Tier 1 instrument 10% fixed and the Hybrid Tier 1 instrument 7.25% fixed interest at their first call dates. a.s.r. issued an additional € 200 million perpetual non-call restricted Tier 1 contingent convertible capital instrument.
In 2018, a.s.r. neither issued nor redeemed any other equity instruments.
The Tier 1 and Tier 2 instruments bear discretionary interest and have no maturity date, but can be redeemed at the option of a.s.r. on any coupon due date as the above mentioned possible redemption date.
On 12 October 2017, a.s.r. launched and priced a € 300 million perpetual non-call 10 year restricted Tier 1 contingent convertible capital instrument priced with a fixed-rate coupon of 4.625% (resettable after 10 years).
As a result of a change in the Dutch Income Tax Act (Wet Vpb) coupon payments in respect of the restricted Tier 1 contingent convertible capital instrument are no longer deductible for tax purposes as per 1 January 2019.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 194 6.5.12.6 Non-controlling interests
Net profit (loss) attributable to holders of ordinary shares for calculating the earnings per ordinary share 912 610
Weighted average number of shares used to calculate the diluted earnings per ordinary share 155,813,059 153,987,013
Net profit in the table is after tax and non-controlling interests.
The subordinated liabilities are classified as liabilities given the obligation to settle the loans and pay the coupon. They are considered Tier 2 own funds for regulatory purposes.
Changes in the composition of the group 68 84 - 35
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 197
Changes in the composition of the group 1,110 2,555 - 4
The changes in composition of the group of € 1,110 million reflect the acquisition of Loyalis (2018: acquisition of Generali) (see chapter 6.4.5).
The insurance liabilities are deemed to be adequate following the performance of the LAT taking into account the UFR of 3.9% applicable for 2019 (2018: 4.05%). The future UFR is subject to developments in the real interest rate. The UFR under Solvency II and therefore also for the LAT will decrease in 2020 from 3.9% to 3.75% with future decreases expected in the coming years. a.s.r. performed a sensitivity analysis on the impact of the development of the UFR as if the UFR would have been 3.55% at 31 December 2019 and concluded that it still has an adequate surplus of the insurance liabilities over the IFRS-LAT.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 198 6.5.14.2 Claims development table, Non-life The table below is a ten-year summary of movements in gross cumulative claims in connection with the Non-life portfolio for the period from 2010 to 2019.
Changes in liabilities arising from insurance contracts on behalf of policyholders
An amount of € 3,736 million (2018: € 3,044 million) of the employee benefits is expected to be settled more than twelve months after reporting date.
The post-employment benefit plans for staff that is employed by a.s.r. are insured by a.s.r. leven.
The post-employment benefit plans for a.s.r. employees is primarily based on the following conditions: • The accrual rate for old age pensions 1.875% (2018: 1.875%); • Retirement age 68 years (2018: 68 years); • Maximum pensionable salary capped at € 107,593 (2018: € 105,075); • Future inflation indexation is conditional; and • Minimum franchise has changed.
Former Generali employees Former employees of Generali are still covered by Generali post-employment benefit plan. This plan is based on an average-salary pension with conditional indexation.
Former Loyalis employees As of 1 August 2019, with the legal merger of a.s.r. and Loyalis, the employees of Loyalis became employees of a.s.r. and subsequently participants in the a.s.r. post-employment benefit plan.
Other group companies employees The other group companies, which are entities operating in the Distribution and Services segment, have DC plans, insured with a.s.r. leven.
The recognised expenses for the DC plans in 2019 amounts to € 3 million (2018: € 3 million).
Employees account for 26% (2018: 25%) of the DB obligation, 37% (2018: 41%) of the DB obligation relates to former employees currently receiving pension benefits, 32% (2018: 29%) of the DB obligation relates to deferred pensioners and 5% (2018: 5%) of the DB obligation relates to other members.
As % of qualifying investments as at 31 December - 3.7 %
As a % of liabilities as at 31 December 1.3 % 1.2 %
Pensioenen 2009-2018’ for experience factors; • The period of indexation is based on the expected duration of the separate account to fund the future inflation indexation.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 203 plans are a liability on group level, the underlying insurance and market risks are in scope of a.s.r.’s risk policies. (see chapter 6.8). The overall interest-rate risk of the group is managed using interest-rate swaps and swaptions. a.s.r. leven manages the interest rate risk through an overlay interest hedging strategy using swaps and swaptions (see chapter 6.8.7) for the company as a whole. The swaps and swaptions are not specifically allocated to the a.s.r. post-employment benefit plans. Therefore the (un)realised gains and losses from swaps and swaptions as a whole are accounted for in liabilities arising from insurance contracts, in accordance with the shadow accounting policy, whereas the impact of changes in interest rates on the provisioning for employee benefits based on IAS19 is part of actuarial gains and losses that are recognised in equity (see chapter 6.5.12.3).
As an employer, a.s.r. is expected to pay contributions for pension plans and other post-employment benefits in the coming financial year amounting to € 106 million (excluding the positive effect of the investment income) and € 0 million respectively.
The separate account to fund future inflation indexation is utilised to fund the future inflation indexation for the employees and former employees included in the a.s.r. post-employment benefit plans. As such this has been included in the assumption used in calculating the DB obligation.
As a % of liabilities as at 31 December -2.6% -2.0%
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 204
In the calculation of the DB obligation the: • Discount rate is based on an internal curve for high quality corporate bonds; • Most recent mortality table ‘AG Prognosetafel 2018’ is used, in combination with the latest ‘CVS Sterftestatistiek
The sensitivity of the above actuarial assumptions to feasible possible changes at the reporting date to one of the relevant actuarial assumptions whilst other assumption remain constant, would have affected the DB obligation by the amounts of € 1 million increase (2018: € 0 million increase) or € 1 million decrease (2018: € 1 million decrease) as a result of a movement of the discount rate by 1%.
The provisions were created for: • VAT and legal issues; • Staff restructuring expenses; • Retention of disability risk instead of insuring it with UWV (Employed Persons Insurance Administration Agency); and • Other expenses.
The provision for VAT and legal issues is based on best estimates available at year-end, making allowance for expert opinions.
An amount of € 24 million of the provisions is expected to fall due within one year (2018: € 15 million).
As at year-end 2019, borrowings had the following terms to maturity: Maturity of borrowings
Maturity - Falling due between 1 and 5 years 18 4
In 2019 a.s.r. redeemed a € 6 million and a € 4 million loan from respectively Vesteda and VGMI.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 206
a.s.r. has extended its unsecured revolving facility with ABN AMRO of € 350 million for another year. These borrowings were used for investment purposes (property, group pension contracts), for balance sheet management, and for shortterm cash flow management. At the end of 2018 a.s.r. had used € 30 million of this facility, which was redeemed at the end of 2019.
An amount of € 32 million (2018: € 33 million) of the other liabilities is expected to be settled more than twelve months after reporting date.
Financial statements 2019 | 6.6 Notes to the consolidated income statement 207 6.6 Notes to the consolidated income statement 6.6.1 Gross insurance premiums
The table below provides an overview of total gross earned Non-life insurance premiums.
A total amount of € 145 million (2018: € 121 million) has been eliminated and are therefore not included in the gross insurance premiums (and investment income and operating expenses). This relates to the a.s.r. post-employment benefit plans of € 131 million (2018: € 106 million), investment fees of € 12 million (2018: € 14 million) and Disability premiums of € 2 million (2018: € 1 million).
The increase in realised gains and losses on investments is mainly due to the sales of equity instruments during the year.
Reversal of impairments on fixed-interest securities, including loans and receivables, as a result of disposal amounts to € 7 million (2018: € 3 million). The related expenses are included under ‘Other expenses’, see chapter 6.6.11.
Gains and losses on investment property and property for own use 53 46
Financial assets at fair value through profit or loss 213 143
Unrealised gains and losses on derivatives increased due to decreasing interest rates, which increased the additions to insurance liabilities due to shadow accounting, see chapter 6.5.14.
The proceeds from sales of property developments in 2019 and 2018 are mainly due to sale of parts of the Leidsche Rijn Centrumplan in Utrecht to external parties.
Changes in liabilities arising from insurance contracts on behalf of policyholders -1,426 253
The number of internal FTE increased to 3,906 FTE (2018: 3,683 FTE) mostly as a result of the acquisition of Loyalis.
Included within interest expense is an amount of € 29 million (2018: € 15 million) relating to negative interest paid on assets.
The increase of € 17 million in other expenses is related to the increase in the provision for irrecoverable claims relating to negative interest surplus on pension portfolio and various other differences.
Deferred taxes arising from changes in tax rates relates to the rate reduction of corporate taxes in 2021 and thereafter. The enacted rate for 2021 and thereafter is 21.7%.
Financial statements 2019 | 6.6 Notes to the consolidated income statement 215
Deferred taxes arising from changes in tax rates are included in the other effects.
Financial statements 2019 | 6.7 Other notes 216 6.7 Other notes 6.7.1 Fair value of assets and liabilities
Reclassification between categories 2019 To level 1 To level 2 To level 3 Total
Level 2: Fair value based on observable market data 284 - 21 305
Debt funds are adjusted from level 2 to level 1 (€ 284 million) and from level 1 to level 2 (€ 262 million). Both movements are based respectively on increased and decreased observability of the inputs during the period.
Since 2019, all asset-backed securities are classified as level 3 unless they meet certain requirements, which has led to a movement of € 24 million.
The adjustment of listed investments funds and asset-backed securities from level 1 to level 2 (€ 287 million) is due to the lower level of liquidity of these funds.
The movements of € 22 million from level 3 to level 1 relates to unlisted funds entirely consisting of listed investments
Changes in value of investments, realised/unrealised gains and losses: - Fair value gains and losses 208 122
Total revaluations of investments, held at year-end, recognised in the income statement 162 128
6.7.1.2 Financial assets and liabilities not measured at fair value The breakdown of the fair values of financial assets and liabilities not measured at fair value, and for which the fair value is disclosed in accordance with the level of fair value hierarchy, as explained in accounting policy B, is as follows: Breakdown of financial assets and liabilities not measured at fair value
The mortgage loan portfolio is classified as level 3 ‘not measured on the basis of market observable market data’. Non-observable market inputs are used in the valuation methods, in addition to the observable market inputs. The valuation method used to determine the fair value of the mortgage loan portfolio is based on the spread on the interest rate curve for discounting the mortgage portfolio cash flows on consumer rates and includes assumptions for originating cost, proposal risk, and the options related to early redemption and moving.
The property portfolio is classified as a level 3 ‘not measured on the basis of market observable market data’. Non- observable market inputs are used in the valuation methods, in addition to the observable market inputs. The fair value measurement is based on valuations by independent professional appraisers. These valuations have been performed for the entire portfolio of investment property and buildings for own use. Independent professional appraisers use reference transactions of comparable properties, in combination with the DCF and income capitalisation method, to determine the fair value of the property. The reference transactions of comparable objects are generally based on observable data consisting of the land register ‘Kadaster’ and the rural land price monitor as published by the Dutch Government ‘Grondprijsmonitor’ in an active property market.
6.7.3 Fair value of financial assets categorised into two groups based on business model and SPPI test results In compliance with the deferral option IFRS 9 under IFRS 4, a.s.r. conducted a solely payments of principal and interest (SPPI) test on the financial assets.
Credit risk exposure for financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest
Total financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest 43,051 38,677
Fair value of financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest without low credit risk
Financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest: Total fair value of financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest without a.s.r. has conducted the implementation of IFRS 9 for a.s.r. bank including the classification and measurement of the financial instruments. The 2019 and 2018 financial statements of a.s.r. bank can be obtained from the company website, when available.
Positions and transactions between a.s.r., associates, joint ventures and other related parties The table below shows the financial scope of a.s.r.’s related party transactions: • Associates; • Joint ventures (and real estate development joint ventures); • Other related parties.
No provisions for impairments have been recognised on the loans and receivables for the years 2019 and 2018.
In 2019 a.s.r. issued an employee share purchase plan (ESPP or ‘the plan’). a.s.r. employees are thereby given the opportunity to acquire a.s.r. shares at a discount. a.s.r. can suspend or withdraw the plan at any time. There is no option under the plan for either a.s.r. or the employee to settle in cash or other assets. Therefore the plan is an equity-settled share-based payments plan.
The members of the EB are required to participate in the plan by investing a predetermined part of their renumeration in a.s.r. shares. Other employees participate voluntarily.
Under the terms of the plan the granting and vesting is predefined. The grant date of the plan is the moment the employee registers to participate in the plan. The shares vest immediately on the transaction date when cash is received from the employee, unconditionally, subject only to a post-vesting transfer restriction of five years. Otherwise, there are no specific restrictions to the share (i.e. voting power, dividend restrictions).
The number of shares purchased during the reporting period were 100,546, for an amount of € 2.66 million (2018: not applicable, no ESPP in force).
6.7.6 Contingent liabilities and assets 6.7.6.1 General claims and disputes The group is a respondent in a number of claims, disputes and legal proceedings arising from the normal conduct of business.
Provisions are formed for such occurrences if, in management’s opinion and after consultation with its legal advisers, a.s.r. is likely to have to make payments and the payable amount can be estimated with sufficient reliability. The costs of the compensation scheme for unit-linked insurance contracts have been fully recognised in the financial statements based on management’s best knowledge of current facts, actions, claims, complaints and events. Provisions are recognised in the liabilities arising from insurance contracts and legal provisions (see chapter 6.5.14).
In June 2016, Woekerpolis.nl initiated a collective action, requesting the Midden-Nederland District Court to declare that a.s.r. has sold products in the market which were defective in various respects (e.g. lack of transparency regarding cost charges and other product characteristics, and risks against which the insurer had failed to warn, such as substantial stock depreciations, inability to realise the projected final policy value, unrealistic capital projections due to the difference between geometric and arithmetic returns, and general terms and conditions governing costs which Woekerpolis.nl considered unfair). In a decision of 6 February 2019, the district court rejected all Woekerpolis.nl’s claims and concluded that the products sold by a.s.r. could not be considered defective. The only claim upheld by the court was that pertaining
The total costs related to compensation for unit-linked insurance contracts as described above, have been fully recognised in the financial statements based on management’s best knowledge of current facts, actions, claims, complaints and events. Provisions are recognised in the liabilities arising from insurance contracts and legal provisions (see chapter 6.5.14). Although the financial consequences of the legal developments could be substantial, a.s.r.’s exposures cannot be reliably estimated or quantified at this point. If one or more of these legal proceedings should succeed, there is a risk a ruling, although legally only binding for the parties that are involved in the procedure, could be applied to or be relevant for other unit-linked life insurance policies sold by a.s.r. Consequently, the financial consequences of any of the current and/or future legal proceedings brought upon a.s.r. can be substantial for a.s.r.’s Life insurance business and may have a material adverse effect on a.s.r.’s financial position, business, reputation, revenues, results of operations, solvency, financial condition and prospects.
6.7.6.3 Obligations and guarantees Investment obligations for an amount of € 51 million (2018: € 20 million) have been assumed / issued for investment property.
6.7.6.4 Expected future rental income The following table sets out the expected future rental income, showing the undiscounted lease payments to be received after the reporting date.
The closing for both transactions took place on 1 January 2020. As a result these activities are not included in the consolidated financial statements as of 31 December 2019. a.s.r. will fully include the results and the balance sheet positions in the a.s.r. consolidated financial statements from the closing date. The full integration of the activities of VvAA Life and Veherex into a.s.r. will take place in phases and is likely to be completed by the end of 2020. The legal mergers of VvAA Life and Veherex with a.s.r. leven and a.s.r. schade respectively are expected to take place during 2020.
The consideration paid for Veherex includes a contingent consideration with a fair value of € 5.6 million to be paid over a period of 5 years.
The preliminary excess purchase consideration consists of an excess purchase consideration of € -11.7 million related to VvAA Life, which is not tax deductible, and a gain on the acquisition of Veherex amounting to € 8.6 million, which is tax exempt. The provisional gain related to the purchase of Veherex will be recognised in the income statement in 2020 upon acquisition.
Both acquisitions are expected to have a limited impact on the IFRS profit after tax, the operating result and the Solvency II ratio in 2020.
ASR Utrecht Real Estate Investments Netherlands B.V. 100.00 100.00 Amsterdam Life
Anac, All-Finance Nederland Advies-Combinatie B.V.³ 100.00 100.00 Eindhoven Distribution & Services
Dijkhuizen & Wiendels Assurantiën V.O.F.³ 51.00 51.00 Velserbroek Distribution & Services
The principal group companies and associates are located in the Netherlands.
For notes to equity interests in associates and joint ventures, see chapter 6.5.4. 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.
The EB will propose to the AGM to distribute a final dividend of € 169 million in dividend on ordinary shares for 2019. Including the interim dividend of € 99 million the total dividends to shareholder amounted to € 267 million.
Financial statements 2019 | 6.8 Risk management 234 6.8 Risk management
Risk governance Risk governance can be seen as the way in which risks are managed, through a sound risk governance structure and clear tasks and responsibilities, including risk ownership. a.s.r. employs a risk governance framework that entails the tasks and responsibilities of the risk management organisation and the structure of the Risk committees (see chapter B.3.1.2 Risk governance).
Risk policies and procedures: Risk policies and procedures at least1: • Define the risk categories and the methods to measure the risks; • Outline how each relevant category, risk area and any potential aggregation of risk is managed; • Describe the connection with the overall solvency needs assessment as identified in the Own Risk & Solvency
Risk management process The risk management process contains all activities within the RM processes to structurally 1) identify risks; 2) measure risks; 3) manage risks; 4) monitor and report on risks; and 5) evaluate the risk profile and risk management framework. At a.s.r., the risk management process is used to implement the risk strategy in the steps mentioned. These five steps are applicable to the risks within the company to be managed effectively (see chapter B.3.1.6 Risk Management process).
Nederland N.V. meets the (reasonable) expectations of stakeholders and offers solid and reliable products which are cost-efficient, useful, safe and comprehensible to customers, intermediaries and ASR’s internal organisation. Conducting honest business ensures that ASR’s reputation is protected.
6 ASR Groep (including ASR Nederland N.V., ASR Levensverzekering N.V. and ASR Schadeverzekering N.V.)
has at least a single A rating and therefore holds an AA rating in accordance with the S&P Capital Model.
ASR Nederland N.V. assesses the amount of dividend payments against the current and expected future solvency ratio and economic outlook. Dividend payments are in line with the conditions laid down in the capital and dividend policy of ASR Nederland N.V.
8 ASR Nederland N.V. has a maximum double leverage ratio of 135%.
12 ASR Nederland N.V. has a maximum combined ratio of 99%. FR
13 ASR Nederland N.V., has total market risk which will be a maximum of 50% of the total risk FR
Financial statements 2019 | 6.8 Risk management 237 6.8.1.1.2 Risk governance a.s.r.’s risk governance can be described by: • Risk ownership; • the implemented three lines of defence model and associated (clear delimitation of) tasks and responsibilities of key function holders; and • the risk committee structure to ensure adequate decision making.
• Responsible for the identification and the risks in the daily business
• Has the day-to-day responsibility for operations (sales, pricing, underwriting, claims handling, etc.) and is responsible for implementing risk frameworks and policies.
• Group Risk Management department - Risk management function - Actuarial function
• Has sufficient countervailing power to prevent risk concentrations and other forms of excessive risk taking
Group Risk Management Group Risk Management (GRM) is responsible for the execution of the risk management function (RMF) and the actuarial function (AF). The department is led by the CRO. GRM consists of the following sub-departments: • Enterprise Risk Management (ERM); • Financial Risk Management (including AF).
Enterprise Risk Management ERM is responsible for second-line operational (including IT) risk management and the enhancement of the risk awareness for a.s.r. and its subsidiaries. The responsibilities of ERM include the development of risk policies, the annual review and update of the risk strategy (risk appetite), the coordination of the SRA process leading to the risk priorities and ORSA scenarios and the monitoring of the non-financial risk profile. For the management of operational risks, a.s.r.has a solid Risk-Control framework in place that contributes to its long-term solidity. The RMF monitors and reviews the nonfinancial strategic and operational risk profile. The quality of the framework is continuously enhanced by the analysis of operational incidents, periodic risk assessments and monitoring by the RMF. ERM actively promotes risk awareness at all levels to contribute to the vision of staying a socially relevant insurer.
Financial Risk Management Financial Risk Management (FRM) is responsible for the second line financial risk management and supports both the AF and RMF. 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 subsidiaries. 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 AF. As part of the AF, 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 AF 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 AF also expresses an opinion on the adequacy of reinsurance arrangements.
Audit The Audit department, the third line of defence, provides an independent opinion on governance, risk and management processes, with the goal of supporting the Executive Board and other management of a.s.r. in achieving the corporate objectives. To that end, Audit evaluates the effectiveness of governance, risk and management processes, and provides pragmatic advice that can be implemented to further optimize these processes. In addition, senior management can engage Audit for specific advisory projects.
All members of the Executive Board participate in the BEC – Risk meeting, which is chaired by the CEO. The involvement of the Executive Board ensures that risk decisions are being addressed at the appropriate level within the organisation. In addition to the Executive Board, the Key Functions (Risk management, Compliance, Internal audit, AF) are members of the Committee. In addition, it consists of a number of senior managers who present a number of focus areas.
Business Risk Committees The business lines manage and control their risk profile through the Business Risk Committees (BRC). The BRC’s monitor that the risk profile of the business lines stays within the risk appetite, limits and targets, as formulated by the Executive Board. The BRC reports to the FRC and the NFRC. The Chairman of the BRC is the Managing Director of the business line.
Central Investment Committee In addition to the risk committee structure, the Central Investment Committee (CIC) monitors tactical decisions and the execution of the investment policy. It takes investment decisions within the boundaries of the strategic asset allocation as agreed upon in the FRC. The CIC bears particular responsibility for investment decisions exceeding the mandate of the investment department. The CIC is chaired by the Director of Group Balance Sheet Management (GBSM).
There are technical solutions for accomplishing this, by enforcing a layered approach (defence-in-depth) of technical measures to avoid unauthorised persons (i.e. hackers) to compromise a.s.r. corporate data and systems. In this perspective, one may think of methods of logical access management, intrusion detection techniques, in combination with firewalls are aimed at preventing hackers and other unauthorised persons from accessing information stored on a.s.r. systems. Nevertheless, confidential information can also have been committed to paper. In addition to technical measures there are physical measures and measures that helps the right awareness of personnel as part of the information security environment.
6.8.1.1.4 Risk policies and procedures a.s.r. has established guidelines, including policies that cover all main risk categories (market, counterparty default, liquidity, underwriting, strategic and operational). These policies address the accountabilities and responsibilities regarding management of the different risk types. Furthermore, the methodology for risk measurement is included in the policies. The content of the policies is aligned to create a consistent and complete set. The risk policy landscape is maintained by Group Risk Management and Compliance. These departments also monitor the proper implementation of the policies in the business. New risk policies or updates of existing risk policies are approved by the risk committees as mentioned previously.
6.8.1.1.5 Risk culture Risk awareness is a vital component of building a sound risk culture within a.s.r. that emphasizes the human aspect in the management of risks. In addition to gaining sufficient knowledge, skills, capabilities and experience in risk management, it is essential that an organisation enables objective and transparent risk reporting in order to manage them more effectively.
Managing Typically, there are five strategies to managing risk: • Accept: risk acceptance means accepting that a risk might have consequences, without taking any further mitigating measures; • Avoid: risk avoidance is the elimination of activities that cause the risk; • Transfer: risk transference is transferring the impact of the risk to a third party; • Mitigate: risk mitigation involves the mitigation of the risk likelihood and/or impact; • Exploit: risk exploitation revolves around the maximisation of the risk likelihood and/or increasing the impact if the risk does happen.
Financial statements 2019 | 6.8 Risk management 243 6.8.1.2 a.s.r.’s risk categories a.s.r. is exposed to a variety of risks. There are six main risk categories that a.s.r. recognises, as described below.
Counterparty default risk Counterparty default risk is the risk of losses due to the unexpected failure to pay or credit rating downgrade of counterparties and debtors. Counterparty default risk exists in respect of the following counterparties: • Reinsurers • Consumers • Intermediaries • Counterparties that offer cash facilities • Counterparties with which derivatives contracts have been concluded • Healthcare providers • Zorginstituut Nederland
Type of risk (%-points) 31 December 2019 31 December 2018 31 December 2019 31 December 2018 31 December 2019 31 December 2018
Expense risk Measured as the impact of a 10% decrease in expense levels. Mortality risk Measured as the impact of a 5% decrease in all mortality rates.
The table above shows that the SCR sensitivities in 2019 are (almost) similar to the sensitivities of 2018. The impact on the ratio is the opposite if a reversed scenario is taken into account. These shocks had no impact on the 2019 and 2018 total equity, or on the profit for these years, because a.s.r. still passed the IFRS Liability Adequacy Test (LAT). While the sensitivities result in a decrease of the surplus in the Liability Adequacy Test, the outcome is still positive.
Expense risk A calculation is made of the effect on own funds of a permanent increase in costs used for determining the best estimate. The scenario analysis contains an increase in the costs of 10% and an increase in the cost inflation of 1 percentage point per year. This scenario also includes a similar shock in the investment costs. Both the internally and externally managed investment costs are involved in this scenario.
Especially in the case of funeral policies the netting of positive and negative risks within model points can be considerable for policies that can be surrendered (completely ending the policy, with payment of surrender value) in the case of the mass lapse. In most cases, the shock scenario for determining the SCR for mass lapse for funeral policies consists of an immediate shock of 40% with respect to the continuation of premium payment (mass ‘pup’-scenario). This is mostly in line with policy conditions. The mass pup treatment in the funeral portfolio for mass lapse risk reduces the netting of positive and negative risks to a level that is not material.
Employee benefits a.s.r. has insured the post-employment benefit plans for a.s.r.’s employees with a.s.r. leven, an insurance company within the group. Though the liability of this plan is classified as employee benefits on the balance sheet and determined according to IFRS principles, the required capitals for the life insurance risks are fully taken into account and based on Solvency II principles. The risk margin at a.s.r. group level equals the sum of risk margins of all underlying legal entities. No correction is made for the elimination of post-employment benefit plans for a.s.r.’s employees with a.s.r. leven.
Other information Within a.s.r. leven the longevity risk is dominant and arises from group pension business and individual annuities. The longevity risk is partly offset by mortality risk that arises from the funeral portfolio and individual policies with mortality risk. The other main risks a.s.r. leven is exposed to are expense risk and lapse risk.
The technical provisions and the risk margin have increased due to the acquisition of Loyalis (resp. € 1,888 million and € 57 million at valuation date June 30, 2019). This increase was mitigated by the outflow of the individual life portfolio and (to a lesser extend) the traditional pensions portfolio. A dominant factor in the increase of the technical provisions in 2019 was the decrease of the interest rate, VA and UFR and the increase of stock markets. Furthermore there has been a considerable transfer of technical provision from the category ‘Insurance with profit participation’ to the category ‘Other life insurance’, due to improved data concerning profit sharing end dates, which has improved the classification.
6.8.2.1.1 Managing life insurance risk Life insurance risk is mitigated by pricing, underwriting policies and reinsurance.
The Health insurance portfolio of a.s.r. contains the following insurance risks: I. SLT Health risk a. This risk is applicable to the SLT Health portfolio. The calculation is scenario-based. The scenarios are similar to the scenarios that are used to calculate the Life insurance risk. II. NSLT Health risk a. This risk is applicable to the NSLT Health portfolio. The calculation is factor-based. The risk is calculated similarly to the Non-life insurance risk.
III. Health Catastrophe risk a. This risk is applicable to the entire Health portfolio. The calculation is scenario-based.
Future management action According to the insurance conditions, a.s.r. has the ability to adjust the premiums and insurance conditions in the future. Therefore, a.s.r. applies a future management action, as noted in Article 23 of the Delegated Regulation, when calculating the SLT Health risk for the portfolios with contract boundaries exceeding three years.
NSLT Health Risk 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 earned premium of the next year, and the earned premium of the current year. The reserve risk is the risk that the current reserves are insufficient to cover their run-off over a 12 month time horizon.
Health catastrophe risk Medical Expense A health catastrophe for NSLT Health portfolio is an unexpected future event with a duration of one year. The risk is determined ultimo year. The amount of catastrophe risk is apparent from the number of insured and parameters for mass accident scenario and pandemic scenario that have been approved by DNB in consultation with Health Insurers Netherlands. Accident concentration is not applicable for NSLT Health. The catastrophe risk has a projection of one year (T) following from the contract boundary of one year in accordance with the Dutch Health Insurance Act. After year T the risk is ‘zero’. Catastrophe risk for AV equals zero because these contracts have a maximum compensation for claims.
Accident concentration scenario In this scenario, an accident takes place on site, with the most of our insured at the same location. The risk is that 10% of those present are killed, 3.5% are permanently disabled, 16.5% are disabled for 12 months and 30% need medical attention.
For the SLT Health portfolio, the provision at year-end can be broken down as follows under Solvency II.
Financial statements 2019 | 6.8 Risk management 251 6.8.2.2.2 Non-life insurance risk Non-life Insurance risk can be broken down into: I. Premium and reserve risk; II. Non-life catastrophe risk; III. Lapse risk.
Below table summarises the required capital for abovementioned Non-life insurance risks based on the standard model.
Concentration risk Geographically, the risk exposure of a.s.r. on its health and Non-life portfolio is almost entirely concentrated in the Netherlands. Concentration of insurance risks is particularly prevalent in the fire risk portfolio (i.e. home and content, with storm risk forming the most important factor). Storm risk is managed by means of suitable reinsurance (see also ‘Reinsurance’).
Reinsurance When deemed effective in terms of capital relief versus costs incurred, a.s.r. enters into reinsurance agreements to mitigate Non-life insurance risks. Reinsurance can be taken out for each separate claim (per risk), for the accumulation of claims due to natural disasters or to human actions (per event), or for both these risks.
Solvency II sensitivities The sensitivities of the solvency ratio as at 31 December 2019, expressed as the impact on the group solvency ratio (in percentage points) are as presented in the table below. The total impact is split between the impact on the solvency ratio related to movement in the available capital and the required capital.
Spread +75bps/(2018: VA +20bps/2019: VA +18bps) +11 +11 +4 +9 +15 +21
UFR of 3.2% after the last liquid point of 20 years remained unchanged. Interest rate risk
VA Measured as the impact of a 10 bps decrease in the VA.
The sensitivities of total equity to equities increased in 2019 in line with the increased exposure to equities. The sensitivity of profit in the equity down scenario is due to the impact of the put options and impairments of shares. The decrease of the sensitivity is both due to (i) a smaller option portfolio and (ii) less impairments in the down scenario due to the positive returns on the equity markets in 2019. The sensitivity of profit in the equity up scenario is due to the impact of the put options. As a result of a smaller option portfolio the sensitivity decreased.
The sensitivity to spreads remained limited due to the mitigating effect of shadow accounting. The decrease is mainly the result of a higher shadow accounting percentage.
The sensitivities to property increased in 2019 in line with the higher exposure to property. Property held for own use is not taken into account in the sensitivity of profit In the property up scenario.
The interest rate risk is calculated by a relative shock up- and downward shock of the risk-free (basis) yield curve. All adjustments (credit spread, VA) on this yield curve are considered constant. The yield curve is extrapolated to the UFR. The yield curve after shock is not extrapolated again to the UFR.
The used shocks vary by maturity and the absolute shocks are higher for shorter maturities (descending: 75% to 20% and ascending: -70% to -20%): • The yield curve up shock contains a minimum shock of 100bps; • The yield curve after the downward shock is limited to zero (no negative interest rates); • The yield curves of all currencies are shocked simultaneously.
In 2019 the equity risk increased mainly due to the positive returns on the equity markets. Besides an increase of the equity portfolio, this also resulted in (i) an higher risk charge due to the equity dampener and (ii) a decrease in the risk mitigating effect of the option portfolio. Besides the impact of the positive equity returns there was also the upward effect due to the run-off of the transitional measure of equity risk.
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 a value of € 5 million is in place to mitigate the equity risk.
The table below shows the exposure of the equity portfolio to different categories. The total value is including the equities in externally managed funds.
Composition equity portfolio 6.8.3.3 Property risk The property risk depends on the total exposure to real estate. In order to maintain a good understanding of the actual property risk, a.s.r. applies the look-through approach for investment funds to assess the property risk.
The required capital for property risk is determined by calculating the impact on the available capital due to an immediate drop in property prices by 25%. Both assets and liabilities are taken into account.
Besides this methodology change, the real estate exposure also increased due to both transactions and increases in property prices. As a result the required capital for property risk increased.
The sensitivity of the solvency ratio to changes in property value is monitored on a monthly basis. Sensitivity of regulatory solvency (Solvency II) to changes in property prices is shown in the following table.
Financial statements 2019 | 6.8 Risk management 259 6.8.3.5 Spread risk Spread risk arises from the sensitivity of the value of assets and liabilities to changes in the level of credit spreads on the relevant risk-free interest rates. a.s.r. has a policy of maintaining a well-diversified high-quality investment grade portfolio while avoiding large risk concentrations. Going forward, the volatility in spreads will continue to have possible short-term effects on the market value of the fixed income portfolio. In the long run, the credit spreads are expected to be realised and to contribute to the growth of the own funds. The required capital for spread risk is determined by calculating the impact on the available capital due to the volatility of credit spreads over the term structure of the risk-free rate.
The SCR spread risk increased in 2019. The SCR spread risk increased due to a larger fixed income portfolio, mainly due to the acquisition of Loyalis and the decrease in interest rates. On the other hand SCR spread risk decreased due to the shortening duration of the credit portfolio.
The sensitivity to spread risk is measured as the impact of an increase of spread on loans and corporate bonds of 75 bps. The VA is based on a reference portfolio. An increase of 75 bps of the spreads on loans and corporate bonds within the reference portfolio leads to an increase of the VA with 18 bps in 2019 (2018: 20 bps). The decrease of the credit spread sensitivity from +21 to +15 is mainly caused by the fact that the interest rate down becomes dominant in this scenario, whereas the interest rate up was dominant previous year. This led to a smaller diversification in the market risk module and therefore to a lower impact of the SCR on the ratio.
According the spread risk module, bonds and loans guaranteed by a certain government or international organisation are not in scope of concentration risk. Bank deposits can be excluded from concentration risk if they fulfil certain conditions.
The decrease in 2019 is mainly caused by the acquisition of Loyalis which led an increase of the threshold. In order to avoid concentrations in a single obligor, a.s.r. applies a limit on maximum exposure of € 700 million for issuers with a single A rating and higher and € 350 million for issuers with a BBB rating. The limits apply to the total investment portfolio, where government bonds are not included, which is consistent with Solvency II. Beside the limits on single obligors, a.s.r. applies also limits on the total level of the required capital for market risk concentrations.
Financial statements 2019 | 6.8 Risk management 261 6.8.4 Counterparty default risk
6.8.4.2 Savings-linked mortgage loans The counterparty default risk of the savings-linked mortgage loans (‘Spaarlossen’) depends on the counterparty. For 38% of the portfolio, the counterparties are Special Purpose Vehicles. The risk is limited due to the robust quality of the mortgages in the Special Purpose Vehicles in combination with the tranching. a.s.r. has a cession-retrocession agreement with the counterparty for 59% of the portfolio, for which the risk is limited. Effectively, a.s.r. receives the underlying mortgage loans as collateral, mitigating the counterparty default risk of the savings-linked mortgage loans.
Composition savings-linked mortgage loans portfolio 6.8.4.3 Derivatives Over the Counter (OTC) derivatives are primarily used by a.s.r. to manage the interest-rate risks incorporated into the insurance liabilities. Interest-rate derivatives are traded with a well-diversified and qualitative dealer panel with whom there is an established International Swaps and Derivatives Association (ISDA) contract and a Credit Support Annex (CSA) in place. These CSAs include specific agreements on the exchange of collateral limiting market and counterparty risk. The outstanding value of the interest rate derivative positions is matched by collateral received from eligible counterparties, minimising the net counterparty default risk.
Health insurance fund 106 102 6.8.4.6 Cash and cash equivalents The current accounts amounted € 1,599 million in 2019 (2018: € 2,525 million).
Liquidity risk is the risk that a.s.r. is not able to meet its financial obligations to policyholders and other creditors when they become due and payable, at a reasonable cost and in a timely manner. Liquidity risk is not quantified in the Solvency Capital Requirement of a.s.r., and is therefore separately discussed here.
a.s.r. recognises different levels of liquidity management. Short-term liquidity, or daily cash management, covers the day-to-day cash requirements and targets funding liquidity risk. Long-term liquidity management considers business conditions in which market liquidity risk materialises. Stress liquidity management is related to the ability to respond to a potential crisis situation as a result of a market event and an a.s.r.-specific event. Unexpected cash outflows could for example occur as result of lapses in the insurance portfolio, catastrophe risk or cash variation margin payments related to the ISDA/CSA agreements of derivatives. a.s.r. monitors its liquidity risk via different risk reporting and monitoring processes including daily cash management reports, cash flow forecasts and stress scenario liquidity reports.
The following table shows the contractual undiscounted cash flows of the insurance and financial liabilities. The insurance liabilities are excluding insurance contracts on behalf of policyholders and include the impact of expected lapses and mortality risk. Profit-sharing cash flows of insurance liabilities are not taken into account, nor are equities, property and swaptions.
Financial statements 2019 | 6.8 Risk management 265 6.8.6 Operational risk
Operational risk is the risk of losses resulting from inadequate or failing internal processes, persons and systems, or from external events (including legal risk). The main areas where operational risks are incurred are operations, IT, outsourcing, integrity and legal issues.
The SCR for operational risk amounts to € 237 million at the end of 2019 (2018: € 212 million) and is determined with the standard formula under Solvency II. The operational risk is based on the basic SCR, the volumes of premiums and technical provisions, and the amount of expenses. Operational risk increased mainly due to the decreased interest rates in 2019.
The system of internal control includes the management of risks at different levels in the organisation, both operational and strategic.
6.8.7.1 Strategic risk management Strategic risk management aims to identify and manage the most significant risks that may impact a.s.r.’s strategic objectives. Subsequently, the aim is to identify and analyse the risk profile as a whole, including risk interdependencies. The ORSA process is designed to identify, measure, manage and evaluate those risks that are of strategic importance to a.s.r.: Identifying Through the ORSA process, identification of risks is structurally organised through the combined top-down and bottomup SRA approach. The SRA outcomes are jointly translated into risk scenarios and ‘risk priorities’, in which the most significant risks for a.s.r. are represented.
Measuring Through the ORSA process, the likelihood and impact of the identified risks are assessed, taking into account (the effectiveness of) risk mitigating measures and planned improvement actions. Information from other processes1 is used to gain additional insights into the likelihood and impact. One single risk scenario takes multiple risks into account. In this manner, the risk scenarios provide (further) insights into risk interdependencies.
Financial statements 2019 | 6.8 Risk management 266 6.8.7.2 Operational Risk Management Operational Risk Management (ORM) involves the management of all possible risks that may influence the achievement of the business goals and that can cause financial or reputational damage. ORM includes the identification, analysis, prioritisation and management of these risks in line with the risk appetite. The policy on ORM is drafted and periodically evaluated under the coordination of ERM. The policy is implemented in the decentralised business entities under the responsibility of the management boards. A variety of risks is covered by ORM policy: IT risk, outsourcing, data quality, project, underwriting etc.
Managing For each risk, identified controls are implemented into the processes to keep the level of risk within the agreed risk appetite (level of concern 1 or 2). In general, risks can be accepted, mitigated, avoided or transferred. A large range of options is available to mitigate operational risks, depending on the type. An estimation is made of the net risk, after implementing the control(s).
Evaluating Periodically, yet at least annually, the risk-control frameworks and ORM policies are evaluated to see if revisions are necessary. The risk management function also challenges the business lines and legal entities regarding their risk-control frameworks.
a.s.r. considers something a crisis when one or more business lines are (in danger of being) disrupted in the operational management, due to a calamity, or when there is a reputational threat. In order to reduce the impact of the crisis, to stabilize the crisis, and to be able to react timely, efficiently and effectively, a.s.r. has assigned a crisis organisation.
In the pursuit of reasonable assurance, model risk is mitigated and unacceptable deviations are avoided, against acceptable costs.
Financial statements 2019 | 6.9 Capital management 268 6.9 Capital management
E lig ib le o w n f u n d s to m e e t S
If a.s.r. chooses to return capital, it plans to do so in a form that is efficient for shareholders at that time. a.s.r. actively manages its in-force business, which is expected to result in free capital generation over time. Additionally, business improvement and balance sheet restructuring should improve the capital generation capacity while advancing the risk profile of the company. The legal entities are individually capitalised and excess capital over management’s targets for the legal entities is intended to be up-streamed to the holding company as far as is needed for amongst others covering external dividend, coupon payments on hybrids/senior financing instruments and holding costs and in so far the local regulations and the internal risk appetite statement allow.
The SCR is reported on a quarterly basis and proxies are made on both a monthly and weekly basis. The internal minimum solvency ratio for a.s.r. as formulated in the risk appetite statement is 120%. The lower limit solvency target is 140%. The management threshold level for the solvency ratio is above 160%. The solvency ratio stood at 194% at 31 December 2019, which was comfortably above the internal requirement of 120% and the management threshold level of 160%.
Capital requirement The required capital stood at € 4,035 million per 31 December 2019 (2018: € 3,523 million). The required capital (before diversification) consists for 2019 € 3,055 million out of market risk and the insurance risk amounted to € 3,227 million as per 31 December 2019.
a.s.r. (including financial institutions) complied during 2019 with the applicable externally imposed capital requirement. The table below presents the solvency ratio at group level as at the date indicated.
The Solvency II ratio stood at 194% (excluding financial institutions) as at 31 December 2019 (2018: 197%). The Solvency II ratio including financial institutions stood at 193% as at 31 December 2019 (2018: 195%).
Under Solvency II it is permitted to reduce the required capital with the mitigating tax effects resulting from a 1-in200 -year loss (Shock loss). There is a mitigating tax effect to the extent that the Shock loss (BSCR + Operational risk) is deductible for tax purposes and can be compensated with taxable profits. This positive tax effect can only be taken into account when sufficiently substantiated (‘more likely than not’). a.s.r. included a beneficial effect on its solvency ratio(s) due to the application of the LAC DT. The LAC DT benefit was € 789 million at year-end 2019.
Since 2016 a.s.r. uses an advanced model for the LAC DT of a.s.r. leven and a ‘basic’ model for the other OTSOs. In the advanced model also future fiscal profits are used to underpin the LAC DT, while in the basic model no future profits are used. Both models are and will be updated in case constrained by additional guidance or legislation provided.
Standard & Poor’s confirmed the single A rating of a.s.r., a.s.r. leven, and a.s.r. schade on July 18, 2019.
Rating reports can be found on the corporate website: 6.9.3 Dividend and capital actions 1. Mergers and Acquisitions In 4 December 2018, a.s.r. announced the intended acquisition of Loyalis to strengthen its disability proposition for a total consideration of € 435 million. This transaction was closed on 1 May 2019. The impact of the transaction on solvency ratio of a.s.r. was -7%pts upon closing.
On 16 September 2019, a.s.r. announced the issue of € 200 million Restricted Tier 1. The announced issue is an extension to the existing Restricted Tier 1 position, which stood at € 300 million, bringing the combined position to € 500 million. The new Restricted Tier 1 issue has the same terms and conditions as the already existing Restricted Tier 1 and is fully fungible with the already existing Restricted Tier 1, with a notional coupon of 4.625%.
The new policy will be implemented with immediate effect and a.s.r. has decided to buy back € 75 million of own shares, starting on 20 February 2020 and to be completed on 21 May 2020.
As a.s.r. applies shadow accounting and realised gains and loss accounting under IFRS 4, to ensure that insurance liabilities are adequate and to ensure that capital gains or losses on assets backing the insurance liabilities are allocated to the insurance liabilities, the operating result only differentiates from the IFRS result on items which are not directly related to its business. The capital gains on assets backing the insurance liabilities are allocated to the technical provisions and are released into the (operating) result over time. The operating result therefore reflects all investment related components that can be influenced by the business, as included in the IFRS result, but does not include any impairments on financial instruments, nor capital gains and fair value changes on the assets not backing the insurance liabilities (mostly equity and real estate investments).
Definition of operating result Operating result is calculated by adjusting profit before tax for continuing operations reported in accordance with IFRS, as adjusted for the changes in accounting policies and for the following: i) investment related: investment income of an incidental nature (including capital gains and losses, impairments and fair value changes)
on financial instruments for own account, net of applicable shadow accounting and net of additional provisions recognised for realised gains and losses on financial assets backing the insurance liabilities (‘compensation of realised capital gains’) impact; ii) incidental Items: 1. model- and methodological changes with a substantial impact; 2. results of non-core operations; and 3. other non-recurring or one-off items, which are not directly related to the core business and/or ongoing business of the Group, restructuring costs, regulatory costs not related to business activities, changes in the own pension arrangements and expenses related to M&A activities and start-ups.
The RoE, which is based on the operating result, is defined as: i) the operating result adjusted for hybrid expenses and the applicable tax divided by ii) the IFRS equity adjusted for unrealised capital gains reserve and equity components of non-core activities.
Definition changes 2019 and restatement 2018 a.s.r. continuously evaluates the definition of the operating result to ensure the performance measure remains appropriate and meets the required objectives. During the second half of 2019, the operating result has been refined following the acquisition of Loyalis and the ensuing recognition of VOBA and intangible assets. From a managerial perspective, a.s.r. regards the recognition and amortisation of positive and negative VOBA and other intangibles as IFRS 3 fair value accounting effects not relevant for the day-to-day management of the business and the operating performance of the underlying portfolios.
Historical comparison a.s.r. introduced the operating result in 2015 prior to the IPO. The operating result has since been the KPI for managing the profitability of the business. The five-year comparison of the IFRS result and the operating result shows that so far, although the IFRS profit for the year is more prone to volatility, it has always exceeded the operating result. The development of the underlying results shows a steady increase as the business has grown.
Reconciliation of IFRS profit for the year to operating result The reconciliation of the IFRS profit for the year to the operating result is presented as follows: IFRS profit to operating result
The 2018 incidentals are mainly related to the a.s.r. post-employment benefit plans, Generali integration costs, project implementation regulatory costs (project IFRS17/9) and to the run-off activities in Real Estate Development.
The amendment impacts the presentation of the tax related to interest payments on other equity instruments. The tax impact of the interest payments on these instruments was until 2018 presented as part of equity. As from 2019, the tax impact is presented in the line item income tax (expense) / gain in the consolidated income statement. The comparative figures have been restated accordingly, tax expense was reduced by € 15 million. There is no impact on equity.
Depreciation of property and equipment is recorded in the operating expenses (see chapter 6.11.3.18).
Financial statements 2019 | 6.11 Company financial statements 278 6.11.3.4 Subsidiaries On 1 May 2019, a.s.r. acquired Loyalis. As a result, a.s.r. fully included the results and the balance sheet positions in the a.s.r. financial statements from that date. Loyalis has been legally merged into a.s.r. as per 1 August 2019. Loyalis Life and Loyalis Non-life legally merged respectively into a.s.r. leven and a.s.r. schade as per 30 September 2019. In preparation of these mergers, Loyalis Life was sold to a.s.r. leven and Loyalis Non-life was sold to a.s.r. schade.
On 5 February 2018, the closing for the transaction of Generali took place. As a result, a.s.r. fully included the results and the balance sheet positions in the a.s.r. financial statements from that date. As of 8 May 2018 the legal merger of ASR Utrecht N.V. (formerly named Generali Nederland N.V.) with a.s.r. was effective. Since a.s.r. already owned 100% of the shares of Generali, this merger has no financial impact on the company financial statements of a.s.r.
The additions to capital relate to capital contributions made by a.s.r. to a.s.r. leven (€ 196 million) and a.s.r. schade (€ 269 million) to finance the acquisitions of respectively Loyalis Life and Loyalis Non-life.
Other changes - 1 6.11.3.7 Deferred tax assets The deferred tax assets arises from the difference in commercial and fiscal valuation of employee benefits (including the asset resulting from the insurance contracts, which are administrated by a.s.r. leven) amounting to € 164 million (2018: € 113 million) and € -10 million (2018: € 24 million) because of the future corporate tax rate reduction offset by the equalisation reserve of € 79 million (2018: € 66 million).
Financial statements 2019 | 6.11 Company financial statements 279 6.11.3.8 Other receivables The other receivables includes receivables from group companies, which include the receivable with respect to non-qualifying plan assets (see chapter 6.5.15) administered by a.s.r. leven amounting to € 3,163 million (2018: € 2,944 million). The plan assets administered by a.s.r. leven include the separate account to fund future inflation indexation amounting to € 241 million as at 31 December 2019 (2018: € 306 million). The remaining portion of the receivables from group companies is payable on demand.
6.11.3.9 Cash and cash equivalents Cash and cash equivalents are fully and freely available.
E q u it y at tr ib u ta b le to s h ar e h o ld e rs
Change in reserves required by law - - - 10 -10 - - - -
Discretionary interest on other equity instruments - - - - -60 - -60 - -60
Redemptions of other equity instruments - - - - - - - -209 -209
Cost of issue of other equity instruments - - - - -2 - -2 - -2
Discretionary interest on other equity instruments - - - - -59 - -59 - -59
Share capital For a breakdown of the share capital, see chapter 6.5.12.1.
Two Tier 1 instruments were redeemed during the year at first redemption date.
Distributable items The calculated available distributable items as at 31 December 2019 and 2018 is as follows.
a.s.r.’s distributable items is an amount equal to (with respect to and as at any interest payment date, without double- counting): (i) The retained earnings and the distributable reserves of a.s.r., calculated on an unconsolidated basis, as at the last calendar day of the then most recently ended financial year of a.s.r.; plus (ii) The profit for the period (if any) of a.s.r., calculated on an unconsolidated basis, for the period from a.s.r.’s then latest financial year end to (but excluding) such Interest Payment Date; less (iii) The loss for the period (if any) of a.s.r., calculated on an unconsolidated basis, for the period from a.s.r.’s then latest financial year end to (but excluding) such Interest Payment Date, each as defined under national law, or in the articles of association of a.s.r.
Financial statements 2019 | 6.11 Company financial statements 281 6.11.3.12 Other provisions
Provisions primarily relate to provisions for staff restructuring and retained disability risk.
An amount of € 23 million of the provisions is expected to fall due within one year (2018: € 13 million).
Of the total lease liabilities € 14 million falls due within one year.
6.11.3.16 Due to banks In 2019 due to banks amounted to € 105 million (2018: € 135 million).
There is no difference between the carrying value of other liabilities and their fair value.
6.11.3.19 Interest expense The interest expense relates primarily to the interest on subordinated liabilities, interest on the employee benefits obligation, allocated to the Holding and to the interest on the lease liabilities.
Financial statements 2019 | 6.11 Company financial statements 283 6.11.3.21 Related parties A related party is a person or entity that has significant influence over another entity, or has the ability to affect the financial and operating policies of the other party. Parties related to a.s.r. include associates, joint ventures, members of the EB, members of the Supervisory Board, close family members of any person referred to above, entities controlled or significantly influenced by any person referred to above and any other affiliated entity.
Joint and several liability a.s.r. 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.
A statement of joint and several liability under section 403, Book 2 of the Dutch Civil Code has been issued by a.s.r. for the companies identified in chapter 6.7.9.
Other information | 7.1 Report on the audit of the financial statements 2019 included in the annual report 286 7.1 Report on the audit of the financial statements 2019 included in the annual report
In our opinion: • The accompanying consolidated financial statements give a true and fair view of the financial position of ASR Nederland N.V. as at 31 December 2019, and of its result and its cash flows for 2019 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code; • The accompanying company financial statements give a true and fair view of the financial position of ASR Nederland N.V. as at 31 December 2019, and of its result for 2019 in accordance with Part 9 of Book 2 of the Dutch Civil Code.
• The notes comprising a summary of the significant accounting policies and other explanatory information.
Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the Our responsibilities for the audit of the financial statements section of our report.
Our understanding of the business ASR Nederland N.V. is a Dutch insurance company. The group is structured in components and we tailored our group audit approach accordingly. We paid specific attention in our audit to a number of areas driven by the operations of the group and our risk assessment.
Other information | 7.1 Report on the audit of the financial statements 2019 included in the annual report 287
We agreed with the Supervisory Board (SB) that misstatements in excess of € 2 million, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Our responsibility Although we are not responsible for preventing fraud or non-compliance and cannot be expected to detect non-compliance with all laws and regulations, it is our responsibility to obtain reasonable assurance that the financial statements, taken as a whole, are free from material misstatement, whether caused by fraud or error. Non-compliance with laws and regulations may result in fines, litigation or other consequences for the company that may have a material effect on the financial statements.
We considered available information and made enquiries of relevant executives, directors (including internal audit, legal officer, compliance officer, the CFRO’s of the business lines) and the SB. As part of our process of identifying fraud risks, we evaluated fraud risk factors with respect to financial reporting fraud and misappropriation of assets in close co-operation with our forensic specialists. We evaluated the design and the implementation and, where considered appropriate, tested the operating effectiveness, of internal controls that mitigate fraud risks. In addition, we performed procedures to evaluate key accounting estimates for management bias in particular relating to important judgment areas and significant accounting estimates as disclosed in Note 6.3.4 of the financial statements. In our risk assessment we considered the potential impact of these important judgment areas and significant accounting estimates on the valuation and adequacy of insurance contract liabilities, fair value measurement of non-listed investments and on important financial KPI’s disclosed in the financial statements: the Solvency II Ratio, Operational Result and the Combined Ratio. We have also used data analysis to identify and address high-risk journal entries.
Scope of the group audit ASR Nederland N.V. is at the head of a group of entities. The financial information of this group is included in the consolidated financial statements of ASR Nederland N.V.
We included all insurance entities, asset management entities and bank entity in the audit scope for consolidation purposes (full scope and specific scope). We performed for the remaining entities, amongst others, analytical review procedures to corroborate our assessment that there are no significant risks of material misstatement (limited scope). This resulted in the following coverage: Assets Equity Operational result
Teaming, use of specialists We ensured that the audit teams both at group and at component levels included the appropriate skills and competences which are needed for the audit of a listed client in the insurance industry. We included specialists in the areas of IT audit, forensics and income tax and have made use of our own experts such as actuaries and valuation experts in the areas of valuation and adequacy of insurance contract liabilities, valuation of employee benefits liabilities, valuation of complex (Level 3) investments and IFRS 3 fair value accounting.
• Evaluating the overall presentation, structure and content of the financial statements, including the disclosures; • Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Other information | 7.1 Report on the audit of the financial statements 2019 included in the annual report 289
These matters were addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Risk ASR Nederland N.V. has insurance contract liabilities of € 51 billion representing 80% of its total liabilities.
Various economic and non-economic assumptions are being used to estimate these long-term liabilities in the LAT. The assumptions for life contracts used relate to risks regarding interest, mortality, longevity, morbidity, catastrophe, lapse and expense and for non-life contracts liabilities these are the disability, claims incurred but not reported, cost and recovery rate assumptions.
The company applies shadow accounting in its financial reporting as disclosed in note 6.5.14. Shadow accounting is complex, requires judgment regarding results that apply for shadow accounting and has a significant impact on the liabilities arising from insurance contracts. The company has comprehensive procedures and internal controls in place to determine the shadow accounting.
We involved internal actuarial specialists in performing the audit procedures regarding the insurance contract liabilities. This includes assessing the appropriateness of assumptions used in the valuation of the individual life and pension contracts, non-life contracts and healthcare insurance contracts by reference to company and industry data and expectations of investment returns, future longevity and expense developments.
We tested the internal controls regarding the shadow accounting of the (un)realised results on the investments eligible for shadow accounting. Furthermore, we tested the application of shadow accounting by inspecting the reconciliations of the (un)realised results of the investments with the investment administration, assessing the calculation and the accounting of the related shadow accounting adjustment in the liabilities arising from insurance contracts.
Risk ASR Nederland N.V. invests in various categories of investments, of which 82% (year-end 2018: 86%) is carried at fair value in the balance sheet.
Fair value measurement can be subjective, and more so for investments reliant on model based valuation or with less liquidity. Valuation techniques for investment property, fixed income instruments and equities without a quoted price in an active market involve setting various assumptions regarding pricing factors.
Specific area of focus include the fair value hierarchy disclosure, where the investments are classified in 3 levels: Level 1: fair value based on quoted prices in active market; Level 2: fair value based on observable market data; and Level 3: fair value not based on observable market data. The level 3 investments are 7,8% (2018: 6,5%) of all investments carried at fair value.
Furthermore, we assessed and tested the design and operating effectiveness of the controls over related disclosures including the disclosures in note 6.7.1.
The fair value disclosures of investments in note 6.7.1. meet the requirements of EU-IFRS.
Risk ASR Nederland N.V. presents its capital position in accordance with Solvency II, in the capital management section of the annual accounts (note 6.9).
As part of our audit procedures, we assessed the internal control of the solvency calculations. Those controls include ASR Nederland N.V.’s methodology, model and assumption approval processes and management review controls. Additionally, where relevant, comparison of judgments and best estimate assumptions was made to market practice and re-performance of calculations on a sample basis.
Based on our audit procedures performed, we consider that the Solvency II information disclosed in the capital management section of the annual accounts (note 6.9), sufficiently reflects the valuation and riskbased capital requirements of the Solvency II regulatory framework and the capital management disclosure requirements of EU-IFRS.
A negative outcome of such claims and proceedings in respect of unit-linked products, settlements or any other actions for the benefit of customers by other insurers and sector-wide measures could have a significant impact for ASR Nederland N.V. relating to compensation. The financial consequences of these legal proceedings cannot be reliably estimated or quantified at this point. Refer to note 6.7.6.2 to the financial statements.
Other information | 7.1 Report on the audit of the financial statements 2019 included in the annual report 292
The disclosure of the exposure in note 6.7.6.2 describes the related risks and management judgments in compliance with the relevant accounting requirements.
In addition, ASR Nederland N.V. is required to make certain IFRS 3 disclosures related to the acquisition in its 2019 financial statements. Refer to note 6.4.5.
The management of ASR Nederland N.V.’s engaged a third-party expert to provide support with respect to the determination of the fair values of Loyalis N.V. ‘s assets and liabilities under IFRS 3. We have assessed the expertise of the third-party expert. Furthermore, we deployed a specialist team to audit the PPA. Our team included valuation specialists who have extensive experience in the valuation of investments and insurance liabilities.
Based on or audit procedures performed, we determined that management applied a reasonable approach in determining the PPA of Loyalis N.V. ‘s assets acquired and liabilities assumed, and resulting amount of badwill recognised.
We assessed that the disclosure meets the requirements of IFRS 3.
High quality data and securitisation of this data is (becoming more) important. To ensure this, reliability and continuity of electronic data processing is key. Therefore, we consider this a key audit matter.
Based on the combination of the tests of controls and IT substantive procedures performed, we obtained sufficient appropriate audit evidence for the purposes of our audit.
On 20 March 2019 a sales agreement was signed with Achmea Bank N.V., after which the entire mortgage portfolio of € 1.4 billion and a significant part of the saving accounts of € 1.5 billion were transferred on 1 December 2019. Additionally, an agreement was signed with Van Lanschot Kempen N.V. to transfer the remaining saving accounts to Evi van Lanschot.
Based on our audit procedures performed we consider that the classification and the presentation of
ASR Bank N.V. as held for sale and discontinued operation is appropriate.
In addition, we concur with the result from discontinued operations and carrying amount of ASR Bank N.V. as at 31 December 2019. The held for sale disclosure of ASR Bank N.V. in note 6.4.6 meets the requirements of
Other information | 7.1 Report on the audit of the financial statements 2019 included in the annual report 294
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 and Section 2:135b sub-Section 7 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is substantially less than the scope of those performed in our audit of the financial statements.
As part of the preparation of the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations,
The SB is responsible for overseeing the company’s financial reporting process.
Our responsibilities for the audit of the financial statements Our objective is to plan and perform the audit engagement in a manner that allows us to obtain sufficient and appropriate audit evidence for our opinion. Our audit has been performed with a high, but not absolute, level of assurance, which means we may not detect all material errors and fraud during our audit.
We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. The Our audit approach section above includes an informative summary of our responsibilities and the work performed as the basis for our opinion.
In this respect we also submit an additional report to the audit committee in accordance with Article 11 of the EU Regulation on specific requirements regarding statutory audit of public-interest entities. The information included in this additional report is consistent with our audit opinion in this auditor’s report.
We provide the SB with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the SB, we determine the key audit matters: those matters that were of most significance in the audit of the financial statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.
Other information | 7.2 Provisions of the Articles of Association regarding profit appropriation 296 7.2 Provisions of the Articles of Association regarding profit appropriation 1 See for the complete Articles of Association www.asrnl.com.
Articles 35, 36 and 37 of the Articles of Association1: Distributions – General Article 35 35.1 A distribution can only be made to the extent that the Company’s equity exceeds the Non-Distributable Equity.
35.3 Subject to Article 19.10, the Executive Board (EB) may adopt, and amend from time to time, a dividend and reservation policy for the Company. Amendments to such a policy shall be discussed in the General Meeting.
Distributions – Profits Article 37 37.1 Subject to Article 35.1, the profits shown in the
Other information | 7.2 Provisions of the Articles of Association regarding profit appropriation 297 c. The Preferred Distribution shall be paid on the preferred shares in respect of the financial year to which the annual accounts pertain; d. Subject to Article 19.10, the EB shall determine which part of the remaining profits shall be added to the Company’s reserves; and e. Any remaining profits shall be at the disposal of the General Meeting for distribution to the holders of ordinary shares.
Ultimately after the Foundation has held preference shares for a period of 20 months (or for such longer period as the Foundation deems appropriate given the facts and circumstances at hand), the Foundation may request, by means of a notice to that effect, that a.s.r. considers submitting, as soon as practicable, a proposal to the General Meeting for a resolution to cancel all preference shares. a.s.r. is free to propose such a resolution without this being requested by the Foundation if non-cancellation of the preference shares in a timely manner were to result in the Foundation being required to make a mandatory public offer in respect of a.s.r. In addition, if and when a.s.r. has issued preference shares to the Foundation, a.s.r. will convene a General Meeting, to be held within 20 months following such issuance, for the purpose of adopting a resolution on the cancellation of all such preference shares.
The Foundation has not exercised the call option and did not acquire any preference shares during the year under review.
The Foundation has an independent board. The membership of the Board of the Foundation is as follows: • Mr H.J. Hazewinkel (Chairman); • Mr A.A.M. Deterink; • Ms M.E. Groothuis.
The Board of the Foundation met on two occasions in 2019. The matters discussed included the full-year 2018 results of a.s.r., the execution of the strategy, the financing of a.s.r., acquisitions and divestments by a.s.r., developments in the market, and the general course of affairs at a.s.r. At these meetings, a representative of the EB of a.s.r. provided the Board of the Foundation with information on the developments within a.s.r. and the relationship with its shareholders. The Board of the Foundation also monitored the developments of a.s.r. outside of Board meetings, for instance through a Board member’s receipt of press releases issued by a.s.r.
Report of the Stichting Continüiteit ASR Nederland | 8.1 Report of Stichting continuiteit ASR Nederland 301
About the object The library was a large rectangular room on the first floor of the De Utrecht building. The entire wall on the side with the entrance to the room was taken up by the library cupboard, designed by the architect Jan Verheul. The library cupboard contained Managing Director W.P. Ingenegeren’s collection of books on the insurance world. After the De Utrecht building was demolished, the cupboard, after many wanderings, ended up in the attic of the Central Museum. Now it shines once again at a.s.r.
Ethibel Excellence Europe Index included included NA Dutch Transparency Benchmark1 21 NA 46
VBDO Tax Transparency Benchmark 25 / #10 18 / #15 7 / #19
Nominations and awards • With a rise of six places, from 26 to 20, a.s.r. makes the biggest advancement of Dutch companies in the Brand Finance Top 50 2019; • De Amersfoortse keeps the overall top position in the IG&H Income Performance Monitor (Disability, Individual and Collective); • At the Hypovak event a.s.r. won the Golden Lotus for the best home insurer. It was the third time that a.s.r. won the highest number of votes in this category from the mortgage consultants; • Honourable mention for ‘I think ahead’ Pensions Guide 2019; • a.s.r. wins all Adfiz ‘Best Partner‘ cups; • a.s.r. emerges as the best in a Complaints and Customer
Feedback test; • a.s.r. wins the Best Employers 2019-2020 certificate with the maximum of 3 stars; • a.s.r. top insurer in Step 1 of the CSR Performance Ladder (PSO); • a.s.r. asset management came out top in a ranking of the Dutch Association of Investors for Sustainable Development (VBDO); • a.s.r. once again a leader in the Eerlijke Verzekeringswijzer (Fair Insurance Guide); • UN PRI qualified ASR Nederland as the 2019 Group Leader. For the first time this year, the title was awarded to the top 10% of members of the UN PRI for the way in which they select their external asset managers; • VBDO names a.s.r. as the most sustainable investor; • a.s.r. asset management takes four Lipper Awards; • Fair Insurance Guide named a.s.r. as a leader in sustainable investments in pharmacy; • The Services Department won the Benchmark XL
Award for the third time in a row in the ‘Best overall performance’ category.
In numbers 31 December 2019 31 December 2018 31 December 2017
Equivalent working time spent on training (in € million) 1,530 1,203 1,338
Employees took at least one targeted training session (in %) 58 44 52
Employees took part in one of the development programmes (#) 534 719 819
Annual total compensation for the highest-paid individual (€) 766,000 655,0001 546,0001
Median annual total compensation for all employees (€) 61,000 61,000 59,000
Participating in number of engagement dialogues via Robeco 9 9 11
Introduction price as at 10 june 2016: € 19.50 - - -
Starting price as at 1 January € 34.58 € 34.31 € 22.60
Scope The financial information in this annual report has been consolidated for a.s.r. and all its group entities. All quantitative and qualitative information relates to a.s.r. as a whole, unless a specific business line is explicitly mentioned. The data in chapter 3 Sustainable value creation is exclusive Van Kampen Groep (VKG), Dutch ID (Felisson and Boval), Poliservice, SuperGarant, Corins, Stoutenburg, Loyalis Kennis & Consult and ANAC. Their combined assets account for approximately 0.4% of total assets. Together, the sections 1, 2, 3 and 4 make up the Report of the Management Board.
Before work started on gathering information and writing the annual report, the SG and the WG decided on the structure and key messages of the report. The WG then translated these guidelines into drafts, which were reviewed by a committee of members from the WG, SG and RG. During the reporting process, the RG delivered feedback on the draft annual report. The RG is represented by directors. The draft texts of the annual report are discussed in the respective meetings of the EB, the SB and the Audit & Risk Committee. Disclosure of the annual report is subject to the approval of the EB and the SB.
This report has been prepared in accordance with the GRI Standards: Core option. The GRI standards provide relevant and clear requirements for reporting on economic, social and environmental aspects. The GRI table, including additional information not included in the annual report itself, can be found in Annex F. In addition, the Integrated Reporting Framework of the IIRC has been used to further integrate the financial and non-financial information into the Management report.
As a large listed company in the Netherlands, a.s.r. is required to comply with the EU Directive on non-financial information. This directive is implemented in Dutch law and applies to annual reports published after 1 January 2018. a.s.r. is required to report about non-financial information in relation to environmental, social and personnel matters, in respect of human rights and combatting bribery and corruption. Please find the EU directive table in Annex G.
a.s.r. uses the Greenhouse Gas Protocol to report its GHG emissions.
Presentation of non-financial data The definitions and calculation methods of indicators are presented in the relevant sections and in Annex C Glossary.
Audit and assurance of the auditor The consolidated financial statements have been audited by our external auditor, Ernst & Young Accountants LLP (EY). EY’s audit opinion can be found in chapter 7.1 Report on the audit of the financial statement included in the annual report.
The non-financial target regarding the carbon footprint coverage shows the percentage of a.s.r.’s internally managed AuM for the own account of ASR Nederland N.V., where a.s.r. has measured at least the carbon emissions scope 1+2.
a.s.r.’s activities are divided into three categories: • For asset management the carbon footprint includes all asset classes, in particular sovereign bonds, corporate bonds, mortgage loans, Interest Rate Swaps, direct real estate, listed equity and cash.
The carbon footprint methodology is aligned with PCAF, except for direct real estate. This approach is built on principles of consistency, transparency, prudence and accuracy with a focus on data quality.
Discounted cash flow method A valuation technique whereby expected future cash flows are discounted at a rate that expresses the time value of money and a risk premium that reflects the extra return that investors demand as compensation for the risk that the cash flows may not materialise.
Global Reporting Initiative The GRI is an international organisation that defines standards for sustainability reporting.
Global Real Estate Survey Benchmark The GRESB is a benchmark that looks at the sustainability performance of more than 700 institutional investment funds worldwide.
Gross written premiums Total revenues (earned or otherwise) expected to be received for insurance contracts over the life of the contract, including reinsurance premiums. Hedge accounting Hedge accounting recognises the offsetting on profit or loss of changes in the fair value of the hedging instrument and the hedged item.
Impact investments The Global Impact Investing Network defines ‘impact investing’ as: ‘Investments made into companies, organisations, and funds with the intention to generate positive, measurable social and environmental impact alongside a financial return’. This definition will be used by a.s.r. for its targets on impact investing.
Impact bonds An impact bond meets the following conditions: • The bond complies with the Green Bond Principles,
Climate Bond Principles or Social Bond Principles; • The bond has been verified by an independent accountant.
Impact companies > 50% of the company’s output comes from products or services (with a theory of change) for one or more of the ten impact themes as defined by the UN PRI.
For asset management impact investing is defined as: Investments in organisations or governments with the intention of generating positive impact in addition to positive financial returns on a sustainable future for people and the planet.
Mortgages defines impact investments as: Mortgage loans that make a positive contribution to solving one or more problems in the environmental field. And more specifically, where governments and civil society organisations are not sufficiently able to solve certain (persistent) social issues on their own.The main goal is to generate a measurable positive impact on a sustainable future for people and the planet.
These investments are visible in (parts of) concrete products and services. Financial return is important, but not the most important.
Insurance contracts A contract under which one party (a.s.r.) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder.
Investment contract A life insurance contract that transfers FR with no significant insurance risk.
Materiality An aspect is considered material if it is relevant to the stakeholders, has reasonably estimable economic, environmental, and/or social impact and can have a major impact on the development of a.s.r. The greater the impact of the aspect on both society and a.s.r.’s business operations, results and strategy, the greater its materiality.
Notional amount An amount of currency, a number of shares, a number of units of weight or volume or other units specified in a derivatives contract.
Order in Council An Order in Council is a decision taken by the Dutch government with respect to statutory provisions.
Socially responsible investment Investing with due regard for ethical standards, policies and procedures, in line with the interests of a.s.r. stakeholders, whereby the integration of ESG criteria is key. To achieve this a.s.r. makes use of multiple ESG approaches such as the exclusion of controversial activities, exclusion of companies and countries due to their ethical performance, the engagement dialogue, the integration of ESG assessments in the portfolio construction and impact investing. A detailed description of a.s.r.’s SRI policy is published on asrnl.com.
Subsidiary An entity that is controlled by ASR Nederland N.V. (the parent company) or a subsidiary of ASR Nederland N.V.
AEX Amsterdam Exchange Index AF Actuarial Function AFM Dutch Authority for the Financial Markets AGM Annual General Meeting AI Artificial Intelligence AIFM Alternative Investment Fund Managers AIFMD Alternative Investment Fund Managers
Directive ALM Asset Liability Management AMX Amsterdam Midcap Index APG Algemene Pensioen Groep N.V. ATES Aquifer Thermal Energy Storage AuM Assets under management AVB ASR Vermogensbeheer B.V. BEC Business Executive Committee BKR Credit Registration Office bps basis points BRC Business Risk Committee BREEAM Building Research Establishment
Poor’s) CDD Customer Due Diligence CDP Carbon Disclosure Project CEO Chief Executive Officer CFO Chief Financial Officer CIS Central Information System CLA Collective Labor Agreement CMD Capital Markets Day CO2 Carbon Dioxide CoC Cost of Capital COO Chief Operating Officer COR Combined ratio CPB Netherlands Bureau for Economic Policy
Pensions Authority ERM Enterprise Risk Management ESG Environmental, Social and Governance ESI Ethibel Sustainability Index EU European Union Euribor Euro interbank offered rate EVO Entrepreneurs organisation for Logistics and
Poor’s) IIRC International Integrated Reporting Council IORP Institution for Occupational Retirement
KPI Key Performance Indicator kWh kilo Watt hour LAC DT Loss Absorbing Capacity Deferred Tax LAT Liability Adequacy Test LDI Liability Driven Investing LTO Agriculture and Horticulture Organisation
Disclosures TNO Dutch Organisation for applied scientific research TVOG Time Value of Financial Options and
Investments USD United States Dollar UWV Employee Insurance Agency VBDO Dutch Association of Investors for
Sustainable Development VCS Verified Carbon Standard VKG Van Kampen Groep VPL early retirement and life cycle VVP Revised Value Pack Wft Financial Supervision Act WGA Resumption of work by Partially Disabled
Materiality analysis and stakeholder dialogue a.s.r. engages with stakeholders who directly and indirectly affect the organisation. a.s.r. is committed to a strategic, constructive and proactive dialogue with all its stakeholders, including customers, employees, investors, civil society organisations and the media. a.s.r. engages with them through road shows, client and employee surveys, participation in sector initiatives, and other means. Also, the EB Members meet on a regular basis with intermediaries, shareholders, regulators, tax authorities, politicians and civil society organisations to discuss the strategic progress, receive their feedback on a.s.r.’s contribution to society and debate developments in the financial sector.
External trends are also continuously monitored, to determine the issues most relevant for a.s.r. and decide where it can make a positive contribution to broader society. For this purpose, a variety of sources are used including regulatory body reports, World Economic Forum, the World Business Council for Sustainable Development (WBCSD) and media coverage.
On top of these continues stakeholder interactions, a broad centrally organised stakeholder consultation was held in 2018. The outcomes of this stakeholder consultation were used to define the material topics for the annual report in 2018. This materiality analysis was further analysed by senior management and the EB in 2019, to develop an integrated business strategy focused on creating sustainable long-term value for a.s.r. and its stakeholders.
More information about the integrated business strategy can be found in chapter 2.1 The story of a.s.r. More information about the process and outcomes of the centrally organised stakeholder consultation, can be found in the annual report of 2018. In 2019, a review was carried out on the material topics which have been validated by various internal stakeholders, including the EB. This review was based on input from various stakeholder dialogues that took place in 2019 and desktop research. The material topics of 2019 are presented in chapter 2.3 Stakeholders and material topics.
a.s.r. is working together with peers, civil society organisations and governmental agencies to establish policies that support better management of ESG issues.
Also, the Chairman of the EB has discussed how to improve sustainable practices within the financial sector with several civil society organisations and in Dutch parlements members of the Second Chamber during a round table conversation.
More information about a.s.r.’s efforts to promote more thorough sustainability practices can be found in chapter 3.4.1. a.s.r. asset management.
102-15 Key impacts, risks, and opportunities Ch. 1.3, 2.2, 4.2, 4.4, 6.8 (p. 14-15, 23, 84-88, 90-95, 234-267)
GRI Standard Disclosure Location of disclosure, url(s) and/or information 102-41 Collective bargaining agreements 99.3% of the total employees are covered by collective bargaining agreements.
Annex A Facts and figures 102-42 Identifying and selecting stakeholders Ch. 2.3 (p. 24)
102-49 Changes in reporting Material themes from 2018 that does not return in the 2019 materiality matrix: • Integrity (combined with Compliance and Privacy)
• IT security and privacy (Part of Integrity, Compliance and Privacy)
Annex B About this report 102-55 GRI content index Annex F GRI Content Index 102-56 External assurance Annex B About this report
Types of injury and rates of injury, occupational disease, lost days, and absenteeism, and number of workrelated fatalities.
GRI Standard GRI Standard Title Disclosure Location of disclosure, url(s) and/or information
404-2 Training and Education Programmes for upgrading employee skills and transition assistance programmes.
Non-financial key performance indicators. Yes Ch 1.1, 2.4 (p. 11, 27-28)
Principle risks in own operations and within value chain. Yes Ch. 4.4 (p. 90-95)
The outcome of those policies. Yes Ch. 3.4, 3.5 (p. 44-46,
Principle risks in own operations and within value chain. Yes Ch. 3.4, 3.5, 4.2 (p. 44-46,
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About the object In order to make different choices for a sustainable world of tomorrow, it is important to consider the future in decisions taken today. This is why we give the future a chair at the table at a.s.r. In this way, the future has a literal presence and we protect the voices of the generations still to come.