ASR provides services to a broad public through a number of different brands. In addition to the largest brand of ASR we offer services and products through the De Amersfoortse, Ditzo, Europeesche Verzekeringen and Ardanta brands. We give customers the choice of buying insurance policies from intermediaries or through direct channels, e.g. online, depending on their needs. The brands of De Amersfoortse, Ardanta, Ditzo and Europeesche Verzekeringen gained the Customer-oriented Insurance Quality Mark in 2011. The Quality Mark confirms that these brands put customers first in their service. The Quality Mark demands policy on areas such as clear and easy-to-understand communications, careful handling of complaints, excellent accessibility, research into customer satisfaction and quality management.
Boasting nearly 4,600 employees and having generated € 4.5 billion in revenue for 2011, ASR is the fourth largest insurance company in the Netherlands, excluding health insurance. We offer insurance products, such as pensions, life insurance, non-life insurance, occupational disability insurance and health insurance, to Dutch retail and corporate clients. ASR also sells mortgages and provides banking services.
The Dutch State has been the sole shareholder of ASR Nederland N.V. since 3 October 2008. On 29 September 2011, the Dutch State transferred all shares in ASR Nederland N.V. to NL Financial Investments (NLFI) in exchange for depositary receipts for the shares.
Part II Report of the Executive Board 23 Interview with Roel Wijmenga The need for a strong balance sheet 24 2.1 Members of the Executive Board of ASR 26 2.2 Financial performance 28 2.2.1 ASR Nederland N.V. 28 Interview with Jolanda Hillebrand-Tijhuis The best products and the best advisors for our customers 31 2.2.2 Life segment 32 2.2.3 Non-life segment 36 2.2.4 Other segment 40 2.3 Capital management 42 2.4 Risk management 45
Part III Governance 49 3.1 Corporate Governance 50 3.2 Remuneration policy Executive Board 52 Interview with Alf Overmars Core values provide moral compass 54
Part VI Financial statements 69 Consolidated financial statements 71 Notes to the balance sheet 118 Notes to the income statement 146 Company financial statements 158
is satisfied with all these results. And we will pay € 71 million dividend over 2011 to our shareholder. We are proud to do so.
In 2011, we made a conscious choice that ASR would be that “new kind of insurer”, a business with a unique identity that feels personally responsible for meeting its customers’ needs and is willing to be held accountable. An organization that works with integrity, founded on respect for its customers, distribution partners and employees. An insurer that wants to raise people’s financial awareness, enter into a dialogue with customers, and seeks to truly understand its customers. We want to translate this understanding into transparent products, services and communication so that customers are able to make their own conscious choices.
It is crucial that we ensure our customers have no cause for concern. Customers can rest assured that we honour our commitments and that we offer products and services that are transparent, easy-to-understand and accessible. They should know also that we are approachable, either directly or through intermediaries, and provide the information customers need and understand to enable them to make the right product choices.
At ASR, we share the core values of our business and we act accordingly. This means that we will be personal, approachable and accountable and true to who we are. With each other and with our customers. Acting in this way will allow us to make the cultural transformation to becoming a new kind of insurer. An insurer that customers return to time and again.
In our opinion, the essence of the trust that we ask and offer is consistency of policy and decisions that lead to the best outcome for all our stakeholders.
ASR is returning to its roots and refocusing on providing financial continuity and security for people, while retaining its own strong identity. A company that feels a personal responsibility for meeting the needs of customers, and it wants to be called to account for this if necessary. An organization that operates with integrity, based on demonstrating respect for its customers, distribution partners and employees. And it expects the same in return. Though we are a commercial business, we will not allow the interests of our customers to suffer at the expense of shareholder interests. The fact that we take our human approach seriously is reflected in all our brands: De Amersfoortse, Ardanta, Ditzo, Europeesche Verzekeringen, and of course ASR, the biggest label in the portfolio. At ASR, we listen with genuine interest to people. So that we are better able to meet their needs and can build long-term relationships. Our core values of being personal, approachable and accountable and true to who we are, are reflected in everything we do.
ASR is an independent, market-oriented insurer that focuses on the customer and creates value for its stakeholders on a sustainable basis. ASR is convinced that growth can be achieved by thinking in terms of customer interests and customer perception. The clarity and transparency of products, financial robustness and the efficiency of business processes by which products are developed and managed, play a key role in this. ASR focuses on individual customers, self-employed professionals, and small and medium-sized enterprises (SMEs). ASR constantly works for cost-efficiency in its organization in order to achieve its financial objectives and provide the customer with attractive services at competitive prices.
Having generated € 4.5 billion in revenue in 2011, ASR is one of the top four insurers in the Netherlands (excluding health insurers). ASR has a strong position in the intermediary channel. In the direct channel, ASR is developing its position through its online insurer, Ditzo. Initially in the Non-life market, and in the health insurance market too as of 2011. ASR’s core markets are Non-life, Occupational Disability, Individual-life and Pensions. In addition to these core markets, ASR focuses on: • services in markets that, because of their connection with activities in one of its core markets, are important to offer to customers, such as savings and investment, and mortgages; • markets with a specific distribution network and a relatively independent market dynamic, such as the travel and leisure market (Europeesche Verzekeringen) and the funeral market (Ardanta).
Customers are no longer letting their choice be restricted by the traditional way in which insurance products are distributed. Customers use a range of options to obtain information, make comparisons, obtain advice and make administrative changes. This means that the customer’s direct relationship with ASR is becoming more important, as is the relationship with the intermediary. ASR is structuring its organization and digital online access systems to respond 1.2 Ambitions
to these developments. The more complex products become, the greater the role played by advisory services. Customers are now increasingly determining how roles are allocated among intermediaries and the insurer.
‘We are responding to customer demand for a steadily growing, robust insurance company. With simple, understandable products that protect businesses and private individuals against the risks they are unwilling or unable to bear themselves. In doing so, we offer genuine security. It is no longer the case that customers automatically choose to use our services. We live in a rapidly changing world. Communication is much faster these days, social media are a permanent source of information. They generate a great deal of positive publicity when things are going well, but they also mean plenty of
How do I achieve the targets for our new health insurance policy?
It is paramount, for instance, that we develop new consumer products in close dialogue with potential customers. What is more, a product should be understandable and offer value for money, so that it makes for a competitive proposition.
ASR has a great deal of potential. We have good people, strong brands and products, and are the right size. However, things still need to be made simpler for our customers. Particularly at times that matter, such as when the risk a customer has insured becomes a reality. For instance when the customer is confronted with damage to their property. Simplifying our organization will also enable us to reduce our costs. And the fewer costs we incur, the lower the costs will be for the customer.
It is essential that we work more efficiently, if we are to remain sufficiently competitive. This can be achieved, for instance, by retiring legacy systems and replacing them with new and more efficient systems. This will lead to structural cost reductions.
ASR wishes to be the insurer with the best customer appreciation rating in order to retain existing business and to development long-term relationships with new customers. ASR accomplishes this by taking its customers seriously. Customers have told us that they want transparent products, clear communication and personal service. ASR gives the highest priority to honouring the promises made about this. This means that all our activities and objectives are assessed with customer interests in mind. New products are presented to customer panels and the wishes that customers express here are factored into the product development process. Ultimately, this should come back in the appreciation rating that customers give us, for instance, in terms of the Net Promotor Score (NPS).
Offering security to customers is our first priority. Financial robustness is inextricably linked with the strategic principle of winning back customer confidence. A financially sound insurer is able to meet all its customer commitments at any given time. Besides the solvency position itself, it is also important to thoroughly map out the risks that influence solvency. A good credit rating (i.e. at least investment grade) is the outcome of this. ASR seeks to obtain a capital position in line with an A rating.
In order to create as much commitment to responsible business practices as possible in the company as a whole, the Executive Board decided in 2011 to delegate responsibility for the objectives and implementation of sustainability policy to the management of the respective divisions. This makes sustainability a routine aspect of business practices.
Principles and objectives are defined in dialogue with all stakeholders, and they constitute part of the strategy. As part of this process, ASR maintains close contacts with a broad group of outside stakeholders (customers, business partners, shareholders, regulators, politicians, regional authorities, industry associations, trade unions, non-governmental organizations (NGOs) and local communities).
Customer requirements and market developments are monitored closely so as to respond effectively to any needs. Studies are also conducted to assess the clarity of ASR’s communications. The Customer Contact Centre, the complaints management department, the Lean programme
As an institutional investor, one way in which ASR demonstrates it social responsibility is in its use of ethical and sustainability criteria as part of its investment policy.
of environmental, social and corporate governance aspects in their investment practice. Besides signing the UNPRI, ASR also complies with the new Sustainable Investment Code of the Dutch Association of Insurers, which entered into force on 1 January 2012. The Sustainable Investment Code implies that members of the Dutch Association of Insurers bear both environmental and social aspects in mind in their investment policy, as well as the management of the entities in which they invest.
In accordance with the Dutch Corporate Governance Code and ASR’s SRI policy, a voting policy has been developed to clarify ASR’s role as an institutional investor. Voting accountability offers insight into the exercise of ASR’s voting rights in shareholder meetings of its Dutch associates. The voting policy and voting accountability information can be found on ASR’s corporate website (www.asrnl.com).
In 2011, ASR ranked third in a survey conducted by the Dutch Association of Investors for Sustainable Development (VBDO)
The ambition of ASR Vastgoed Vermogensbeheer, our investment property business, is to add value for its investors and for the users of its properties in a sustainable, personal and transparent manner. Traditionally this has been achieved by investing in land and country estates. The sustainability policy has been firmly embedded in the business processes. A supplier of renewable energy has been chosen to service the entire property portfolio. Tenants’ energy consumption for general facilities is measured with a view to raising awareness of energy use and ultimately reducing consumption.
Of ASR’s property portfolio, 50% of residential properties have an energy performance rating of C or better, which is 10%-points higher than the housing stock in the Netherlands as a whole. We maintain our properties in accordance with specified sustainability criteria. Examples being the maintenance work on the Weena office building in Rotterdam (‘A’ rating for energy performance and ‘Silver’ LEED sustainability certificate awarded) and a retail property at Spui/Grote Markt in The Hague (‘Good’ BREEAM sustainability rating sought). Finally, it has been decided to seek an ‘A’ rating for energy performance and a ‘Very good’ BREEAM sustainability rating for the Utrecht-based head office after it is renovated. This will be achieved through a system of ground source heating and cooling.
We cannot, at this time, give a forecast for 2012 in view of the impact of the upcoming renovation. Energy consumption is expected to rise during the renovation due to the use of extra facilities. After the renovation, energy consumption will
ASR Vastgoed Ontwikkeling uses BREEAM, the internationally recognized assessment method and rating system for buildings for guiding the sustainability of its developments. ASR achieved BREEAM certification for a number of developments in 2011, including a shopping centre in Waddinxveen, which was the first shopping complex in the Netherlands to be awarded this certification. The Amsterdam Court of Law, currently under construction in the IJdock district, was also BREEAM-certified this year. BREAAM certificates are awarded by the Dutch Green Building Council in recognition of the demonstrable and measurable sustainability performance of buildings, including the use of sustainable timber or thermal energy storage. Following on from this, in 2011 ASR Vastgoed Ontwikkeling presented its plans for developing an energyneutral residential area and, under the terms of the Landfor -Land Initiative, allocated a budget to compensate its construction with an equivalent nature area elsewhere in the Netherlands. ASR Vastgoed Ontwikkeling is currently in talks with Utrechts Landschap, a foundation for the protection of nature and culture, about how and where the new natural area should be constructed. Sustainability expertise has been boosted by organizing training courses for employees of ASR Vastgoed Ontwikkeling. For instance, during the Provada real estate trade fair, ASR met with customers in a series of workshops to discuss what the concept of sustainability means to them.
For its customers and society at large, ASR aspires to be the financial services provider with a human dimension. For its employees, ASR wants to create a comfortable work environment where the most diverse talents and characters feel at home, and their skills and abilities are used to their best advantage. ASR offers employees opportunities for personal development, career planning and achieving their ambitions. The introduction of the New World of Work is part of the goal to create a pleasant work atmosphere and a high level of employee engagement to ASR. The most important reason for ASR to introduce NWW was that it gives employees the opportunity for a better work-life balance, thereby boosting their motivation. What is more, NWW helps reduce energy consumption and carbon emissions.
see a substantial and structural drop compared to what it was before, probably by 25%. The renovation plans will be fleshed out in 2012, after which the estimated figure will become more final.
Carbon emissions due to mobility It has been established that a substantial share of ASR’s carbon emissions is caused by mobility. Employees are actively asked to participate in the effort to reduce carbon emissions. They can do so by making use of facilities offered under the New World of Work (nww) and travelling less, taking public transport more often instead of taking the car, printing less and participating in more teleconferences. ASR offers concrete solutions to bring this about. All employees who have a lease car have also been provided with a rail pass (NS Business Card), giving them a choice between taking their car or the train for business travel. In addition, in 2011 ASR took part in ‘Heel Nederland Fietst’, a campaign organized by the ‘Rij2op5’ platform at the initiative of the Dutch Cyclists’ Union to encourage cycling to and from work.
In January 2011, the ASR building in Utrecht hosted the first edition of the ‘vanmij-feest’, a fund-raising party organized for and by employees. ASR gave € 10 to each of the more than 2,000 party-goers, which they donated to the charity of their choice. Supplemented with the amount raised by employees via performances, the charity market, and donations, in total € 58,500 was donated to 26 charities. The party was held for the second time in January 2012.
As part of the Year of the Volunteer, ASR offered 1,000 employees the opportunity to decorate a Christmas tree and to present it to a person in their neighbourhood who lives in social isolation.
The Assured of Youth Care (‘Verzekerd van Jeugdzorg’) programme ended on 1 January 2012 after five successful years. This programme covered projects such as the Youth Run, personal effectiveness workshops, learning how to run meetings and communicate, the Feyenoord youth football tournament and the Getting a Grip on Your Money workshop. ASR is considering continuing some of these projects.
ASR will remain committed to delivering on its corporate social responsibility (CSR) in 2012 as well. In the insurance business, focus will continue to be placed on restoring customer confidence.
In terms of governance, regulatory requirements, ethics and codes of conduct will be priorities. At group level, CSR policy is an issue for the Executive Board. ASR’s managers are responsible for implementing the CSR policy in their respective areas of focus. This means that sustainability is a routine aspect of business practices.
ASR’s investment policy as an asset manager will be publicized more widely in 2012 too, both within ASR and externally. Our SRI policy is well regarded externally and ASR wants to maintain this positive momentum. For this reason, our ambition will continue to be to provide appropriate and easy-to-access information to customers, intermediaries, shareholders and the public at large. Our SRI policy and information on sustainable funds will become a standard section in our brochures.
Where CSR and corporate social involvement (CSI) are concerned, one of our targets for 2012 is that at least 50% of employees is actively involved in one of our CSI activities.
ASR is an attractive employer. With employees whose conduct is guided by the moral compass provided by ASR’s core values, who put customer interests first and who can adapt to changing circumstances. Employees who are prepared to grow with the business and take responsibility for their own career development. The aim of our HR policy is to help build an inspiring and healthy working environment that facilitates excellent teamwork and fosters a dynamic environment in which employees can develop their talents to the greatest extent possible.
The aim of the Talent Development Programme is to recruit new talented individuals to ASR who can contribute to the change process within the organization. The Programme is offered to ten participants per year and spans two years. In other words, the Programme has a total of 20 participants each year. Around 80% of these stay on with ASR, which is considerably better than the market average of 35%. The Talent Development Programme 2.0 was launched in 2011. Important changes include the supervision of the programme being transferred to five senior managers within the organization, while personal development guidance is now entirely being provided by experts.
completed the Programme in December 2011, and 60% of participants have now moved on to a new position within the organization.
With the signing of the ‘Talent to the Top’ charter in 2008, ASR set itself the objective of having one-quarter of senior positions filled by women by the end of 2013. It also aims to have 40% of middle-management positions filled by women. At the end of 2011, 14% of senior positions at ASR were held by women, compared to 25% in middle management. Women currently represent 50% of participants in the Management and Professional Development Programme, and this percentage is even higher for new management trainees.
For female middle managers, the Mentor Programme for Women continued for the sixth year running in 2011. This programme centres around the question: ‘How can I get ahead?’ Each participant is assigned a mentor from senior management to work with them on their development needs. Workshops are held throughout the year to support participants in their development.
‘In 2011 we showed that we have our balance sheet in order. The difficult market did not prevent us from keeping our solvency levels intact. Our risk framework functions properly. We continued in 2011 to gradually scale down our investments in financial institutions. We took timely action to sharply reduce our investments in countries such as Portugal, Spain and Greece. We reinvested in lower-risk assets, including German and Dutch government bonds, mortgages and secured bonds. We introduced the ASR Dutch Prime Retail Fund at year-end 2011. This Fund manages property comprising € 1.1 billion. An amount of € 380 million was reached in the first closing; this was € 80 million more than we had anticipated at that stage. This underlines the quality of our property portfolio. The Fund has created more flexibility in ASR’s balance sheet in terms of investment property.
The need for a strong balance sheet Financial robustness was ASR’s highest priority in 2011. Solvency levels remained intact despite the turmoil on the financial markets. ‘The essence of insurance is to demonstrate that we have enough of a buffer to meet all our obligations to customers. That is our core business as an insurer. It proves that we are worth our customers’ trust’, Roel Wijmenga, ASR’s CFO emphasizes.
A key development in 2011 was the initiative that we took to compensate our unit-linked policyholders. In addition to approximately € 750 million that we reserved earlier for compensation upon policy expiration, we spent another € 125 million on the compensation scheme in 2011. Customers have been offered the option to switch to new products at no cost to them. The fact that they accepted our offer shows that they continue to have faith in ASR.
‘ In 2011 we started to focus more on returns in the life market’
Market developments and our ambitions call for a high-quality risk management infrastructure
The turmoil in the financial markets and the recovery of customer confidence dominated our risk management agenda to a great extent. They demand an infrastructure that lets us respond promptly to developments in the financial markets as well as forming a solid foundation for selling high-grade and profitable products.
In 2011, the Risk Strategy & Policy department focused on shoring up the risk management infrastructure, implementing a company-wide consistent framework of controls. In addition, much attention was devoted to identifying potential risks early and increasing risk awareness.
There were a number of changes in the composition of the Executive Board during the year under review and at the start of the current financial year. After having served on the Executive Board for eight years, J.W.M. (Hans) van der Knaap MSc stepped down on 15 September. His successor, K.T.V. (Karin) Bergstein MSc, was appointed that same day.
Jos Baeten is Chairman of the ASR Executive Board and Chief Executive Officer (CEO). His areas of responsibility also include Strategy, Human Resources, Corporate Communications, Audit and the corporate support departments.
Additional positions Jos Baeten is also a member of the Board of the Dutch Association of Insurers and of Holland Financial Centre. He also serves as Chairman of the Supervisory Committee of Gemiva-SVG Groep, an organization providing support to the disabled, and of Stichting Rotterdamse Schouwburg (Rotterdam Theatre Foundation). He sits on the General Administrative Board of the Confederation of Netherlands Industry and Employers (VNO-NCW) and is a member of the Advisory Committee of the ROC Midden-Nederland (regional community college).
Bergstein studied medical biology at Utrecht University and earned an MBA from Nyenrode University and the University of Rochester in the United States. She started her career at ING Bank in 1991, where she held various positions until 2010. Her last position was that of Director of Products & Processes, which gained her a seat on the Executive Board of ING Bank Nederland. She previously also served as CEO of ING Car Lease International. Karin Bergstein was appointed to the Executive Board of ASR in September 2011.
• Operating expenses down 6% to € 633 million • Cost-premium ratio in insurance business improved by 2.2 Financial performance
Macro-economic developments 2011 turned out to be a disappointing year for the global economy, with growth clearly slowing down in the second half of the year in particular. Mostly in developed markets. Concerns about government debts and deficits, which had already started to surface in recent years, took centre-stage in 2011. Although these development chiefly affected Europe (euro crisis), the US (reaching of the debt ceiling), Japan hardly fared any better. Meanwhile, inflationary pressures increased, particularly in the first half of the year. This constricted central banks in their options for promoting economic growth through monetary policy. Nevertheless, towards the end of 2011, the European Central Bank undid two earlier interest rate hikes, reducing the European base rate back to 1% at year-end 2011. In the US, the Federal Reserve kept the base rate at about 0%, a historic low. In addition, the central banks also attempted to stimulate growth and allay the debt crisis by taking more unconventional measures (quantitative easing). Visible results have been limited so far.
Due mainly to the euro crisis, risk aversion was the guiding principle in the financial markets in 2011. Investors looked for safe havens (e.g. government bonds issued by ‘safe’ countries) and avoided more high-risk investment categories, such as equities. Stock markets experienced a dramatic year, particularly in Europe, where share prices dropped by 15% to 25%, but elsewhere as well. Not even emerging markets were safe from the economic downturn. Corporate bonds were affected as well, which was reflected in strong increases in credit spreads, although the rise still stayed below that seen during the onset of the credit crunch (2008-2009). In the European government bond market, there was a clear divide between bonds issued by the core countries of the euro zone and the periphery countries. Interest rates in countries such as Germany and the Netherlands fell as they soared in Italy, Spain, Portugal and Greece. Long-term interest rates in most bond markets outside the euro zone (e.g. Switzerland, UK, US and Japan) were lower, causing prices to rise.
Financial Markets Due primarily to the ongoing euro crisis the investment policy in 2011 was characterized by constant changes based on sensibly weighing risk and returns. In the European bond market, there was a clear divide between the core countries of the euro zone and the periphery countries. Exposures to government bonds issued by periphery euro zone countries, most of which had already been sold in previous years, were scaled down even more (-92%). French and Belgian government bonds were also sold because of the risk of potential downgrades. To compensate, the positions in particularly Dutch (+56%), German (+3%) and non-EU government bonds were increased. In the ASR investment portfolio, subordinated bond exposures to financial institutions were reduced further, by exchanging and selling them, driven by downgrades caused by unrest in the financial markets. This scale-down was counteracted by an increase in covered bonds (+130%). Factoring in the increase in covered bonds, the share of exposures to financial institutions in the portfolio was down 15%, falling to € 5.7 billion. Based on prudent investment policy, ASR actively took steps last year to continue to lower the interest rate risk by purchasing swaps and swaptions, and by increasing the duration of assets and liabilities. The value of the fixed-income portfolio was up mainly thanks to revaluations because of lower interest rates. The portfolio of equities was slimmed down by selling equities in large European enterprises, foreign and Dutch stock, and hedge funds. Exposures to equities were reduced further by increasing put-option hedges. The steps taken clearly helped shore up the solvency and reduce the balance sheet’s sensitivity to market risk scenario’s at year-end.
ASR Vastgoed Vermogensbeheer ASR Vastgoed Vermogensbeheer manages a property portfolio of primarily Dutch real estate with a market value of approximately € 3.2 billion, including the ASR Prime Retail Fund worth approximately € 1.1 billion. This Fund allows private clients to become involved in property investments via their unit-linked policies. ASR Vastgoed Vermogensbeheer invests in offices, retail spaces, residential properties and agricultural land subject to long-term leases to farmers. This makes ASR the largest private land owner in the Netherlands.
Gross insurance premiums Gross insurance premiums were down 5% in 2011, falling to € 4,511 million. This decrease was fully attributable to the 14% drop in gross insurance premiums in the Life segment from € 2,514 million to € 2,166 million. This is mainly due to a fall in single premiums (non-recurring premium business) from € 761 million to € 469 million given the preference of return over volume. The regular premium business saw a slight decrease. In the Non-life segment, gross insurance premiums increased by 5%, rising from € 2,310 million in 2010 to € 2,427 million in 2011.
Compared to the situation at year-end 2010, the total workforce decreased from 4,929 FTEs to 4,631 FTEs (-6%). Total workforce refers to the total number of internal and external FTEs. The number of internal FTEs was down 2% in 2011 to 4,264 FTEs (2010: 4,333 FTEs) and the number of external FTEs decreased by 38% to 367 (2010: 596 FTEs).
The main focus of the property strategy is to create value for the insurer. This fits with setting up third-party funds in which ASR will continue to participate for a substantial share (at least 20%). This allows ASR to introduce more flexibility to its property policy. The most noteworthy activity in this regard in 2011 was the establishment of the ASR Prime Retail Fund, in which all of ASR’s retail investments (worth about € 1.1 billion) were concentrated. This makes it one of the largest retail funds in the Netherlands. In December 2011, ASR Vastgoed Vermogensbeheer placed around € 380 million with a number of large institutional investors. The establishment of the fund yields immediate earnings. ASR’s ambition is to create such funds for other investment categories as well. In addition, ASR still managed to sell residential properties and retail spaces in 2011.
Profit for the year ASR’s profit for the year reduced to € 212 million. This decrease was largely attributable to additional expenses incurred for compensation payments to unit-linked policyholders and the negative impact of the turbulence in the financial markets. This led to an increase of € 186 million in impairment losses, largely on fixed-income securities, compared to 2010. The impairment losses were offset, in part, by a € 115 million increase in results, € 80 million of which was due to the placement of the ASR Dutch Prime Retail Fund.
Important topics in this programme are the choices for specialization and collaboration, setting up new earnings models, and making products, advice and service simpler and more accessible.
This is how we facilitate our partners in the choices they make, both activily and when needed. So that they can continue to do business with confidence. All the while putting customer interests first. In other words: the best products and the best advisors for our customers.
• Operating expenses decreased by € 19 million (7%), to € 262 million
• Improvement in cost-premium ratio by 0.8%-points to 12.8% (2010: 13.6%)
• New Life insurance contracts sold (APE) down 38% to € 121 million (2010: € 196 million)
Profit for the year attributable to holders of equity instruments 135 276
Profit for the year The profitability of the Life business was heavily influenced in 2011 by the effect of turbulent financial markets and the impact of the compensation on unit-linked insurance contracts. The impact of the financial markets consisted mainly of low interest rates, the reduction in investment risks in particular and the recognition of impairment losses within the fixed-income portfolio. The expense of the compensation on unit-linked insurance contracts was € 94 million after tax in 2011 (2010: € 28 million). Capital gains for Life from the property portfolio in particular (€ 274 million in 2011, compared to € 149 million in 2010), offset some of these losses. On balance, profit for the year in the Life segment saw a strong decline from € 276 million in 2010 to € 135 million.
Competition in individual life policies between insurance companies, banks and newcomers to the market again grew increasingly fierce in 2011.
Low interest rates and volatility on the capital markets had great impact on the pension market in 2011. The increase in life expectancy, which is a positive development in itself, also had an upward effect on pension costs. Low interest rates caused some insurers to be extremely cautious about attracting new customers based on pricing. The Pension Accord that was agreed between employers and employee organizations requires further study as far as its execution is concerned. In addition, the statutory retirement age in the Netherlands will be raised to 67 in 2014. Pension administrators, employers and advisors are preparing for the implementation of this measure. Institutions for Occupational Retirement Provision (IORP), which had been admitted under the law since the end of 2010, effectively entered the pension market in the second half of 2011.
The acquisition of Paerel Leven has also brought home that ASR is truly serious about customer interests. Paerel Leven’s acquisition by ASR has ensured continuity for its policyholders.
Efficiency Efficiency improvements in the Life segment were achieved, for instance, by integrating Falcon Leven into ASR and consolidating the pension operations of ASR and De Amersfoortse into one division at a single location.
In addition, the number of existing product categories was reduced and some products were phased out. Including traditional-style unit-linked policies, mortgages funded by BNP Paribas, commission-based life insurance and endowment insurance. ASR looked into several types of outsourcing in 2011. The options of full outsourcing, both gradually and in one go, were considered. We have since decided to choose to outsource gradually. Consequently both the outsourcing process and the associated costs can be managed. The first step was taken in 2011. The management of a part of the life portfolio is outsourced to a specialist player in India.
Compensation scheme Much focus was placed in 2011 on the implementation of alternative supplementary solutions for compensating unit-linked policyholders. Customers were told whether or not they qualified for compensation right away rather than upon policy expiration. Any compensation for past years is paid directly into their policy. Before year-end 2011, all 900,000 customers holding 1.1 million unit-linked policies had been informed whether they had a right to compensation and, if so, of the amount of compensation. In addition, before 1 April 2012 all customers were actively informed about their options for switching to new products; any advice provided was geared to their specific situation. These steps have given customers a better prospects. They can decide for themselves to either change or convert their policy, to cancel it, or not to take any action.
Customer and intermediary panels were organized to arrange for even better alignment of the current range of funeral insurance products to the needs of customers. Customer perception tests of new products were also resumed. Another development in the area of customer interests in the funeral
Based on the Pension Accord and the gradual increase in retirement age to 67, all residents of the Netherlands will be faced with changes in their pension regulations in 2012. Combined with greater demands on pension advice and the related drop in the number of qualified advisors, this will put extreme pressure on advisory capacity. Stricter requirements of information provision to employers and employees will drive up costs. The pension business will take further steps to reduce capital requirements and keep the profitability of newly sold pension policies at an acceptable level, as well as increasing its share of ASR’s profit-earning capacity.
Financial robustness In order to strengthen the financial position, ASR chose to prefer returns over growth in 2011. This strategy led to restraint in selling new single premium policies and a drop in immediate annuities. The merger between Ardanta and ASR Levensverzekering N.V. in 2010 and the consolidation of the funeral portfolios offer synergies in the areas of risk management, solvency and efficient use of capital.
The impact of the continuous economic crisis will again make itself felt in all divisions of the Life segment in 2012. The market for traditional life insurance products will weaken further in 2012. The focus will remain on realizing a healthy revenue while keeping our customers.
Priorities for the Life segment in 2012 will be the completion of the compensation of unit-linked policyholders and adapting current products to new rules and regulations and the ban on commissions that will take effect on 1 January 2013. Risk and capital management will be adapted to the demands of Solvency II.
In 2012 the focus will remain on structural cost cuts, for instance by reducing the complexity of systems and products.
• Gross insurance premiums rise 5% to € 2,427 million (2010: € 2,310 million)
offers occupational disability insurance, sick leave insurance, accident insurance, health insurance and occupational disability insurance products related to the Dutch Work and Income Act (Capacity for Work (WIA)). Services also incorporate a proactive, integrated approach to prevention and reintegration. The range of health insurance products includes basic and supplementary policies, as well as various top-up modules. In addition, De Amersfoortse offers an integrated proposition for self-employed persons and employers, comprising health insurance, disability insurance and pension products. In the autumn of 2011, Ditzo started to offer health insurance as well as non-life insurance contracts through the direct channel.
Conditions in the market for travel and leisure insurance were also tough in 2011, although they were better than they had been in the previous year. Consumer behaviour in the
Operating expenses Operating expenses in the Non-life segment fell 3% in 2011, from € 260 million to € 251 million. This decrease led to an improvement in the expense ratio, from 12.0% in 2010 to 11.0% in 2011.
Profit for the year There was a sharp improvement in the profit for the year at the Non-life business, which rose from € 104 million to € 145 million in 2011, an increase of 39%. This increase was attributable to an improvement in the combined ratio, which fell to 98.9% (2010: 100.3%). Despite lower direct investment returns, total investment income rose thanks to higher capital gains.
health insurance market, health insurance makes a significant contribution to its strategy on integrated propositions involving healthcare products and pension solutions for collective customers and the self-employed.
Europeesche Verzekeringen took weekly measurements of customer satisfaction with its services in 2011. It used the information obtained to improve its products, services, efficiency and customer relations. Customer discussion forums were held to discuss services with customers and business relations. The measurements take account of complaints and compliments submitted directly as well as information obtained through social media. The score awarded by customers was 7.8 out of 10 (2010: 7.6 out of 10). Travel agents also value the services provided by Europeesche Verzekeringen, which received the De Veer award for the best travel insurer.
The market for other non-life insurance (motor, fire, liability, etc.) was also under pressure in 2011. The motor insurance market in particular continued to shrink owing to the steady loss of consumer purchasing power. Partly on the initiative of the Dutch Central Bank (DNB), insurers had to take the necessary measures in 2011 to improve returns on some insurance contracts. As part of this, premiums for third-party insurance were increased across the board.
Motor insurance premiums, which had been relatively low for many years, rose across the line. As part of efforts to ensure healthy returns, other premiums, such as premiums on the insured values of hazard insurance contracts, were also increased. In the corporate segment (SMEs and the lower end of the wholesale market), ASR introduced new propositions for groundwork and civil engineering and for the wholesale trade and manufacturing sectors.
Customer interests ASR started to offer health insurance online under the Ditzo label in 2011 in a bid to meet customer demand for a greater range of options for directly taking out simple insurance contracts. This was one of the main reasons why ASR was able to welcome 110,000 new policyholders as of 1 January 2012. Although De Amersfoortse only has a small share of the
With effect from 2013, the implementation of a new back-office system for health insurance will also make a substantial contribution towards improving efficiency and reducing the cost ratio. The health insurance business will become more of a knowledge and service organization in 2012, among other things by providing employees with training in the area of customer service, in order to improve customer satisfaction. The new system offers customers and intermediaries more options, such as the possibility of inspecting expense claims online. This, too, will lead to an increase in the level of straight-through processing. In addition, the policy for the health insurance business focuses on growth in the portfolio, and this is expected to have a positive impact on the cost-premium ratio. Moreover, growth will lead to a more balanced diversification of risks. Revenue is expected to continue to rise in 2012 as result of further expansion in the area of tied agents, the growth of the health insurance business under the Ditzo label, and the growth of the De Amersfoortse portfolio thanks to the integrated proposition involving occupational disability insurance and, where applicable, pensions.
With regard to the other non-life business, 2012 will see a focus on returns. We will continue the roll-out of the new insurance package that was launched for a number of intermediaries in 2011. In addition, steps will be taken to increase our accessibility for customers. Customers are increasingly deciding for themselves how and when they have contact with ASR or their advisor. And we will adapt our organization to this trend.
With regard to the travel and leisure insurance market, ASR is taking a cautious attitude when it comes to opportunities for further recovery of the market in 2012. Consumer travel behaviour is expected to be adversely affected by the state of the economy. That said, the market for leisure insurance contracts will continue to grow, thanks to the increasing number of over-50s who spend more time undertaking recreational activities in the Netherlands and abroad. In 2012, Europeesche Verzekeringen will pay specific attention to ensuring a better service level and customer experience with regard to its products.
meeting customer demand for more opportunities for contacting insurers directly themselves and arranging more matters themselves on the spot.
Improving efficiency was the primary focus of the entire Nonlife segment of ASR. OpEx, a programme for continuous improvement, is used by departments to enhance efficiency.
The non-life market is not expected to show any growth in 2012. This is caused primarily by economic circumstances.
Efforts to introduce new IT programmes will be made in a number of areas of the Non-life segment in 2012. These programmes will help the organization become more efficient and improve customer relations. In 2013, the first part of NGA (Next Generation Occupational Disability Insurance), a new IT programme, will be ready to be implemented in the occupational disability business. This will result in a substantial increase in the level of straight-through processing.
New sales of mortgages amounted to € 1,259 million in 2011, 19% below last year’s figure. This was due clearly to the stagnating housing market. Of all new mortgage business, a considerable volume (more than € 713 million or 43%) was attributable to ASR’s own WelThuis Hypotheek mortgage product.
The Other segment comprises ASR’s banking operations, Ditzo (distribution channel), ASR Vastgoed Ontwikkeling, SOS International and the holding companies. The banking business develops mortgages and savings-linked and unit-linked products that are administrated and managed by ASR Hypotheken N.V. and ASR Bank N.V. In this segment, Ditzo operates as a distributor of insurance contracts via the direct online channel. Ditzo’s underwriting income is recognized within the Non-life segment. ASR Vastgoed Ontwikkeling specializes in developing residential properties and retail space. It is one of the leading real estate organizations in the Netherlands. Finally, the SOS International emergency service offers round-the-clock assistance to policyholders, vacationers, lease car drivers, account holders and senior citizens.
At ASR Bank, the volume of the savings deposits portfolio increased by 3% on year-end 2010, thanks largely to customer deposits into the lijfrente opbouwrekening (tax-driven bank savings product) introduced in 2011. In addition, many customers deposited additional funds to benefit from tax breaks for employee savings schemes before an important cut-off date. The investment portfolio fell by 19%, partly due to declining share prices.
Profit for the year attributable to holders of equity instruments -68 -63
ASR Vastgoed Ontwikkeling refined its strategy in 2011 to concentrate primarily on risk containment within development projects over the next few years. Areas of focus will include strict adherence to preselling requirements, flexibility in the development programme and restriction of capital requirements. The strategy identifies the most promising market segments and areas in the Netherlands, based on which criteria for winning new business were defined. In 2011, ASR Vastgoed Ontwikkeling concentrated on residential and retail markets in the Randstad conurbation, tackling urban planning issues for local authorities and devising ways for giving obsolete buildings or dilapidated urban areas a new lease on life.
Retail customers are expected to maintain their risk aversion in 2012, rather than reverting to equity investments. For this reason, ASR Bank will not invest in developing new unit-linked products. Sales of new mortgages are still being weighed down by the slump in the housing market. But new opportunities are presenting themselves as well. Interest-only mortgages are being limited as a result of stricter mortgage rules. The requirement for consumers to build capital reserves for the repayment of their residential mortgage may give a boost to the volume of assets under management.
In 2012, ASR Vastgoed Ontwikkeling will flesh out the new vision for 2014 with respect to development and redevelopment projects in urban areas. In doing so, it will continue to apply its de-risking strategy to the portfolio. Risks associated with existing developments will be reduced where possible and developments that are not in line with ASR’s strategic focus will be cancelled or sold.
At an earlier stage ASR announced that ASR Vastgoed Ontwikkeling does not belong to ASR’s core activities and that it was decided to seek a partner to take over ASR Vastgoed Ontwikkeling. The market is not expected to improve in the next two years. The sale of ASR Vastgoed Ontwikkeling will therefore not be addressed until 2014.
The objectives of ASR’s capital policy are to streamline the capital position within the parameters set by regulators and stakeholders, monitor capital ratios actively and comply with set limits and secure a single A rating at ASR level.
The Solvency II requirements dictate a different method for measuring and managing available and required capital. In 2011, ASR expanded on the process of implementing Solvency II, so available and required capital according to Solvency II is now being measured and applied as part of a system of integrated control at all divisions.
Total equity and solvency Total equity saw a limited 4% decrease, from € 2,451 million at year-end 2010 to € 2,365 million at year-end 2011. Despite the profit for the year, the decrease in equity was mainly attributable to a lower revaluation reserve, on account of a drop in share prices and changes in the value of fixedincome securities.
At 51%-points, the sensitivity of solvency to the stress scenarios used by ASR showed a strong improvement on 2010 (86%-points). The reduction in the interest rate risk (7%-points, 2010: 31%-points) was particularly substantial. This was achieved by renewing the average term to maturity of fixed-income investments and a further reduction in exposures on financial institutions. Reinvestments were made in Dutch government bonds and in Dutch corporate bonds. Furthermore, there was a drop in the sensitivity of solvency to changes in property values to 15%-points (2010: 17%-points), due in part to the sale of investment property in the ASR Dutch Prime Retail Fund. Exposure to equities was further reduced in 2011 by scaling back positions held and by a decline in equity prices.
Where unsecured financing was concerned, ASR did not raise additional external financing in 2011. ASR’s relatively limited funding needs, in combination with the options for raising secured financing, currently give it ample opportunity to conduct any planned transactions as well as offering the required financing capacity.
In line with the dividend policy agreed on with the shareholder in 2009, the Executive Board plans to distribute € 71 million (40%) in dividend on ordinary shares.
ASR uses an integrated approach to manage risks. It has a robust risk management framework (Integrated Risk Management) for identifying, controlling and managing all risks. This framework provides ASR with information on the integrated risk profile and enables ASR to take and manage risks responsibly. Information on the size of risks and how risks are interrelated allows ASR to accept only those risks that are sensible and are associated with appropriate returns. In this way, integrated risk management contributes towards improving performance and helps ASR ensure it remains robust.
In keeping with external regulations such as Solvency II, in 2011 ASR started to focus more intensively on value, including fair market value. This means that it now follows an approach in which returns are adjusted to take account of the risk taken and the costs related to these returns. This helps ASR optimize the process for decision making regarding its risk profile and whether to change the risk profile. Among other things, this has led to the decision to reduce interest rate risk over the next few years.
Another key development was the continued improvement of the framework for internal controls at ASR. In 2011, ASR developed a framework, based on an integrated risk management perspective, which identifies the greatest risks in ASR's most important processes. At the same time, a set of risk management measures for hedging these risks was specified. These risk management measures help ASR achieve its strategic and operational targets, comply with legislation and regulations, and produce reliable reports.
Much of 2011 was dominated by the euro crisis. The ratings of many countries were downgraded in view of the debt positions of Greece, Spain, Portugal and Ireland, and due to loans made to these countries by other countries. ASR continued to ensure that its balance sheet remained robust by taking active steps to reduce risk in the portfolio. This protected the interests of policyholders.
In addition to its exposure to government bonds, ASR also reduced its investments in financial institutions. The reasons for this included the potentially negative impact that the bankruptcy of a national government would have on the capital positions of these institutions. This exposure fell by a total of € 1,020 million in 2011 to € 5,673 million.
With regard to life and pension insurance, sales and profitability came under further pressure in 2011. This was due in part to low interest rates and disappointing investment income.
As far as non-life insurance is concerned, keeping claims under control remains a top priority. The global insurance industry saw record insurance claims in 2011. ASR’s loss ratio fell in 2011 to 70.9%. This is a decrease of 2.1% compared to 2010 (73%). There was also a decline in the combined ratio, which stood at 98.9% (2010: 100.3%).
In 2011, ASR introduced a number of key risk management measures as part of its management of non-financial risks.
In addition, ASR continued to make improvements to its internal control system in 2011. To this end, a framework of standards was developed for the entire organization. As part of this, the most important process risks and associated risk management measures were identified. The framework of standards also includes risk management measures designed to ensure structural compliance with legislative and regulatory requirements. Given the frequent changes made to legislation and regulations, this was a key issue for ASR in 2011. The effect of the risk management measures is monitored by the Risk Management and Compliance departments.
ASR started to take active steps to implement the Solvency II requirements in 2009. In the meantime, risk governance at ASR has been formalized to an increasing extent and an objective, verifiable Solvency II reporting process has been set up. Both in 2010 and in 2011, ASR carried out an ORSA. In 2011 we successfully completed the ORSA pilot by the Dutch Central Bank (DNB). In addition, the quality, reliability and integrity of data have been improved.
All of the divisions perform an annual CRSA, during which they identify the risks that pose a threat to the achievement of the corporate targets. Risk priorities are set by the Executive Board on the basis of identified risks and other external developments. The progress made on managing the identified risk priorities is reported to ASR’s risk committee on a quarterly basis. The risk committee is made up of all members of the Executive Board as well as representatives of the main risk management departments.
Given the turmoil of the financial markets, there is a risk that ASR’s financial robustness could be affected. The main causes of this risk are the European debt crisis, trends in interest rates and stock market volatility. Continuing to control the impact this has on solvency and returns is a top priority for ASR.
In 2011, ASR offered its customers an additional alternative solution for unit-linked investment contracts. This was positively received by customers and the media. With regard to this issue, ensuring transparency in communications with customers and devoting attention to customer satisfaction are focal points. ASR will continue to pay a great deal of attention to customer satisfaction in 2012.
The world in which the insurance sector operates is subject to a great deal of changing rules and regulations. Given the growing complexity and constant amendment of laws and regulations, ASR needs to be alert.
Extra attention was given to information security in 2011. In 2012, attention will continue to be devoted to managing risks associated with security, including information security, and raising awareness of this issue.
‘People’s safety is our number one concern. Victims need to be able to count on that.’ Arnold Nieuwendijk Fireman
The members of the Executive Board per 1 January 2012 are: Jos Baeten, LL.M. (CEO) Karin Bergstein, MSc Roel Wijmenga, Ph.D.
The current Articles of Association and rules of procedure for the Executive Board and the Supervisory Board have been posted on the corporate website: www.asrnl.com.
The AGM appoint members of the Supervisory Board on the recommendation of the Supervisory Board. Both the AGM and the Works Council have the right to nominate supervisory directors. The Supervisory Board duly notifies the AGM and the Works Council of when and why they have the right to nominate a supervisory director, and of the profile required of the nominee.
Corporate governance of financial institutions and regulators has attracted increased attention in recent years because of the financial crisis and developments in society. The General Meeting of Members of the Dutch Association of Insurers adopted the Governance Principles on 15 December 2010. These Principles correspond with those of the Dutch Banking Code. The Governance Principles, which are also referred to as the Dutch Insurance Code, have been in effect for all insurance companies licensed in the Netherlands from 1 January 2011 onwards. This means that the Dutch Insurance Code applies to all licensed insurers within ASR Nederland N.V.
Banks licensed in the Netherlands have been subject to the Dutch Banking Code since 1 January 2010. This Code, which was drafted by the Dutch Banking Association, contains principles for governance and governance oversight, risk management, audit and remuneration policy. ASR Bank N.V. is governed by this code.
ASR Nederland N.V. recognizes much of its mission, vision and core values in the principles of the Dutch Insurance Code and the Dutch Banking Code, and therefore fully endorses both Codes. By seeking to achieve its mission, vision and core values, ASR Nederland N.V. wants to contribute to improving the workings of the Dutch financial sector and help restore trust in the financial sector, never losing sight of customer interests.
To find out what measures ASR Nederland N.V. has taken to comply with the Dutch Insurance Code, please visit the corporate website: www.asrnl.com. Details on how ASR Bank N.V. applies the Dutch Banking Code can be found in its Annual Report that has been posted online on www.asrverzekeringen.nl.
Variable remuneration: • Since 7 February 2012 ASR is included in the Dutch
• Transport The members of the Executive Board can choose between using a lease car or a service car including a chauffeur. • Expense allowance For the members of the Executive Board: € 253.75 taxed and € 200 untaxed per month.
• Severance package The severance package for members of the Executive
Board is a maximum of one year’s fixed salary. For them it also applies that in the event of a change of control, their contracts of employment will remain in force for a minimum of one year.
‘To make the transition to a fundamentally different kind of relationship with customers, we first need to learn to interact differently with people in our own organization’, Alf Overmars, Director of Human Resources at ASR, says. ‘Trust is a broad concept. How do you make this real in a large organization? We have chosen a process in which working together with our own people is the key. We want our employees to experience our core values together, debate them and hold each other accountable for living up to them. It’s not the easiest way to go, but it’s what we believe in because it fits ASR.
And it’s not limited to just the core values. The New World of Work that we have chosen to implement is a contributing factor as well. If you’re a manager and you don’t see your people every day, you need to be able to trust them to deliver. We give employees the opportunity to find a better balance between their work and home life. If we’re together in a single building, it’ll be easier to work towards a single culture. The OpEx lean method is also closely linked to this. It allows us to embed the core values in our operations and management. Making transparent agreements and holding each other accountable for keeping these agreements is clearly part of the cultural change. We want to work on building trust together in a well-conceived way. This is an ongoing processes that we will take one step at a time.’
We have implemented a new leadership programme for managers to train them to recognize conduct that chimes with our values and to set the right example. Not because they “have to”, but because they believe in it. Our values are intended as a guide. You want people around you that consider those values appealing. Including new employees. We want to be the insurance company of choice for talented employees.
Kick van der Pol is the Chairman of the Board of Directors of Ortec Finance, Chairman of the Board of the Federation of Dutch Pension Funds, a member of the Bank Council of the Dutch Central Bank (DNB), and Chairman of the Advisory Board of Syntrus Achmea. In the past, he served as the Vice-Chairman of the Executive Board of Eureko/Achmea and as Chairman of the Executive Board of Interpolis.
Annet Aris had a 17-year career at McKinsey as a management consultant, nine years of which she served as a partner. She has served as a supervisory director for a number of years at several Dutch and foreign enterprises and institutions, including Kabel Deutschland AG (Munich, Germany), Jungheinrich AG (Hamburg, Germany) and the Sanoma Group (Helsinki, Finland). Annet is an adjunct professor of strategy at INSEAD international business school (Fontainebleau, France).
Term of service: 7 December 2010 – 7 December 2014 4.1 Members of the Supervisory Board
The financial statements were audited by KPMG, who issued an unqualified opinion on them. This statement can be found on page 166 of this report. The Supervisory Board established that the external auditor was independent from ASR.
In its meetings with the Executive Board, the Supervisory Board was informed of developments in earnings, key figures and the general conduct of business at ASR. Prominent recurring issues for the Supervisory Board were developments in the financial markets and solvency, refinement of the strategy, compliance and governance. The approach to unit-linked policies, the remuneration policy and the acquisition of life insurer Paerel were addressed in meetings specifically convened for those purposes. Before any decisions were taken on refining ASR’s strategy, the Supervisory Board educated itself extensively in a number of sessions about developments in selected market segments. With respect to management development and planning for succession, great attention was devoted to the personal development and possible next steps of all senior managers.
In its meetings, the Supervisory Board focused heavily on ASR’s financial performance. In addition to addressing developments in costs and the combined ratio, particular focus was placed on trends in the financial markets and their impact on solvency.
The supervisory directors are satisfied with ASR’s risk and investment policies. Solvency levels have remained robust thanks to prompt and adequate action in response to external developments and risk-mitigating measures. The supervisory directors believe that risks are being weighed properly against returns.
ASR wants to offer a better prospect to unit-linked policyholders. The arrangements for compensating high fees may be an important step, but still insufficiently give customers the prospect of their original goals. The Supervisory Board convened a number of meetings specifically to discuss at length how to improve prospects for unit-linked policyholders. In these meetings, the supervisory directors stressed the importance of a proactive approach that truly puts customer interests first and actually contributes to restoring the customer’s trust. ASR has opted to actively contact all unit-linked policyholders and to deposit any accrued compensation directly into their policies. They will also be given the opportunity, after having met with one of ASR’s advisors, to switch to a new transparent product with lower costs, without having to pay a financial penalty.
of information sessions in which they received an update of external developments in these areas. The Supervisory Board endorses both the chosen direction in the asset-building and pensions market segments and the decision to focus on accessibility where distribution is concerned. The supervisory directors emphasize that the speed of executing the strategy, including the refined aspects, will be a decisive factor in whether or not ASR will be successful at becoming a unique market player. The Supervisory Board keeps track of strategy execution by means of periodic progress reports.
Cost levels need to be reduced substantially to be able to remain competitive and maintain profitability. This makes cost reductions a priority in ASR’s strategy. Migrating to a next generation of systems and resolving the existing legacy are key to achieving a fundamentally lower cost level. As part of this effort, the Supervisory Board was included in developing policy regarding outsourcing. The Supervisory Board agrees with the Executive Board’s decision to abandon the end-toend outsourcing strategy. The (financial and operational) risks of this approach were discussed and considered too great. The supervisory directors agree with the chosen direction entailing a gradual transition to the outsourcing of administrative life processes and IT platforms to help make costs variable and reduce them.
Life insurer Paerel sought to join ASR because its solvency was being weighed down as a result of interest rate developments. The Supervisory Board agreed to the acquisition of Paerel. A key consideration was offering Paerel’s customers certainty in respect of their policy entitlements. In addition, the Supervisory Board attached value to the fact that Paerel’s operations could be integrated into ASR’s life business and that the acquisition had no substantial effect on ASR’s solvency.
In order to implement an earlier decision to establish a retail fund, the Supervisory Board approved the contribution of the retail portfolio of ASR Nederland Vastgoed Maatschappij N.V. and ASR Levensverzekering N.V. to the new ASR Dutch Prime Retail Fund. Late in 2011, institutional investors invested € 380 million in the Fund. The supervisory directors are pleased with the diligence and approach taken regarding the establishment and placement of the Fund. Setting up the Fund has created more flexibility in ASR’s balance sheet in terms of investment property.
Each quarter, the Supervisory Board discussed the reports from Audit and Integrity & Operational Risk Management. Reports issued by, and findings of, external regulators were also reviewed extensively. In these discussions, compliance with statutory rules and regulations was always a key area of concern for the Supervisory Board. The two departments reported a lower number of high-risk issues in the year under review. The Supervisory Board will continue to stress the importance of resolving problem areas. This calls for ongoing focus from management, the right priorities and discipline.
for 2012. Other topics for discussion included the reports of the independent external auditor; audit and compliance reports were discussed quarterly.
The Chairman of the Committee consistently reported the main issues to the Supervisory Board during the Board’s next meeting. Moreover, the Audit & Risk Committee provided the Supervisory Board with written reports of its deliberations, findings and recommendations.
Sustainability is an important yardstick for the Supervisory Board in exercising its supervisory and – where appropriate – approving role. In doing so, the Supervisory Board starts from the principle that long-term interests take precedence over potential short-term gains. The aspect of sustainability surfaced in discussions on several topics in 2011, playing a particularly central role in ASR’s approach to compensating unit-linked policyholders, the details of the remuneration policy, the anchoring of a new style of leadership and risk management. In order to stress the importance of diversity and – as part of the diversity effort – to encourage the advancement of women to higher positions, one of the supervisory directors took part in a meeting of ASR’s women’s network.
After having performed self-assessments for two years, the Supervisory Board engaged an outside party late in 2011 to evaluate its performance. The outcome of the evaluation was discussed with the supervisory directors and the Executive Board at the beginning of 2012.
A mixed delegation of the Supervisory Board attended three regular consultative meetings with the Works Council, which were perceived as being constructive. The supervisory directors express their appreciation of the open atmosphere at meetings as well as the efforts and commitment of all Works Council members.
The Supervisory Board was in contact with the shareholder, represented by the Dutch Ministry of Finance, on several occasions in 2011. On 29 September 2011, the Dutch State, sole shareholder of ASR Nederland N.V. since 3 October 2008, transferred all shares in ASR Nederland N.V. to NL Financial Investments (NLFI) in exchange for depositary receipts for the shares. As a result, NLFI has become the shareholder of ASR Nederland N.V. and there is no more direct contact with the Ministry of Finance. The Supervisory Board met the Board and the management of NLFI, and agreed on a schedule for meetings and information provision.
The independent external auditor attended the meeting in which the Supervisory Board addressed the annual results. The independent external auditor was also present in all meetings of the Audit & Risk Committee. The members of the Audit & Risk Committee and the independent external auditor deliberated once without the other permanent delegates of the Audit & Risk Committee meetings being present.
The Supervisory Board discussed at length the evaluation of the performance of the Executive Board and whether or not to award variable pay. In light of the public debate about bonuses, it was decided not to award any short-term variable pay over 2010 and to formulate a new remuneration policy that will govern the Executive Board’s long-term variable remuneration. The guiding principles of this policy will be to reduce the variable pay component and to position the Executive Board’s overall remuneration just below the median of the Financial Services benchmark. This change was fleshed out in 2011 and agreed with NLFI, the shareholder. The policy was submitted to the Dutch Minister of Finance for approval early in 2012.
Hans van der Knaap’s resignation left a vacancy on the Executive Board. In addition to fulfilling a formal role, the Selection, Appointment & Remuneration Committee was closely involved in appointing Karin Bergstein to the Executive Board. The Supervisory Board also completed the formalities associated with Roeland van Vledder’s resignation from the Executive Board.
The Supervisory Board believes that, given its robustness and refined strategy as guiding principles, ASR should be able to restore customer’s trust one step at a time. A disciplined approach to implementing the plans and building a proven track record are essential elements in this process.
making process on the refined strategy, about current market developments in pensions, asset-building and distribution channels.
The Selection, Appointment and Remuneration Committee met five times in 2011. The first meeting was chaired by Margot Scheltema, after which Annet Aris took over the chairmanship. Annet Aris (Chair) and Kick van der Pol have been on the Committee since then. The composition of the Committee is now in accordance with the rules of procedure for the Selection-, Appointment & Remuneration Committee.
There were no changes in the composition of the Supervisory Board in 2011. Cor van den Bos was scheduled to retire on 15 June and was re-appointed for another four-year term on that same date.
As a result of the resignation of both Hans van der Knaap and Roeland van Vledder, the Supervisory Board of ASR Bank now has two vacancies. The Supervisory Board of ASR Bank has nominated Margot Scheltema and Cor van den Bos to replace them. The appointment procedure has been initiated.
Meeting date KicK van der Pol annet aris cor van den Bos Margot schelteMa 31 January* X X X
The meetings are attended by the Chairman of the Executive Board and the Human Resources Director, who doubles as secretary of the Selection, Appointment & Remuneration Committee. The Committee solicits support and advice from control functions such as Risk Management, Compliance, Audit and Human Resources. Where needed, the Committee calls in the help of independent legal and pay and benefits experts.
Kick van der Pol has announced that he will be appointed to DNB’s Bank Council. In 2009 Cor van den Bos indicated that as chairman of the Supervisory Board of CED, there could be conflicts of interest if issues related to CED where discussed by the ASR Supervisory Board. In 2011, this was not the case. There were no reports of potential conflicts of interest involving the other supervisory directors. The Supervisory Board has been able to discharge its duties fully independently.
The Executive Board declares that, to the best of its knowledge: 1. the financial statements give a true and fair view of the assets, liabilities, financial position and earnings; 2. the financial report does not contain any material misstatements and that risk management and control systems functioned properly in the year under review; 3. the Annual Report gives a true and fair view of the situation at the balance sheet date, developments during the year under review and; 4. the Annual report describes the principal risks that the company faces.
Executive Board Jos Baeten LL.M Karin Bergstein MSc Roel Wijmenga Ph.D.
Notes to the balance sheet 118 6 Intangible assets 118 7 Deferred acquisition costs 119 8 Property, plant and equipment 119 9 Investment property 121 10 Associates and joint ventures 122 11 Financial assets 123 12 Deferred taxes 131 13 Reinsurance contracts 132 14 Other assets 133 15 Cash and cash equivalents 133 17 Subordinated debt 135 18 Liabilities arising from insurance contracts 136 19 Employee benefits 139 22 Due to customers 144 23 Due to banks 144 24 Other liabilities 145
Notes to the income statement 146 25 Gross insurance premiums 146 26 Reinsurance premiums 147 27 Investment income 147 28 Fee and commission income 149 29 Other income 149 30 Net insurance claims and benefits 149 31 Operating expenses 150 32 Acquisition costs 151 33 Impairment of assets 151 34 Interest expense 151 35 Other expenses 152 36 Income tax expense 152
Other information 165 Independent auditor’s report 166 Events after the reporting date 167 List of principal group entities and associates 168 Other equity interests 169 Provisions of the Articles of Association regarding profit appropriation 169 Profit appropriation 169 Glossary 170 List of acronyms 172
Total equity attributable to shareholders 1,854 1,931 other equity instruments 16 515 515
Liabilities arising from insurance contracts on behalf of policyholders 18 9,202 10,488
Profit carried over from previous financial year - - - - 317 317 -317 - - - -
Net increase/decrease in liabilities arising from insurance contracts on behalf of policyholders -1,294 666
2 Accounting policies 2.1 General The consolidated financial statements of ASR have been prepared in accordance with the International Financial Reporting Standards (IFRS) – including the International Accounting Standards (IAS) and Interpretations – as adopted by the European Union (EU).
The financial statements for 2011 were approved by the Supervisory Board on 29 March 2012 and will be presented to the Annual General Meeting of Shareholders for adoption. The Executive Board released the financial statements for publication on 27 April 2012.
• Amendment to IAS 32 Financial Instruments: Presentation – Classification of Rights Issues; this amendment to IAS 32 addresses the accounting treatment of rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. ASR has not currently issued any rights or similar derivatives; • IAS 24 Related Party disclosures (revised 2009). The changes introduced by the revised standard relate mainly to the related party disclosure requirements for governmentrelated entities, and the definition of a related party. ASR is a government-related entity as defined in IAS 24 and exempt from some of the detailed disclosure requirements in IAS 24.This standard was revised as it is difficult for government-related entities to identify all related party relationships and the previous standard might have resulted in a significant amount of information needing to be disclosed for transactions that were not impacted by a related party relationship. Therefore ASR adopted the revised IAS 24 in 2010; • IFRS 1 (amended), First-time Adoption of International Financial Reporting Standards – Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters; • Amendment to IFRS 7 Financial Instruments: Disclosures; • Improvements to IFRSs 2010. These improvements contain eleven amendments to six standards and one IFRIC. The IAS Board uses the annual improvements project to make non-urgent amendments to IFRS; • Amendments to IFRIC 14 IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction – Prepayments of a Minimum Funding Requirement; • IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments.
2.3 Changes in presentation The current presentation differs from last year’s presentation in some respects. Where applicable, the comparative figures have been restated. The changes in presentation do not have an effect on ASR’s profit for the year, total comprehensive income and total equity.
A subsidiary’s assets, liabilities and contingent liabilities are measured at fair value on the acquisition date and are subsequently accounted for in accordance with the ASR accounting policies, which are consistent with IFRS.
Intragroup transactions Intragroup balances and transactions between consolidated group companies are eliminated. Gains and losses on transactions between ASR and associates and joint ventures are eliminated to the extent of ASR’s interest in these entities.
2.6 Foreign currency translation The consolidated financial statements are presented in euros (€), which is the functional currency of ASR and all its group entities.
Transactions denominated in foreign currencies are translated into the functional currency using the exchange rates prevailing at the transaction date. Monetary balance sheet items denominated in foreign currencies are translated at the applicable exchange rate as at the balance sheet date. Foreign exchange gains and losses arising from the settlement of foreign currency transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity as part of qualifying cash flow hedges or qualifying net investment hedges.
Foreign exchange differences arising from monetary financial assets available for sale related to amortized cost are recognized in profit and loss for the period. Any residual translation differences relating to fair value changes are recorded in equity.
The table below shows the exchange rates of the major foreign currencies: 2.7 Product classification Insurance contracts are defined as contracts under which ASR accepts significant insurance risk from policyholders by agreeing to compensate policyholders if a specified uncertain future event adversely affects the policyholder. These contracts are considered insurance contracts throughout the remaining term to maturity, irrespective of when the insured event occurs. In addition, these contracts can also transfer financial risk.
Life insurance contracts Life insurance contracts (in cash) include savings-linked mortgages, annuities, term insurance policies, savings contracts and funeral insurance contracts. In addition to non-participating life insurance contracts, the insurance portfolio also includes: • individual and group participating contracts; • individual contracts with discretionary participation features (see chapter 2.29); • group contracts with segregated pools with return on investment guarantees.
Life insurance contracts on behalf of policyholders Claims from these life insurance contracts are directly linked to the underlying investments. The investment risk and return are fully for policyholders (see chapter 2.30). Life insurance contracts for the account and risk of policyholders are generally comprised of contracts where premiums, after deduction of costs and risk premium, are invested in unitlinked funds. For some individual contracts, ASR guarantees returns on unit-linked investment funds. In addition, group life insurance contracts with unguaranteed segregated pools (discretionary self-insurance) are classified as life insurance contracts on behalf of policyholders.
2.10 Transaction date and settlement date Any purchases and sales of financial instruments, which have to be settled in accordance with standard market conventions, are recognized at the transaction date, which is the date on which ASR becomes party to the contractual stipulations of the instrument. Any purchases and sales other than those requiring delivery within the time frame established by regulations or market conventions are accounted for as forward transactions until the time of settlement. For details on these transactions, see chapter 2.22 ‘Derivatives and hedge accounting’.
2.11 Securities lending ASR participates in security lending transactions under which collateral is received in the form of securities or cash. Cash received as collateral is recognized on the balance sheet and a corresponding liability is recognized as liabilities arising from securities lending. Securities lent remain on the balance sheet. Securities received as collateral are not recognized in the balance sheet.
ASR as the lessor In the context of investment property, ASR enters into lease agreements with clients. As the risks and rewards incidental to ownership are retained by ASR, these agreements qualify as operating leases. Consequently, ASR continues to recognize the leased investment property in its balance sheet. For details, see chapter 2.17, ‘Investment property’.
ASR reports cash flows from operating activities using the indirect method. Cash flows from operating activities include operating profit before taxation, adjustments for gains and losses that did not result in income and payments in the same financial year, adjustments for movements in provisions, and accrued and deferred items. The statement of cash flows recognizes interest received and paid, and dividends received within cash flows from operating activities. Cash flows from purchasing and selling investments and investment property are included in cash flows from operating activities on a net basis. Dividends paid are recognized within cash flows from financing activities.
2.14 Intangible assets Intangible assets are carried at cost, less any accumulated amortization and impairment losses. The residual value and the estimated useful life of intangible assets are assessed on each balance sheet date and adjusted where applicable.
Goodwill Acquisitions by ASR are accounted for using the purchase method. Goodwill represents the excess of the cost of an acquisition over the fair value of ASR’s share of the net identifiable assets and liabilities and contingent liabilities of the acquired company at acquisition date. If there is no excess (negative goodwill), the carrying amount is directly recognized through the income statement. At the acquisition date, goodwill is allocated to the cash-generating units that are expected to benefit from the business combination.
Goodwill has an indefinite useful life and is not amortized. ASR performs an annual impairment test, or more frequently if events or circumstances so warrant, to ascertain whether goodwill has been subject to impairment. As part of this, the carrying amount of the cash-generating unit to which the goodwill has been allocated is compared with its recoverable amount. The recoverable amount is the higher of a cash-generating unit’s fair value less costs to sell and value in use. The value in use of a cash-generating unit is the present value of the future cash flows expected to be derived from it. If the recoverable amount is lower than its carrying amount, the difference is directly charged to the income statement as an impairment loss.
Software The cost of software is capitalized if it concerns identifiable assets that ASR is able to use or sell, and which will generate probable future economic benefits. The costs mainly involve licensing fees. Capitalized software is amortized using the straight-line method over its expected (finite) useful life, which does not exceed five years. If there is objective evidence of impairment, capitalized software is tested for impairment.
An impairment is charged to the income statement as an impairment loss.
Where life insurance contracts are concerned, capitalized deferred acquisition costs are amortized on the basis of the expected premiums or the surcharge included in the premium for repaying acquisition costs. This depends on the type of insurance contract. The expected premiums are estimated on the date of the contract issue. The amortization periods can correspond with the total duration of the premium payments or a shorter period depending on the type of insurance contract.
Capitalized deferred acquisition costs of insurance products in the non-life operating segment are amortized over the period in which the relevant premiums are realized. The value of the capitalized deferred acquisition costs is assessed at each reporting date to ascertain whether there is evidence of impairment.
2.16 Property, plant and equipment Property held for own use, buildings under construction for own use and operating assets are recognized at cost, less accumulated depreciation (except for land, which is not depreciated) and/or any accumulated impairment losses. Cost corresponds with the cash paid or the fair value of the consideration given to acquire the asset.
• reclassification from investment property to property, plant and equipment: at the commencement of owneroccupation or at the start of developments initiated with a view to selling the property to a third party.
If objective evidence of impairment exists, investment property is tested for impairment and, if necessary, written down.
For income producing properties in active markets generating market evidence – fair value methods using comparables or income approach should result in similar valuations and could both be utilised in determining fair value.
Losses are accounted for until the carrying amount of the investment has reached zero. Further losses are recognized only to the extent that ASR has incurred legal or constructive obligations concerning these associates.
(ExprEssEd in yEars) ComponEnts rEtail offiCEs rEsidEntial parking rural land not applicable not applicable not applicable not applicable not applicable outer layer 30 30 40 40 not applicable
ASR determines the classification of the financial assets at initial recognition. The classification depends on the purpose for which the investments were acquired.
Re a Financial assets at fair value through profit and loss include: 1. financial assets classified as held for trading. These financial assets include derivatives that do not qualify for hedge accounting (see chapter 2.22); and 2. financial assets, designated by ASR as carried at fair value through profit and loss. This option is available whenever: a. it eliminates or significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities on different bases (accounting mismatch); or b. ASR manages a group of financial instruments (assets, liabilities or both) on the basis of fair value in accordance with a documented risk management or investment strategy; c. the financial assets contain one or more embedded derivatives and ASR does not separate the derivative from the host contract.
Fair value of financial instruments Where possible, ASR determines the fair value of a financial instrument on the basis of quoted prices in an active market. In the absence of an active market for the financial instrument, the fair value is determined using valuation techniques. Although valuation techniques are based on observable data where possible, results are affected by the applied assumptions, such as discount rates and estimates of future cash flows. In the unlikely event that the fair value of a financial instrument cannot be measured, it is carried at cost.
The other financial assets available for sale will be tested for impairment if objective evidence exists that the counterparty will default. Objective evidence includes: bankruptcy, financial reorganization or delinquency in payments for more than 30 days. The assessment may also involve circumstances requiring a more detailed estimate, such as in the event of an equity deficit, recurring financial difficulties, downgrading of the credit rating or other creditors reverting to legal action.
Determining the fair value at Level 2 is based on valuation techniques that use inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is derived from prices of identical or similar assets and liabilities). These observable inputs are obtained from a broker or third party pricing service and include: • quoted prices in active markets for similar (not identical)
At level 3, the fair value of the assets and liabilities is determined using valuation techniques for which any significant input is not based on observable market data. In these situations, there are marginally active or inactive markets for the assets or the liabilities. The financial assets and liabilities in this category are assessed individually. Valuation techniques are used to the extent that observable inputs are not available. The basic principle of fair value measurement remains to determine a fair, arm’s length price. Therefore unobservable inputs reflect the management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are based on own sources and generally available information.
Receivables from banks Receivables from banks concern business loans, deposits and the savings portion of mortgages insured by ASR.
An individually assessed asset is considered impaired if objective evidence exists that ASR will be unable to collect all the amounts due by the counterparty in accordance with the contractual terms and conditions. The amount of the impairment loss is equal to the difference between the asset’s carrying amount and its recoverable amount. The recoverable amount equals the present value of estimated future cash flows, including amounts realized from guarantees and securities furnished, discounted at the financial asset’s original effective interest rate.
Firm commitments are hedged using fair value hedges, except where foreign currency risk is concerned, for which cash flow hedges are used. ASR currently only applies cash flow hedge accounting.
At the inception of the hedge, ASR documents the risk management objective and strategy for undertaking the hedge, as well as the relationship between the hedging instrument, the hedged item, and the method for assessing the effectiveness of the hedging transaction. It is also confirmed that the hedge is expected to be effective throughout the hedging period.
Only assets, liabilities, firm commitments or highly probable forecast transactions involving a party external to ASR can be designated as hedged items.
Changes in the fair value of the effective portion of derivatives that have been designated and qualify as cash flow hedges are recognized as an unrealized gain or loss in a separate component of equity. Fair value changes in the ineffective portion are recognized in the income statement. The amounts recorded in equity are reclassified to profit and loss in the same period or periods during which the hedged firm commitment or highly probable forecast transaction affects results.
2.24 Reinsurance contracts Contracts that transfer a significant insurance risk from ASR to third parties are accounted for as reinsurance contracts, and defined as outgoing reinsurance.
Property developments consist of property under development commissioned by third parties. Measurement is at cost including any directly attributable costs and construction period interest, less invoiced instalments and impairment losses. If the contract revenue can be reliably estimated, it is accounted for by reference to the stage of completion, using the percentage of completion method. This does not apply if ASR has transferred the significant risks and rewards relating to the development property to the client. Contract revenue is then accounted for upon completion of the development (completed contract method).
2.26 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, cash collateral and other short-term highly liquid investments with original maturities of three months or less.
Share capital and share premium reserve The share capital disclosed in the balance sheet consists of issued and fully paid-up ordinary shares. The share premium reserve comprises additional paid-in capital in excess of the par value of the shares.
Non-controlling interest The Non controlling interest relates to the equity in a consolidated subsidiary not attributable, directly or indirectly, to ASR (see chapter 2.4).
Dividends on ordinary share capital Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by ASR’s shareholders. Interim dividends are deducted from equity when they are paid.
General This includes liabilities arising from insurance contracts issued by ASR that transfer significant insurance risks from the policy- holder to ASR. These contracts may also transfer financial risk.
Liabilities arising from life insurance contracts Future obligations in respect of policy benefits for life insurance contracts are calculated based on a net premium method (the present value of future obligations less the present value of future net premiums) using the same principles as for calculating the premium at inception of the insurance contract. A provision for future administrative expenses is recognized for contracts whose future premium payment period is shorter than the future maturity of the insurance policy, or for which no more premiums are paid. A provision is recognized for the longevity risk associated with all group life insurance contracts, where ASR compensates the short-life risk, with longevity risk. No additions to the provision for longevity risks is recognised if the outcome of the IFRS LAT indicates that the total amount of the provisions is adequate.
Reinsurance liabilities Reinsurance liabilities, with ASR qualifying as the reinsurer and with significant insurance risk being transferred to ASR, are accounted for in the same way as regular directly written insurance contracts. They are included under liabilities arising from insurance contracts.
Life insurance contracts with a discretionary participation features (DPF) Under DPF life insurance contracts, policyholders are assigned, in addition to their entitlement to a guaranteed element, an entitlement to a potentially significant additional benefits whose amount or timing is contractually at the discretion of ASR. These additional benefits are based on the performance of a specified pool of investment contracts, specific investments held by ASR or on the issuer’s net income.
Shadow accounting ASR applies shadow accounting in compliance with IFRS 4 to: • insurance contracts with participation features; • non-participating insurance contracts if and to the extent that the current interest rate is lower than the interest rate that was used in the pricing principles at inception of the insurance contract.
Shadow accounting allows a recognized but unrealized gain or loss on an asset to affect the measurement of its insurance liabilities in the same way that a realized gain or loss does. ASR applies shadow accounting to unrealized value changes in fixed-income financial assets available for sale, specific financial assets designated at fair value through profit and loss, and specific derivatives designated as held for trading (swaptions and interest rate swaps).
Liability Adequacy Test life The Liability Adequacy Test (LAT) is performed at each reporting date to asses the adequacy of insurance liabilities. Liabilities are adequate if the technical provision recognized in ASR’s balance sheet for Life as a whole at least equals the best estimate of the life insurance liabilities including an appropriate risk margin.
Best estimate The best estimate of an insurance contract is the net present value of the projected cash flows of benefits and expenses, less the net present value of premiums. These cash flows are estimated using realistic (‘best estimate’) assumptions in relation to mortality, longevity, lapse rate, expense and inflation. The best estimate assumptions regarding mortality and longevity include the most recent trend assumptions for life expectancy in the Netherlands, as provided by the Dutch Actuarial Association.
Where applicable, the participating features of the insurance contracts, such as profit sharing, are taken into account in the future cash flows. The cash flows are discounted using the ECB-AAA curve for government bonds as published by the European Central Bank. The best estimate is increased by the time value of options and guarantees (CFOG: Cost of Financial Options and Guarantees) and is calculated using stochastic techniques. The intrinsic value of the options and guarantees is already included in the best estimate.
a guaranteed minimum benefit on expiration are concerned, the best estimate is reduced by a CFOG, i.e. the value of that guarantee in accordance with the Black-Scholes model.
Risk margin ASR uses the latest standard Solvency II model, as defined in Quantitive Impact Studies, to quantify these risks. The risks that are incorporated in the risk margin are: mortality, longevity, disability, lapse, catastrophe, expense, nonhedgeable financial risk and operational risk. All these risks are projected into the future. The total risk for every future year is determined based on correlations between the risks described in the Solvency II standard model. The projected total risk for every year is multiplied by a cost of capital charge and discounted at the balance sheet date.
Some unit-linked contracts include guaranteed benefits at maturity. To cover these guarantees, an additional obligation is recognized in the balance sheet that depends on the current fund value and the level of the guarantee. In determining this obligation, account is taken of actuarial assumptions about future fund developments and mortality are taken into account.
The liability in respect of defined benefit plans is the present value of the defined benefit obligation at the balance sheet date, less the fair value of plan assets together with adjustments for unrecognized gains or losses and past service costs. The financing cost related to employee benefits is recognized in interest expense.
2.33 Financing At initial recognition, debt instruments and other loans are stated at fair value, net of transaction costs incurred. Subsequent valuation is at amortized cost. Any difference between the proceeds and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest rate method.
2.40 Fair value gains and losses Fair value gains and losses include realized and unrealized changes in the value of financial assets at fair value through profit and loss and derivatives. With respect to derivatives, this is based on the fair value exclusive of accrued interest (clean fair value).
2.41 Result on investments on behalf of policyholders Investments on behalf of policyholders are measured at fair value through profit and loss. Any changes in value are recognized in result on investments on behalf of policyholders. This also includes interest income and dividends received on investments on behalf of policyholders.
2.43 Insurance claims and benefits This item includes changes in liabilities arising from insurance contracts (see chapter 2.29) and the related benefits. Expenses associated with contracts on behalf of policyholders relate to changes in liabilities arising from insurance contracts on behalf of policyholders, including the benefits charged to the liabilities.
2.44 Operating expenses This item relates to expenses associated with ASR’s operations that are directly attributable to the reporting period, such as marketing costs, ICT expenses, consulting fees, business accommodation expenses, cost of temporary staff, and depreciation charges.
Deferred taxes in respect of revalued assets and liabilities, whose value adjustments were directly credited or charged to equity, are taken to equity and, upon realization, included in the income statement together with the value adjustments.
• The CRSA is part of the Own Risk Solvency Assessment (ORSA), which was executed in 2011 too. This assessment helps the business lines and the group to identify risks and quantify the impact of these risks on the forward-looking solvency position. The ORSA process is embedded in ASR multi-year budget.
Operational risk • ASR improved its system of internal control in 2011.
Principal risks are identified and assessed and controls are determined from an Enterprise Risk Management (ERM) perspective.
Solvency II • The quality and reliability of data has improved. This contributes to better steering information and facilitates the process of decision-making.
Capital management and solvency • ASR’s economic capital model has been embedded.
Market risk • Property risk were reduced in 2011 in accordance with the strategic investment policy.
• ASR mitigates the impact of low rates of interest in the market by purchasing swaps and swaptions.
Insurance risk – Life • ASR monitors more strictly developments in profitability of the individual and group life insurance portfolio. The profitability is negatively impacted by low interest rates.
Risk governance ASR’s risk governance is based on the principle of ‘three lines of defence’ (see chapter 3.3). Risk management roles and responsibilities are anchored throughout the organization. ASR has a risk committee structure in place. The objective of the risk committees is to manage the risk profile for ASR Group and its product lines when it comes to risk preferences and risk limits. ASR is working on its internal risk awareness training programme.
Policy ASR has a risk classification, which covers all the Solvency II risks and is in line with the FIRM risks as prescribed by the Dutch Central Bank (DNB). ASR has established policies, which are updated annually, for each of the principal risks that it incurs (market, counterparty default, insurance, strategic and operational). Each policy describes the risk definition, the risk limits and the risk mitigation techniques.
3.3 Risk governance As part of the overall risk management framework, ASR has established a risk governance framework. Risk governance refers to the duties and responsibilities of the risk management function and the risk committee structure. The duties and responsibilities are designed based on the ‘three lines of defence’. ASR uses the following definition of the ‘three lines of defence’ model: • First line – responsible for risks in the product lines and managing these risks. The first line has the day-to-day responsibility for operations (sales, pricing, underwriting, claims handling, etc.). The Executive Board and the management teams of the business lines are responsible for the first line.
• Second line – responsible for developing risk policies and advising, supporting and reviewing the implementation of ERM within the first line. The risk departments in the business lines (local) and the central risk management departments are responsible for the second line. The local and central second lines together qualify as ASR’s countervailing power.
• Third line – responsible for the independent control of the effectiveness of the ERM framework, the internal control system and the adequacy of the risk governance. The third line is formed by the internal audit department.
Risk Management The risk management function is an independent function within ASR. Its main objective is to control and monitor the solidity of ASR. To execute the role in a proper way, the director Risk Management has a direct and independent line to the Audit and Risk Committee.
Risk Strategy & Policy Risk Strategy & Policy is responsible for developing and implementing the ERM framework. Furthermore, it is responsible for managing operational risks. The ASR ERM approach involves the further development of ASR’s risk management culture, risk strategy and the related risk preferences, transparent risk governance, model governance, risk policies, classification of risk types, advising on value management and the internal control system. Risk Strategy & Policy is responsible for ASR’s ORSA process (including the risk self-assessments), which will be mandatory under Solvency ll.
Insurance Risk & Value Management IR&VM, which is the Group’s actuarial function, is responsible for reviewing the business’s actuarial functions. The department also consolidates insurance liabilities, monitors insurance risk, and advises on actuarial and valuation aspects of products. In addition, IR&VM is responsible for collecting financial risk information, and performing the ASR Liability Adequacy Test (LAT).
Asset & Liability Management ALM matches the assets with ASR liabilities. ALM is responsible for the development and execution of ALM policies and supports the implementation of these policies by the business. The department is also responsible for the methodology and the development of models used in calculating market value and market risk. ALM reports market value and market risk both at group and business level. ALM tests the reported market value and market risk based on ASR’s risk limits and risk budget. ALM also assists product lines in product development.
The compliance function is an independent and centralized function within ASR. To execute the role in a proper way, the director of group Integrity has a direct and independent line to the Audit and Risk Committee.
ASR Risk Committee The ASR Risk Committee monitors ASR’s overall risk profile. The ASR Risk Committee decides annually on ASR’s risk preferences and risk limits. The ASR Risk Committee also monitors progress made in managing risks included on the list of the ‘Executive Board risk priorities’. The ASR Executive Board fully participates in the ASR Risk Committee. The Chairman of the Committee is ASR’s CEO. The involvement of the Board ensures that risk awareness and risk decisions are embedded at the appropriate level. In addition to the Executive Board, representatives of all key departments participate in the Committee.
Financial Risk Committee The Financial Risk Committee (FRC) has a mandate from the Executive Board to decide on financial risk policies. The FRC manages and controls financial risks. The FRC defines financial risk limits at group level. The FRC monitors whether the risk profile remains within the risk limits. If the risk profile exceeds these limits, the FRC takes mitigating actions. The FRC reports to the ASR Risk Committee.
insurance risk Insurance risk is the risk that future insurance claims and benefits cannot be covered by premium and/or investment income, or that insurance liabilities and results are threatened because costs, claims and benefits differs from the assumptions used in the development and premium-setting of a product. ASR distinguishes two different major types of insurance risk: - life; - non-life (including health).
strategic risk strategic risk is the risk that AsR will not reach its targets because of invalid decision-making, wrong implementation of decisions and/or failure to respond adequately to market developments.
If the scenarios of the major market risks were to take place simultaneously, an undiversified negative effect of 51% (2010: 86%) would result in a solvency ratio of 179% (2010: 135%). This is an important ratio for ASR to measure solidity.
3.5.1 Interest rate risk Interest rate risk is the risk that the value of assets, liabilities or financial instruments will change because of fluctuations in interest rates. Many insurance products are exposed to interest rate risk; the value of the products is closely related to the applicable interest rate curve. The interest rate risk of insurance products depends on the term to maturity, interest rate guarantees and profit-sharing features. Life insurance contracts are particularly sensitive to interest rate risk (see chapter 3.7.1). For the purposes of DNB solvency and buffer capital, the ECB AAA government bond curve is used for discounting insurance liabilities.
ASR manages its interest rate risk by aligning fixed-income investments to the profile of the liabilities. Among other instruments, swaptions and interest rate swaps are used for hedging the specific interest rate risk caused by interest rate guarantees and profit-sharing features in life insurance products.
The interest rate risk is quantified on a monthly basis by means of duration and scenario analyses. Duration is a measure for interest rate sensitivity, which gauges how much the fair value changes at a small parallel shift in the interest rate curve. As shown in the table below, the duration of the liabilities exceeds the duration of the assets; as a result, the fair value of equity decreases as interest rates drop.
Comparable effects are seen in the sensitivity of the regulatory solvency ratio to changes in interest rates. The sensitivity of the regulatory solvency ratio to a drop in interest rates of 1% changed from -31% to -7%.
Sensitivity of regulatory solvency to interest rate changes: 3.5.2 Equity risk The equity risk is dependent on the total exposure to equities. In order to maintain a good understanding of the actual equity risk, ASR has made a number of adjustments for risk purposes to the IFRS classification, i.e. bond funds classified in the balance sheet under equities are not included here.
The sensitivity of the regulatory solvency ratio to changes in equity prices is monitored on a monthly basis. Option contracts composition equity portfolio 2010
exposure percentage exposure percentage 3.5.5 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. Spread risk relates to several types of assets: • fixed-income investments; • deposits; • savings-linked mortgage loans.
Fixed-income investments Spread risk is managed on a portfolio basis within limits and risk budgets established by the relevant Risk Committees. Where relevant, credit ratings provided by the external rating agencies are used as a factor in determining risk budgets and monitoring limits. A limited number of bond investments do not have an external rating. These investments are generally awarded an internal rating. Internal ratings are based on methodology and rating classifications similar to those used by external agencies.
During the year, the credit risk of the bond portfolios was further reduced by selling financials and non-core government bonds and reinvesting the proceeds in AAA-rated covered bonds and core government bonds. As a result, the average rating of the fixed-income portfolios improved, in spite of the continuation of the downgrade trend in ratings.
Active management of the government bond portfolio ensured timely reaction to market developments. As a result exposure to Dutch government bonds during 2011was expanded at the expense of government bonds issued by France, Belgium and peripheral euro countries.
The change in market values of financial institutions bonds reflects both the gradual reduction in our exposure to senior and subordinate securities in line with our strategic asset exposure exposure exposure percentage exposure percentage exposure exposure exposure percentage exposure percentage mix as well as a widening of the spreads observed in 2011. The proceeds were reinvested in government and covered bonds.
The limited increase in structured products is due to investments in AAA tranches of Dutch mortgage-backed securities. A further reduction in the market value of the CDO and structured financial instruments (predominantly consisting of CDO
equity pieces) is attributable to a number of redemptions and sales of positions. The market value of the remaining CDO portfolio increased slightly in the course of 2011.
The policy of concentrating government bond exposure in core Europe explains the increase in AAA rated investments in 2011 to 98% (2010: 93%). The portfolio of financial institutions saw downgrades. This explains the rise in BBB ratings.
Deposits ASR’s total deposits amounted to € 49 million (2010: € 128 million) of which € 36 million (2010: € 128 million) had a single A rating and € 12 million (2010: € 0 million) a triple A rating.
Savings-linked mortgage loans Savings-linked mortgages have been sold where savingslinked contracts are carried on ASR’s balance sheet and the mortgage loan is recognized in the balance sheet of third parties. One of the characteristics of a savings-linked mortgage loan is that the interest in the insurance contract and the interest in the mortgage loan are linked. At the same time, ASR extends loans to these third parties with a nominal value equal to the value of the savings-linked contract and at an interest rate linked to the interest rate on the mortgage. The amortized cost of these loans amounted to € 1,969 million at year-end 2011 (2010: € 1,908 million).
3.6.4 Receivables ASR’s receivables amount to € 866 million in total.
3.7 Insurance risk Insurance risk is the risk that future insurance claims and benefits cannot be covered by premium and investment income.
3.6 Counterparty default risk Counterparty default risk reflects possible losses due to unexpected default or deterioration in the credit standing of counterparties and debtors. Counterparty default risk affects several types of assets: • mortgages; • derivatives; • reinsurance; • receivables; • cash and cash equivalents.
3.6.1 Mortgages ASR grants mortgages for the account and risk of third parties and for its own account. The ASR portfolio consists only of Dutch mortgages with a limited credit risk. The Dutch national mortgage guarantee fund (NHG) guarantees part of the mortgage portfolio as shown in the following table. Despite the stagnation in residential property prices over the past three years, the value of the collateral of most mortgages is higher than at issue date. The majority of new mortgages sold in 2011 were NHG-guaranteed.
Every insurance segment within ASR holds insurance provisions for future claims arising from existing contracts and assigns assets to cover these insurance liabilities. These provisions are based on assumptions underlying the premium calculation. By applying shadow accounting recent impact of movement in risk free yield curve and credit spreads on corporate bonds is recognized in the provisions. The provisions for non-life risk are based on historical claims settlements of the ASR portfolio. No provisions are formed for equalization and catastrophes. The estimates used, are reviewed at each balance sheet date using statistical analyses based on internal and external historical data. The adequacy of provisions is established at least every month using best estimate assumptions and prescribed and generally accepted methods.
3.7.1 Life insurance portfolio ASR has a diversified life insurance portfolio. The portfolio can be divided into two main product types: individual life (including funeral insurance) and group life. Due to ASR’s diversified life insurance portfolio, the longevity risk is limited. The longevity risk in parts of the ASR insurance portfolio is compensated by the opposite risk (mortality risk) in other parts of the life portfolio (funeral, term insurance).
The insurance contracts are sold to retail and wholesale clients through intermediaries.
ASR distinguishes the following life risks: • Mortality risk: the risk of losses due to the possibility that actual mortality exceeds expected mortality.
• Catastrophe risk: the risk of a large-scale one-off loss due to a single event causing high death-claims, such as a pandemic.
ASR longevity risk is mostly offset by the opposite risk (i.e. mortality risk) in other parts of the life insurance portfolio (unit-linked, funeral, term insurance).
Catastrophe risk Reinsurance arrangements have been set up to mitigate the effects of catastrophes on earnings.
Lapse risk If a policyholder has the right to surrender, an amount is paid to the policyholder (the surrender value) and the contract is cancelled. A contract can also be terminated if the policyholder decides to cease to pay any further premiums. The contract is then converted into a paid-up contract.
The level of retention in different reinsurance contracts is aligned to the size and the risk profile of the underlying portfolios. This includes taking into account the cost of reinsurance on the one hand and the risk that is retained on the other. Reinsurance companies are selected based on the management of the risk that the counterparty represents (expressed in the rating), weighing considerations involving the price.
Adequacy of insurance liabilities The adequacy of the technical insurance liabilities is tested at least every quarter and evaluated every month (and more frequently, if required). The ASR testing policy for the liabilities complies with IFRS requirements and DNB guidelines (see chapter 2.29).
The overall adequacy of the liabilities arising from insurance contracts as at 31 December 2011 has been confirmed by internal actuaries and certified by external actuaries.
amounts in euros x 1,000 2011 2010 retentions highest retention at risk highest retention at event highest retention at risk highest retention at event
The provision at year-end 2011 can be broken down as follows: Insurance contracts on behalf of policyholders: 3.7.2 Non-life insurance portfolio ASR’s non-life insurance portfolio focuses on Accident & Health and Property & Casualty (Motor, Fire and Liability). The insurance contracts are sold to retail and wholesale clients through intermediaries, underwriting agents and direct distribution channels. The non-life insurance portfolio consists of the following categories.
Property & Casualty: • Motor vehicle third-party liability: motor vehicle liability is a third-party liability insurance that covers bodily injury, medical care and/or loss of income following a road traffic accident, as well as damage caused to another vehicle.
• Fire and other damage to property: fire insurance offers policyholders financial protection against damage to their property and material consequences of interruption of operations as a result of the damage sustained.
Claims frequency, size of claim and inflation To mitigate the risk of claims, ASR bases the underwriting policy on claims history and risk models. The policy is applied to each client segment and to each type of activity. In order to limit claims and/or ensure that prices are adjusted correctly, the acceptance policy is continually refined by reference to a number of indicators and statistical analyses. The product lines also use knowledge or expectations with respect to future trends to estimate the frequency, size and inflation of claims. The risk of unexpected major damage claims is contained by policy limits, concentration of risk management and specific risk transfer contracts (e.g. reinsurance).
Benefit and claims handling costs Taking estimated future inflation into account, benefit and claims handling costs are managed on the basis of regular reviews and related actions.
These risks are kept under control by means of regular evaluation of historical claims patterns, expected future developments and price adjustments. ASR mitigates its occupational disability risk through underwriting criteria and a proactive reintegration policy. ASR also minimizes its occupational disability risk through suitable reinsurance.
Provision for pay-outs still due The provision for payable claims/benefits consists of the estimated amount of the reported but not settled claims plus an amount for claims not yet reported or incurred during or before the financial year. The latter part is based on historical information. This provision implicitly includes a provision for payable external claims handling costs.
The adequacy of the provisions is tested every quarter. For P&C and illness and health insurance, the test is based on the requirement that for each homogeneous product group the level of available provisions should reach a confidence level of at least 95%. For disability insurance, the test is based on worst-case stress scenarios. ASR also holds buffer capital in excess of the level of the liabilities.
There is also a concentration of risk in group disability schemes. Group disability contracts are underwritten within the scope of Dutch occupational disability cover (WIA).
The diagrams on previous page illustrate the distribution of gross premium income and gross claims reserves across the different lines of business. Disability insurance contracts account for a relatively large claims reserve in total premiums. Due to the in general rapid settlement of the P&C portfolio, which generates 48% of premium income, only represents 24% of the total claims reserve.
Total gross premium income from non-life insurance activities in 2011 amounted to € 2,427 million (2010: € 2,310 million). In 2011, € 206 million (2010: € 212 million) was paid in reinsurance premium, i.e. 8.49% (2010: 9.29%) of gross premium income.
The level of retention in the different reinsurance contracts is aligned to the size and the risk profile of the underlying portfolios, taking account of the cost of reinsurance on the one hand and of the risk that is retained on the other. By determining the retention, the impact on the balance sheet is taken into account as well. The difference in the retention of disability depends on the structure of the contract (basic coverage or indexed).
The liabilities for amounts payable and the provision for premiums at year-end 2011 can be broken down as follows: Provision for unexpired risk A provision for unexpired risk is formed to the extent that future claims and expenses – in respect of current insurance contracts – exceed future contractual premiums, taking into account the current unearned premium reserve.
For the retained occupational disability cover portfolio, a provision is formed for current risk exposure on contracts concluded in 2011 that run until 31 December 2011. This provision is based on the difference between premiums required for accounting and actuarial purposes.
Every department at ASR (product lines and corporate support) incurs strategic and operational risk.
Control Risk Self-Assessment (CRSA) Under supervision of the Risk Management department, an integral Control Risk Self-Assessment (CRSA) is conducted annually in all ASR departments. Any risks threatening the achievement of the organization’s targets are taken into account in the CRSA. Following this assessment, every department writes a report outlining any identified risks and the actions that need to be taken to mitigate them. These mitigating actions are limitations/targets for the coming year. This report and the mitigating actions are authorized by the local management and the Executive Board. This is important input for senior management for the Management in Control Statement (MCS). The report is updated every quarter.
As part of preparing for Solvency II, ASR has executed a strategic risk assessment (ORSA). The CRSA is part of the ORSA. In this assessment, strategic risks are transposed into scenarios and their impact on the balance sheet and the income statement is determined. This is reported in an ORSA report. This will be developed further in 2012.
Operational losses Every department can suffer operating losses. ASR has a process in place for reporting losses in excess of € 5,000 and evaluating the sources of these losses (incident management). Losses exceeding € 50,000 are reported to the NFRC.
Business continuity management and contingency planning Any critical processes/activities are identified, including the resources needed to establish similar activities at a remote location. Recovery of systems supporting critical activities is regularly tested. To deal with any type of catastrophe, crisis teams have been established and trained every year in each location. This course consists of a theory module (half-day) and a practical module (full day). The goal is to give the teams insight into how they function and help them do their job in case of an emergency. The course also serves to clarify the roles, duties and responsibilities of the members of the crisis teams.
Information security ASR gives special attention to the efficiency, effectiveness and integrity of ICT. Risk management helps to achieve this through a heightened focus on information and access security. This year, logical access control for the main applications in the financial reporting process was improved. The logical access control procedure helps ASR to enhance the integrity of an application, preventing fraud by improving segregation of duties and by conducting regular checks of actual access levels within the applications.
Internal control To further improve the efficiency and the effectiveness of the organization, ASR controls the key processes in the organization. In 2011, ASR improved its control environment from an ERM perspective. Key risks in processes are identified and a minimum set of controls to mitigate these risks is defined, which is an addition to existing key controls. In 2012, these controls will be implemented (if they have not been already) and their effect on mitigating risks will be made transparent.
ProPerTy & casualTy accidenT & healTh ToTal unearned premium provison 275 232 507
ASR is currently in the process of preparing for the Solvency II capital requirements. In 2011, ASR started to implement a process to report the Solvency Capital Requirement as defined in the Quantitative Impact Studies (QIS) of Solvency II. ASR also started the development of an Economic Capital (ECAP) method in 2011 that better reflects its own risk profile.
4.1.2 Solvency ASR’s regulatory solvency and buffer capital can be broken down as follows: The solvency ratio was 230%. The sensitivities described in chapter 3.5 pertain to the stress scenarios used for the solvency ratio floor after stress. The total impact of the stress scenarios is 51% (2010: 86%), resulting in a solvency ratio after stress of 179% (2010: 135%), which is well above the internal minimum target of 150%.
For details on the notional amounts and the fair values of the derivatives for hedging purposes, see chapter 11.4.
In 2012, ASR will continue its efforts to implement the Solvency II requirements to ensure compliance with Solvency II.
With the consent of DNB, the margin on insurance liabilities (DNB LAT margin) has been taken into account in determining regulatory solvency. For a description of the LAT, see chapter 2.29. ASR did not make use of the opportunity of the regulator to value the LAT margin based on the average interest rate curve of the last quarter of 2011. The post-employment benefit plan is eliminated in determining the buffer capital required and buffer capital available.
Fitch Ratings confirmed the ‘A-’ rating with a stable outlook of ASR Levensverzekering N.V. and ASR Schadeverzekering N.V. on 9 December 2011. Fitch Ratings also confirmed the ‘BBB’ rating with a stable outlook of ASR Nederland N.V. on the same day.
The rating reports are downloadable on the ASR corporate website (www.asrnederland.nl).
5 Segment information 5.1 General ASR distinguishes between the life, non-life and other segments. The life segment comprises all life insurance entities and their subsidiaries. These life insurance entities offer financial products such as life insurance contracts and life insurance contracts on behalf of policyholders. The non-life segment is comprised of non-life insurance entities and their subsidiaries. These non-life insurance entities offer non-life insurance contracts. Insurance entities are entities that accept the transfer of insurance risks from policyholders. The life and non-life segments have different levels of profitability and growth opportunities, as well as a different outlook and risk profile.
2011 < 1 year 1-5 years 5-10 years 10-20 years > 20 years 2010 < 1 year 1-5 years 5-10 years 10-20 years > 20 years 4.3 Dividend ASR has the intention to distribute a stable dividend to the shareholders annually, if the capital management objectives are met. Dividends are based on a pay-out of 40%-45% of profit for the year after distribution to holders of Hybrid Tier 1 instruments.
investments on behalf of policyholders 8,581 - - - 8,581 equity attributable to holders of equity instruments 2,672 687 -990 - 2,369
Share of profit/(loss) of associates and joint ventures 8 - - - 8
Profit attributable to holders of equity instruments 135 145 -68 - 212
5.4 Technical result The technical result includes insurance premiums, allocated investment income less insurance costs (claims), distribution costs and operating expenses. Income from investments includes rentals, interest income, dividends and revaluations. Realized gains and losses relate to financial assets classified as available for sale and investment property, as well as gains and losses on financial assets recognized at fair value through profit and loss.
Share of profit/(loss) of associates and joint ventures 9 - -5 - 4
Proceeds (loss) from sales of investments 28 -16 non-technical result 253 156
Net insurance claims and benefits -1,439 -1,422 change in liabilities arising from insurance contracts -135 -111 fee and commission expense -379 -319
• Combined ratio: the sum of the claims and expense ratio.
These ratios are used only by non-life insurance companies. Due to a decrease in claims and the harmonization of provisions arising from further integration efforts within ASR, the claims ratio improved by 2.1%-points. The commissions ratio increased primary due to a commission rebate in 2010 and other related expenses decreased in line with the continued cost saving. In total this lead to an improvement in the combined ratio by 1.4%-points.
The expense ratio was calculated taking into account investment costs of € 7 million (2010: € 7 million).
Gross premiums written net earned premiums1 net insurance claims and benefits fee and commission expense operatinG
Accumulated amortisation and impairments -62 -211 -51 -324 2010 GOODwill VOBA SOftwAre tOtAl
Accumulated amortisation and impairments -45 -190 -49 -284 6 Intangible assets
The impairment of the VOBA amounting to € 3 million related to the Occupational Disability portfolio.
Property, plant and equipment can be broken down as follows: Capitalized acquisition costs 9 14
At year-end 2011, the fair value of land and buildings for own use amounted to €132 million (2010: € 186 million). This value is determined annually on the basis of valuations.
Cost price as at 31 December 2011 170 148 318 accumulated depreciation as at 1 January 2011 -107 -132 -239 transferred to investment property 13 - 13
Accumulated depreciation as at 31 December 2011 -109 -130 -239 - Total property, plant and equipment 61 18 79
Cost price as at 31 December 2010 224 147 371 accumulated depreciation as at 1 January 2010 -105 -123 -228
In 2011, ASR disposed of investment property amounting to € 515 million. The disposalsrelate to the disposal of investment property following the fi rst tranche of the ASR Dutch Prime Retail Fund, and further disposals of offi ce and residential properties.
At year-end 2011, the fair value of investment property amounted to € 2,765 million (year-end 2010: € 3,282 million). This amount is based on valuations by independent valuators. These valuations are performed annually for the almost of the entire investment property portfolio. Most of the impairments recognized relate to residential property.
Proceeds from the sale of investment properties and rentals are recognized as investment income. For details, see chapter 27. In 2011, rentals amounted to € 157 million (2010: € 183 million).
Direct operating expenses arising from the investment property amounted to € 29 million (2010: € 27 million). The percentage of vacant properties are as follows: Therefore, virtually all direct operating expenses related to investment properties generating rental income. Direct operating expenses of investment property are classified as operating expenses.
Some participating interests in which ASR has an interest of less than 20% qualify as associates, because ASR has significant influence.
Deltafort Beleggingen I B.V., a 50% joint venture, participates in the ordinary and preference shares of Ahold N.V., and has its registered office in the Netherlands.
Financial assets can be broken down as follows: The table below gives a detailed overview of the types of financial assets held: 11.1 Investments available for sale Investments available for sale can be broken down as follows: Investments
At fair value through profit and loss (chapter 11.2) 87 171
Company investments investments on behalf of poliCyholDers investments on behalf of poliCyholDers total total
ASR lends equities and bonds in exchange for a fee, with collateral obtained as security. At the end of 2011, the value of the loaned securities was € 8,603 million (2010: € 7,754 million) with the collateral furnished as security representing a value of € 11,552 million (2010: € 8,908 million) consisting of mortgage loans and corporate and government bonds.
Translation differences and other adjustments - -8 rate curve that includes an additional spread based on the risk profile of the counterparty.
11.4 Derivatives Derivatives consist of derivatives held for trading and those held for cash flow hedging.
Notional amounts are used for measuring derivatives; they are not recognized as assets or liabilities in the balance sheet. Notional amounts do not reflect the potential gain or loss on a derivative transaction. ASR’s counterparty risk is limited to the positive net fair value of the OTC contracts.
‘The notional amounts of interest rate swaps increased significantly in 2011. To mitigate interest rate risk ASR effectively entered into forward starting swaps by combining receiver and payer swaps. The notional amounts of both receiver and payer swaps are included in the total notional amounts.’
31 December 2010 Positive fair value Negative fair value NotioNal amouNt
Expected cash flows in connection with interest rate contracts included in derivatives held for cash flow hedging can be broken down as follows: No cash flow hedges became ineffective in 2011. No amounts were transferred from the cash flow hedging reserve to the income statement.
Corporate bonds classified as Level 2 are unlisted fixedincome preference shares. The financial assets classified as Level 3 comprises private equity investments.
F a ir v a lu e t h r o u g h p r o Fi t a n d l o ss in v es tm en t s at
F a ir v a lu e t h r o u g h p r o Fi t a n d l o ss in v es tm en t s a va il a b le
Fo r s a le changes in value of investments, realized/unrealized gains and losses: - Recognized in profit and loss 1 11 9 1 total revaluations of investments, held at year-end, recognized in the income statement 1 11 n/a n/a 11.6 Fair value hierarchy – Investments on behalf of policyholders
p r ic es in a n a c t iv e m a r k et
Debt certificates covered by mortgage 1 - - 1 12 Deferred taxes
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 enacted and current tax rate of 25.0% (2010: 25.0%) is applied when calculating defered tax.
Hybrid tier 1 instrument variable interest (3-month euribor + 2.3%) 84 84 Per quarter with effect from 26 October 2009
Hybrid Tier 1 instrument 6.25% fixed interest 12 12 Per quarter with effect from 30 September 2009
16.4 Non-controlling interest Movements in non-controlling interest can be broken down as follows: The negative non-controlling interest relates to property development projects where non controlling shareholders have committed to increase capital when required.
Hybrid Tier 1 instrument variable interest (3-month Euribor + 2.3%) 3,061 2,613
The following amounts were distributed to holders of equity instruments (x € 1,000): Share of Total comprehensive income -8 1
Profit-sharing, bonuses and discounts granted in the financial year -1 -2
Changes in liabilities arising from non-life insurance contracts can be broken down as follows.
The provisions for claims comprises: Claims development table, non-life The table below is a ten-year summary of movements in cumulative benefits in connection with the non-life portfolio for the period from 2002 to 2011.
Provision for unearned premiums changes in provision for unearned premiums -74 18 -6 -6
Movements in liabilities arising from insurance contracts on behalf of policyholders can be broken down as follows: At year-end 2011, the liabilities included a guarantee provision for a carrying amount of € 110 million (2010: € 126 million) and a provision related to unit-linked insurance contracts for a carrying amount of € 334 million (2010: € 626 million). These provisions relate to compensation for the cost of these contracts.
Effect of fair value changes related to financial assets -503 508
Employee benefits can be broken down as follows: ASR Levensverzekering N.V., an insurance company and a group entity, is the insurer of the post-employment benefit plan. As this company holds the separated investments that are meant to cover the employee benefit obligation, they do not qualify as plan assets in accordance with IAS 19 and are therefore included in financial assets.
The tables below provide further information on gross provisions, qualifying plan assets (back to 2007) and the carrying amounts recognized in the balance sheet item for pensions and other post-employment benefits.
The post-employment benefit plan for ASR’s employees has been insured by ASR Levensverzekeringen N.V. since 2008. Assets managed by group companies have not been included in the above figures. At year-end 2011, the fair value of these assets amounted to € 1,684 million (2010: € 1,623 million).
Amounts in the balance sheet: At 31 December other Post-emPloyment beneFits
The table below shows movements in the defined benefit obligation: The following table shows the changes in unrecognized past service cost: The following table provides an overview of changes in total unrecognized actuarial (gains) losses on assets and liabilities: Pension Plans other Post-emPloyment benefits
Unrecognized past service cost as at 1 January 18 21 - amortization of unrecognized past service cost -3 -3 - -
Unrecognized past service cost as at 31 December 15 18 - -
Experience adjustments are actuarial gains and losses that have arisen due to differences between actuarial assumptions. The following table provides information about experience adjustments with respect to qualifying plan assets (back to 2007) and the defined benefit obligation.
as % of qualifying investments as at 31 December’ - - - - -6.5% - - - - -
Pension Plans other Post-emPloyment benefits expected return on plan assets - - - amortization of unrecognized past service costs 3 3 1 -
Agreement and the 2009-2011 redundancy plan, and on decisions made by ASR’s management.
Of the provisions, an amount of € 11 million falls due within one year (2010: € 11 million).
Under IFRS, assets managed by insurance companies that form part of the group do not count as qualifying assets. Therefore, investment income from these assets has not been included in the above figures. Actual investment returns for 2011 amounted to € 54 million (2010: € 66 million). These returns have been recognized in investment income (chapter 27).
The table below shows movements in provisions: The provisions were created for: • tax and legal issues; • staff redundancies; • retention of disability risk instead of insuring it with UWV
As at year-end 2011, borrowings comprised loans having the following terms to maturity: As at year-end 2011, the fair value of borrowings was € 107 million (2010: € 99 million). The average interest rate payable on other borrowings was 4,26 % (2010: 4,0%).
Amounts owed to banks can be broken down as follows: There is no significant difference between the carrying amount of amounts due to banks and the fair value of these liabilities.
Other liabilities can be broken down as follows: There is no significant difference between the carrying amount of other liabilities and their fair value.
The table below shows the composition of gross insurance premiums: Non-recurring and regular insurance premiums can be broken down as follows: Total life insurance contract premiums including the elimination of € 82 million in premiums related to the ASR pension plan (2010: € 86 million).
Interest income includes € 37 million (2010: € 43.9 million) in interest received on impaired fixed-income securities.
Dividend and other investment income per category can be broken down as follows: Gross premium, life -20 -8
27.2 Realized gains and losses The table below shows a breakdown of realized gains and losses per category: 27.3 Fair value gains and losses Fair value gains and losses per category can be broken down as follows: All changes in fair value presented here are changes to the so-called ‘clean fair value’. This is the fair value net of accrued interest recognized in interest income and expense. The results of hedging contain the changes to the fair value attributable to the hedged risk. In most cases, this concerns the interest rate risk of hedged assets and liabilities, and the change in the fair value of hedging instruments.
Net insurance claims and benefits, Non-life -1,573 -1,533 31 Operating expenses
Changes in impairments of financial assets can be broken down as follows: 34 Interest expense
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 ASR include the Dutch government, associates, joint ventures, members of the Executive Board, members of the Supervisory Board and their immediate family members. These parties further include entities over which these persons or entities exercise control or substantial influence, and other affiliated entities.
ASR regularly enters into transactions with related parties during the conduct of its business. These transactions mainly involve loans, deposits, commissions and reinsurance contracts, and are conducted on terms equivalent to those that prevail in arm’s length transactions.
Other assets concern loans including a provision for impairment of € 10,9 million (2010: € 6.5 million).
These mortgage loans held by the members of the Executive Board have been issued based on normal personnel conditions. The normal personnel conditions consists of limits and thresholds to which personnel interest rate discount applies. For mortgage loans greater than € 340 thousand arm length conditions apply.
The remuneration of the executive and supervisory directors is determined in accordance with the current Articles of Association of ASR N.V.
38.1 Remuneration of supervisory directors The annual remuneration for members of the ASR Supervisory Board has been calculated as follows: 38.2 Remuneration of current and former executive directors
The remuneration of current and former executive directors is in accordance with the 2011 remuneration policy. This policy was approved by the shareholder.
The remuneration can be broken down as follows: Amounts for 2011 in euros x 1,000 fi x ed e m p lo ye e b en ef it s sh o r tt
¹This includes pension and VPL. ²The total determined remuneration of the Executive Board, including the short- and long-term variable remuneration according to the remuneration policy, amounts to € 3,734 thousand. One-third of the variable remuneration concerns the short-term variable remuneration. This part, € 217 thousand in total, has not been disbursed.
An amount of € 272,955 was paid to former executive directors in 2011 under existing contractual obligations. An amount of € 271,289 was paid to former executive directors in 2010 under existing contractual obligations. The amount, both in 2011 and 2010, was agreed upon in 2005 and does not concern any of the persons mentioned in the tables above.
Amounts for 2010 in euros x 1,000 fi x ed e m p lo ye e b en ef it s sh o r tt
er m vA r iA b le em p lo ye e b en ef it s p o st em
Balance of acquired identifiable assets and acquired liabilities 1 -4 acquisition price
Paerel Leven N.V. was acquired for 1 Euro Acquired cash and cash equivalents 4
Increase in cash and cash equivalents through acquisition of Paerel Leven N.V. 4
Securities leasing ASR is involved in a number of legal proceedings involving securities leasing products (Groeivermogen) that have been brought against several ASR operating companies by individuals or consumer organizations. The claims are based on one or more of the following alleged breaches: • violation of the duty of care; • lack of a second signature required for hire purchase agreements; • lack of a sales licence for the products in question as required under the Dutch Financial Supervision Act.
The current assessment of the legal risks stemming from securities leasing does not prompt ASR to create a material provision.
Company financial statements 41 Company balance sheet 42 Company income statement
Investments in group companies are carried at net asset value, in accordance with the accounting policies used in ASR’s consolidated financial statements. The share of profit of group companies is reported in conformity with the accounting policies used in ASR’s consolidated financial statements.
Profit carried over from previous financial year 255 -255 - -
Tax relating to interest on other equity instruments 14 14 14
Income tax relating to interest on other equity instruments 11 11 11 3 Loans and deposits 4 Receivables from group companies Receivables from group companies are payable on demand. This amount includes the receivable with respect to nonqualifying plan assets (see chapter 19) administrated by ASR Levensverzekering N.V. amounting to € 1,795 million (2010: € 1,623 million).
6 Cash and cash equivalents Cash and cash equivalents are stated at face value. They are fully and freely available to the company.
The statutory reserve relates to the revaluation of investments in group companies. Expected claims for additional benefits under insurance contracts with discretionary participation features (DPF) are included in the Other reserves amounting to € 3 million (2010: € 8 million).
Number of shares amouNt iN millioNs of euros of which: unsubscribed shares 800,000 800,000 400 400
Total borrowings 30 150 11 Borrowings Borrowings can be summarized as follows: The residual term to maturity of the borrowings is 36 months (2010: 30 months). The average interest rate is 3.8% (2010: 3.2%). The movement in the borrowing related primarily to early repayments made in 2011.
13 Joint and several liability Since 3 October 2008, the company and its subsidiaries have been part of the tax entity ASR for corporation tax purposes. Until 2 October 2008, the company and its subsidiaries were part of the Fortis Utrecht N.V. tax entity for corporation tax purposes. All companies within the tax entity are joint and several liable for the corporate tax debt.
Up to 31 December 2008, ASR was a member of a VAT tax group of ASR companies and other former Fortis group companies that had their registered offices in the Netherlands. Since 1 January 2009, there has been a new VAT group of ASR companies. By law, the individual members of the tax group are jointly and severally liable for one another’s VAT debts.
Examining and auditing the financial statements under the articles of association and other group company audits under the articles of association
Total audit fees 4,002 4,063 43.2 Notes to the company income statement
Auditor’s fees Auditor’s fees are paid to auditors by the company, its group companies and other consolidated companies. The fees paid for the years 2011 and 2010 can be broken down as follows: • fees for audit engagements: these include fees paid for the audit of the consolidated and company financial statements, quarterly reports and other reports; • fees for non-audit services: these include fees for support and advisory services provided during acquisitions.
Management’s responsibility Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the management board report in accordance with Part 9 of Book 2 of the Netherlands Civil Code. Furthermore, management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
Opinion with respect to the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position of ASR Nederland N.V. as at 31 December 2011 and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code.
Opinion with respect to the company financial statements In our opinion, the company financial statements give a true and fair view of the financial position of ASR Nederland N.V. as at 31 December 2011 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Netherlands Civil Code.
Deltafort Beleggingen i B.V. 50,00 50,00 amsterdam life n.V. polder Jannezand¹ 100,00 100,00 Hank life sycamore 5 B.V¹ 100,00 100,00 utrecht life sycamore 6 B.V.¹ 100,00 100,00 utrecht life paerel leven n.V.² (acquired 14 november 2011) 100,00 100,00 amsterdam life
Ditzo B.V.¹ 100,00 100,00 Zeist other servicemaatschappij ‘De Hoofdpoort’ n.V.¹ 100,00 100,00 rotterdam other united reforce i B.V.¹ 100,00 100,00 utrecht other
Article 21 of the Articles of Association reads as follows: 1 The Company may distribute any profit to shareholders and other persons entitled to profits only if its net assets exceed the sum of the paid and called-up portion of its capital plus the reserves that must be maintained by law.
3 The annual general meeting of shareholders may, with respect to the stipulations in paragraph 1, either on the recommendation of the management board and with the approval of the supervisory board or on its own initiative make a distribution to be chargeable to the distributable part of the net assets.
5 No profit shall be distributed to the Company in respect of shares held by the Company in its own capital.
The Executive Board will propose to the Annual General Meeting of Shareholders to distribute € 71 million (40%) in dividend on ordinary shares for 2011.
Core capital Equity capital and disclosed reserves available at group level, based on the definition of the Tier 1 ratio (core equity capital expressed as a percentage of total risk-weighted assets).
Derivative A financial instrument with all three of the following characteristics: a. its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract (sometimes called the ‘underlying’); b. it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and c. it is settled at a future date.
A contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are likely to be a significant portion of the total contractual benefits, whose amount or timing is contractually at the discretion of the issuer, that are contractually based on the performance of a specified pool of contracts or type of contract, realized and/or unrealized investment returns on a specified pool of assets held by the issuer, or the profit or loss of the company, fund or other entity that issues the contract.
Investment contract A life insurance contract that transfers financial risk with no significant insurance risk.
Recoverable amount The recoverable amount of an asset or a cash-generating unit is the higher its fair value less costs to sell and its value in use.
Transaction date The date at which ASR Nederland enters into the contractual terms of an instrument.
The present value of future profits embedded in acquired insurance contracts. VOBA is recognized as an intangible asset and amortized over the effective life of the acquired contracts.