Chapter 1 - a.s.r. at a glance 1.1 Key figures 6 1.3 Message from the CEO 10 1.5 Strategy 16 1.6 Executive Board and Supervisory Board 24
Appendix A – Glossary 277 Appendix B – List of Acronyms 281 Appendix C – Other customer information 282 Appendix D – Other employee information 283 Appendix E – Other environmental information 289 Appendix F – Other information 293
Number of internal FTEs * including 344 FTE M&A, excluding M&A 3,306
* March 2016. The emission factors have been aligned to the most recent scientific insights. The carbon footprint for 2015 and the footprint for previous years have been redefined based on recent insights.
Integration of insurance operations of Stad Rotterdam, AMEV, Woudsend Verzekeringen into Fortis ASR
End of Fortis era: a.s.r. continues on as an independent company with the Dutch State as its sole shareholder
10a.s.r. 2015 annual report a.s.r. at a glance 1.3 Message from the CEO
2015 was a good year for a.s.r., in which we posted solid results. We were disciplined about implementing our strategy in 2015 as well, which helped us to streamline our business operations, concentrating on key themes such as customer focus, efficiency, robustness and balance sheet optimization.
Thanks to our strategic choices over the past few years, we have managed to steadily improve our Net Promoter Score, the benchmark for the degree to which customers recommend us to others. But we have also succeeded in improving and simplifying our products and in gaining more appreciation from advisors and consumer panels for our products and services. What is more, our efforts have resulted in cost control; we first made cost cuts by implementing smarter, more efficient procedures. After a few years of cost reductions, we now see our costs stabilizing.
Our strategy led to a number of choices and decisions in 2015. In the pension and funeral insurance markets, for instance, we bolstered our position by acquiring pension insurer De Eendragt and funeral insurer AXENT. These acquisitions are complementary in terms of risk and capital. We undertook these acquisitions in the knowledge that the Dutch insurance market will continue to contract in 2015 and growth in this market could be achieved through strategic acquisitions provided that they are in line with our financial objectives. We are also seeing changes in the distribution landscape and the provision of service is gaining traction. This has prompted us, based on our strategic pillars of customer focus and expertise, to invest in our ties with advisors, by acquiring Van Kampen Groep and Dutch ID. This is how we shore up our position in the intermediary channel, which is our most important distribution channel.
We continued to tweak our core activities in 2015. As a result, we sold SOS International early in 2016. In addition, some of our real estate development business is now held for sale. Our sharper focus on core activities has also led to the acquisition of BNG Vermogensbeheer, an asset manager, in January 2016. This acquisition ties in with our ambition to leverage the knowledge we have accumulated for our clients as an asset manager for third parties as well. Moreover, we focused on optimizing our balance sheet in 2015. Measures taken for this purpose included the issue of a new hybrid loan and the reinsurance of some of our pension portfolio.
In an insurance market where achieving organic growth in combination with responsible returns proved challenging, winning customer trust is the only way to success. Our products and services were rated highly by our customers in 2015 too. a.s.r. Non-life, for instance, saw a sharp increase in the number of Vernieuwde Voordeel Pakket policies sold. And De Amersfoortse’s Werknemers Pensioen was also welcomed by the market in 2015 too.
2015 annual report a.s.r. at a glance 1.4.1 Financial developments a.s.r. looks back on another good year. Earnings before tax (EBT) rose to € 521 million in 2015 (up 25%). The Solvency II ratio (based on the standard formula) is robust (midpoint estimate of 185% after proposed dividends). At 95.0%, the combined ratio in the Non-life segment continued to be strong. Acquisitions further improved a.s.r.’s strategic market position in 2015. a.s.r. intends to distribute € 170 million in dividend to its shareholder for 2015; this represents a 22% increase on 2014.
Earnings before tax up 25% to € 521 million (2014: € 417 million); sharp rise in profit for the year to € 601 million (2014: € 423 million) • Earnings before tax, which are an indicator of the underlying financial performance, were up 25%, rising to € 521 million. The operating return on equity climbed from 11.7% to 13.9%. EBT increased in both the Non-life segment and the Life segment, as well as in the non-insurance business.
• Profit for the year was up 42%, reaching € 601 million, due to the higher EBT, a one-off increase in equity investment income and an increase in the value of the property portfolio.
• Operating expenses amounted to € 575 million, representing a 10% rise on 2014 (€ 524 million). The increase was mainly due to the expansion of activities in the distribution channel (acquisitions of Van Kampen Groep and Dutch ID), the acquisitions of pension insurer De Eendragt and funeral insurer AXENT, and incidental expense items.
Robust solvency position; Solvency II ratio midpoint estimate at 185% after dividend (31 December 2014: approx. 170%) • At its midpoint estimate, the Solvency II ratio stood at 185%
at 31 December 2015 after distribution of the proposed dividend of € 170 million, based on the standard formula (year-end 2014: approx. 170%). a.s.r. applies a bandwidth of +10 percentage points and -10 percentage points to this midpoint estimate, making allowance for both potential positive and negative factors of which the final impact has yet to be determined, referring to the interpretation of the delegated acts.
• Regular operating expenses were down 4% due to further efficiency improvements.
• Earnings before tax increased from € 349 million to € 434 million in 2015, mainly because incidental provisions formed in 2014 no longer adversely affected earnings in 2015.
• Profit for the year was up € 257 million from € 299 million in 2014 to € 556 million in 2015 due to an increase in earnings before tax, higher indirect investment income and incidental items in 2014.
• The ASR Mixfonds, one of a.s.r.’s investment funds, came first in a survey conducted by the Lipper research institute in 2015. The Lipper Awards are presented to the bestperforming investment funds in each category.
• The three funds operated by the a.s.r. real estate investment business, rose significantly in the sustainability ranking of institutional property funds. The ASR Dutch Core Residential Fund was even assigned the highest status, i.e. the Green Star, which was awarded to only 56% of the benchmarked funds. The ASR Dutch Prime Retail Fund and the ASR Property Fund were promoted from Green Starter to Green Talker.
• In the annual survey of the Dutch Association of Investors for Sustainable Development (VBDO), a.s.r. achieved a top ranking for the fifth year in a row.
In line with its defined strategy, a.s.r. acquired the following companies and portfolios in 2015: De Eendragt De Eendragt Pensioen N.V. (De Eendragt) of Amsterdam is a pension insurer that saw the light in 2006 after the conversion of Pensioenfonds De Eendragt into an insurance company. De Eendragt has about 22,000 policyholders and serves 37 employers. After the integration of De Eendragt’s operations into a.s.r., the brand name De Eendragt will be phased out in 2016. The acquisition ties in with a.s.r.’s strategy to shore up its position in the pension market.
Van Kampen Groep Van Kampen Groep (VKG) keeps records for more than 3,000 financial advisors in the Netherlands and works in partnership with over 150 financial institutions. This intermediary services provider will continue to operate independently from its home base in Hoorn. By taking it over, a.s.r. has invested in a business that plays a key role in a rapidly changing distribution landscape. With this acquisition, a.s.r. has strengthened its strategic position in the distribution channel, particularly in the area of service provision.
Boval Groep and Felison Assuradeuren Dutch ID of Velserbroek is the holding company of the Boval Group and Felison Assuradeuren. Boval is an independent consultancy and financial services provider and Felison Assuradeuren provides services in the area of income protection insurance. Boval has a large client base in the agricultural service supply, mechanical excavation and transport sectors. Both companies will continue to operate independently. The acquisition will allow Dutch ID to continue to grow as an intermediary and one of the country’s largest service providers. With this acquisition, a.s.r. has strengthened its strategic position in the distribution channel, particularly in the area of service provision.
Balance sheet optimization a.s.r. has successfully launched and priced a € 500 million subordinated Tier 2 capital transaction. The transaction was priced at 420 basis points over the ten-year swap rate and came with a fixed rated coupon of 5.125%. With this transaction, a.s.r. has broadened its profile among major European fixed-income investors and raised its Solvency II qualifying capital. a.s.r. and Legal & General Reinsurance have entered into a strategic partnership for the reinsurance of some of a.s.r.’s pension portfolio. The reinsured sum involved is € 200 million.
Standard & Poor’s confirmed a.s.r.’s A rating for its core insurance companies and the BBB+ rating for the holding company (ASR Nederland N.V.). All ratings have a stable outlook. See for the S&P report: www.asrnl.com/investorrelations /ratings.
Initiative to create Het nederlandse pensioenfonds a.s.r. has taken the initiative to create a general pension fund (Dutch acronym: APF) by the name of Het nederlandse pensioenfonds. This is an independent pension fund with a single-minded focus on high-quality pension administration and sustainable asset management. The great added value of the proposition is that the administration of pension schemes of various parties can be combined in a pension collective in order to achieve economies of scale.
In addition, a.s.r. and Ditzo were awarded above-average scores in the thematic review of personal injury/legal assistance insurance by the body issuing the Customer-Oriented Insurance Quality mark. a.s.r. ranked second for both personal injury and legal assistance insurance. Ditzo actually tied for first place in the legal assistance category.
Most customer-oriented insurance company Ditzo won the Customer Centric DNA Award for the third time. The award is presented to businesses that customers rate as giving their best interests the highest priority.
Life business introduced ‘website van je leven’ a.s.r. uses the website van je leven (website of your life) to educate customers about their financial situation and help them decide whether their financial concerns are justified or not. a.s.r. has the ambition to increase its customers’ financial selfconfidence. This keeps customers on their toes and helps them make the right financial decisions. Research has shown that the website contributes to the objectives that have been defined. The website is continuously being improved and streamlined to create the best possible fit for the needs and requirements of our customers. With this in mind, a.s.r. will introduce a revamped version of www.websitevanjeleven.nl early in 2016.
Women in management positions a.s.r. monitors the intake, progression and retention of women in management positions. It proactively seeks to hire women in
1.4.3 Campaigns in 2015 a.s.r. launched a number of campaigns for the different brands and product lines in 2015 too. These campaigns always have social relevance and are designed to showcase or assist organisations and initiatives that deserve support. For an extensive list of all campaigns, see chapter 7.6.3. Below we have highlighted two special campaigns that ran in 2015.
2015 annual report a.s.r. at a glance 1.5 Strategy 1.5.1 Mission
• A people-focused employer a.s.r. aims to employ highly skilled employees (in terms of expertise and experience), and to attract and retain talented individuals. a.s.r. strives to offer its employees a stimulating and inspiring work environment as well as enabling them to develop, broaden and grow their skills. As a people-focused employer a.s.r. aims to offer a highly adaptable and flexible structure, and to demonstrate execution drive.
Fulfilling customer needs a.s.r. aims to offer customers simple, transparent products that fulfil their needs. Propositions are tested in real-life consumer panels and in advisor panels. As part of this process, a.s.r. closely monitors whether there are any changes in customer needs with the goal of continuously meeting those needs. In the product approval and review process, the board of directors discusses cross-functional proposals for the adequacy of new and existing products. Furthermore, a.s.r. continuously strives to improve its services to customers and the intermediaries that advise them. The development of customer and intermediary satisfaction is closely monitored through measuring closed loop feedback, named Net Promoter Score (‘NPS’). This provides a.s.r. with insights into the development of customer and intermediary satisfaction. Reports on customer satisfaction and customer services are discussed by the Executive Board.
Excellence in pricing, underwriting and claims handling a.s.r. intends to maintain a disciplined pricing strategy focusing on further deepening its knowledge of customer behaviour and continuing to enhance and further develop its experience and skills in respect of pricing and underwriting. a.s.r. believes that these are key drivers for sustainable value creation.
a.s.r. aims to continue to leverage benefits from its in-house expertise in all of the core insurance processes such as pricing, underwriting, claims management and asset management.
Within the Life segment, a.s.r. intends to continue its value over volume philosophy to price its products such that the pricing exceeds the cost of equity of the individual business line and that a.s.r.’s targets are achieved. a.s.r. plans to continue to pursue its pricing strategy through a disciplined approach. Based on this approach, representatives from all relevant parties within a.s.r. participate in the pricing committee relating to pension contracts (e.g. the pension business, actuarial, Group Risk Management and Asset Management) and certain material contracts are subject to approval by the Board.
(i) Selected Pension products a.s.r. currently is the main provider of services to the General
Pension Fund (APF) which it founded in 2016. In addition, a.s.r. has completed acquisitions (which met internal hurdle rates) which a.s.r. believes resulted in a capital effective cost coverage of its DB portfolio and a.s.r. believes these acquisitions also provide a platform for a.s.r. to increase its sale of DC products and to support future APF sales efforts.
(ii) Distribution and Services a.s.r. has recently acquired VKG and Boval, which serve as a base to maintain its strong relationship with the intermediary distribution channel. In recent years there has been growth of market share of mandated brokers and the emergence of service providers. a.s.r. believes that with these acquisitions it is well positioned to capitalise on this trend. Furthermore, a.s.r. believes these acquisitions offer forward integration in the insurance value chain and therefore better insights into client needs, enabling a.s.r. to adjust its product portfolio and/or distribution mix and therefore better align with customer needs.
(iii) Asset Management While a.s.r.’s asset management activities have historically been exclusively to service the assets of the insurance segments, a.s.r. aims to enhance its asset management capabilities and grow third party (fiduciary) assets management services (including the APF), leveraging the track record of a.s.r.’s real estate asset management activities in managing assets for third parties. These are all areas which are capital-light and which a.s.r. believes have growth potential.
Furthermore, a.s.r. may continue to pursue select nontransformational acquisitions. Under a.s.r.’s current acquisition policy, acquisition targets must meet internal hurdle rates (such as ROE targets) and are assessed based on other factors such as the potential for sufficient scale, scope and/or strategic benefit. Recent capital-light acquisitions (acquisitions of companies whose inclusion in a.s.r. have a low impact on a.s.r.’s regulatory required capital) include the acquisitions of service providers, such as VKG and Boval, as well as the acquisition of BNG Vermogensbeheer.
a.s.r. will seek to implement its disciplined cost approach throughout the organization, including its newly acquired businesses. Through further decentralization of distribution, product marketing and IT, a.s.r. aims to further simplify the organizational structure and to reduce costs. To this end, a.s.r. plans to simplify and rationalize its existing product portfolio, particularly for Life and Pensions. In all business lines a.s.r. seeks to minimize the number of administrative (back-office) systems (e.g. pension, individual life and P&C). a.s.r. also strives to simplify the organizational structure while creating an agile organization with limited management layers.
In addition, a.s.r. is focused on increasing the percentage of variable costs as compared to fixed costs within its overall cost base. In order to achieve this goal, a.s.r. plans to outsource activities which third parties can perform more efficiently and effectively, due to specific knowledge or because cost-or-scale benefits. Examples of excisting outsourced activities are SaaS in Individual life, Pensions and Health, ITO for Individual life and BPO applied for part of the portfolio for Individual life and Pensions. However, a.s.r. believes that certain activities, such as pricing, underwriting, asset management and claims management (including for instance medical advisors and personal injury claims), should be performed by a.s.r. given that these are essential to the insurance operations.
Cash generative business model a.s.r.’s objective is to maintain its operation on a solid financial framework backed by a sound investment policy and investment mix to deliver robust, high-quality earnings underpinned by strong capital generation. a.s.r. believes that the achievement of these objectives will enable the payment of attractive and stable dividends to shareholders. Consideration of risk appetite is key to executive and senior management decisions. a.s.r. intends to maintain its capacity to pay dividend over the coming years through strong capital generation, while maintaining a solid solvency position and retaining an adequate level of cash at a.s.r.
a.s.r. applies a conservative risk profile and has set internal minimum levels designed to absorb losses and to support financial robustness while optimizing its capital position within the parameters set by the regulator.
a.s.r. deploys a multi-brand model which is designed to address different market segments and comprises three core brands: a.s.r., De Amersfoortse and Ditzo, as well as two niche brands: Europeesche Verzekeringen and Ardanta.
Under De Amersfoortse brand, a.s.r. offers disability, health and DC pension insurance, mainly focused on the commercial market. De Amersfoortse products and services are sold exclusively through intermediaries.
Ditzo is a.s.r.’s online brand, focusing on health and P&C products for retail clients. Since its introduction, Ditzo has established a client base of over 70,000 P&C and 180,000 health insurance customers in 2015. Ditzo-branded products are sold online via its own websites and aggregator websites.
Under the Europeesche Verzekeringen brand, a.s.r. specializes in travel and leisure insurance. Europeesche Verzekeringen insurance policies are sold through the intermediary channel, including through specialist partners, such as tour operators and sports federations and the direct channel. The Europeesche Verzekeringen brand primarily targets retail customers.
20a.s.r. 2015 annual report a.s.r. at a glance 1.5.4 SWOT analysis
• Presence in Dutch insurance market only, which is shrinking and highly competitive
• Sustainable business enhancement via fiduciary asset management in combination with capital light life products (e.g. APF Pensions DC products) • Further development of segment Distribution and Services via VKG and/or Boval (Dutch ID) • Increasing demand for sustainable, transparent and simple products • Increase in multi-channel approach taken by customers
• Continued lack of trust in financial sector by the society • Prolonged low interest rate environment and/or financial markets turmoil • New changing legislation governing insurance products or unit-linked policies • Fierce competition in Dutch market
Based on the stakeholder model, a.s.r. keeps in close contact with all its stakeholders throughout the year. For more information about the stakeholders and the stakeholder dialogue, see page 246 of this annual report.
a.s.r. has a keen eye for developments in society and keeps its finger on the social pulse in order to execute its strategy well and gear its products and services to the changing needs and requirements of its customers and other stakeholders, particularly with respect to changes in the long term to which a.s.r. wishes to align its product and service development. A materiality matrix has been prepared for this purpose. The matrix has come about following the stakeholder dialogue and a survey that was put together based on the strategy.
A social development is considered material if it is relevant to the stakeholders and could have a major impact on the development of a.s.r. The greater the impact of the theme on both society and a.s.r.’s business operations, results and strategy, the greater the materiality of the development. To stay relevant as an organization and execute the strategy, this development will also have to be reflected in our business practices and management.
2015 annual report a.s.r. at a glance 1 Customer satisfaction and service 2 Transparent product and service descriptions 3 Transparent products 4 Customer privacy 5 Rules and regulations 6 Anti-corruption and fraud 7 Compliance 8 Employer-employee relationship 9 Sustainable supply chain 10 Regulators 11 Cybersecurity 12 Customer health and safety 13 Employee health and safety 14 Supplier human rights assessment 15 Child labour 16 Non-discrimination 17 Forced or compulsory labour 18 Human rights review of operations 19 Energy 20 Environmental impact of products and services
R e le va n ce f o r st a k e h o ld e rs
A description of the six most important material themes is given below.
1. Customer satisfaction and service a.s.r. focuses on customer satisfaction and service using the
3. Transparent products a.s.r. is always working to improve its processes to help customers by continuously focusing on making products accessible and easy-to-understand. a.s.r. does this by performing internal reviews (PARP and test of cost effectiveness, usefulness, security and intelligibility) and external reviews (consumers, employers and a selection of customers) of its products.
5. Rules and regulations Compliance with rules and regulations forms the heart of our sound and ethical business practices. Any violation can, in fact, result in major financial losses and reputational harm. a.s.r. not only wants to comply with the letter of the law, but it also seeks to act in the spirit of all relevant rules and regulations, including regulations governing the provision of financial services. a.s.r. updates its policies regularly where appropriate.
6. Anti-corruption and fraud The Security department promotes and monitors the pursuit of ethical business practices and focuses in particular on the zero tolerance policy with respect to fraud and unethical conduct of employees, advisors and contracting parties.
22a.s.r. 2015 annual report a.s.r. at a glance a.s.r. opts for value over volume; it manages costs by avoiding waste and permanently works on improving its efficiency. Clarity and simplicity combined with efficient business processes and a robust financial position are essential in this context. a.s.r. focuses on standardizing processes and products, increasing the level of Straight Through Processing and, where useful, outsourcing services to specialist partners.
The themes mentioned are addressed in greater detail in different sections of the annual report.
Intellectual Highly educated workforce Knowledge-sharing with internal and external stakeholders Craftmanship
Human A vital and sustainably flexible workforce More emancipation and labour participation of women and people with an occupational impairment (including young disabled people)
Social Financial literacy and education Helping by taking action Meeting and connecting Engagement
Natural 2% carbon reduction per year 30% energy efficiency improvement (MYA3 2005-2020) Circular projects, including the gym Sustainable business practices (recycling, renovation, heat and cold storage, bicycle plan, lease cars) Sustainable procurement
Financial Solid financial performance Robust solvency ratio Combined ratio Non-life Operating profit Return on equity Dividend pay-out ratio a.s.r. SRI Policy Fair Insurance Guide Dutch Association of Investors for Sustainable Development (VBDO)
Natural a.s.r. seeks to minimize its impact on the environment, which is why it is efficient about its waste and its consumption of water, energy and other natural resources.
Jos Baeten was appointed as CEO of a.s.r. on 26 January 2009.
Additional positions Currently, Jos Baeten is a member of the Executive Board of the Dutch Association of Insurers (Verbond van Verzekeraars) and Chairman of the Supervisory Board of Stichting Rotterdamse Schouwburg. In addition, he is also member of the General Administrative Board of VNO-NCW.
Chris Figee earned a degree (with honours) in Financial Economics from the University of Groningen and is an EFFAS Certified Investment Analyst. He also studied Risk Management at Stanford University. Chris Figee started his career at Aegon, where he held various positions, including that of Senior Portfolio Manager. In 1999 he moved to McKinsey, where he rose to the role of partner in 2006. After ten years at McKinsey, 1.6 Executive Board and Supervisory Board
Karin Bergstein was appointed as a member of the Executive Board of a.s.r. on 1 September 2011.
Michel Verwoest was appointed to the Executive Board of a.s.r. on 1 December 2012.
a.s.r.’s registered address, i.e. Archimedeslaan 10, 3584 BA Utrecht, the Netherlands serves as the business address for all the members of the Executive Board.
C. (Kick) van der Pol Chairman of the Supervisory Board Member of the Selection & Appointment Committee and the Remuneration Committee
First appointed on: 15 December 2008 Current term of office: 15 June 2014 – 15 June 2018
First appointed on: 7 December 2010 Current term of office: 7 December 2014 – 7 December 2018
Herman Hintzen (1955) has the Dutch nationality. Until January 2016 he worked as Chairman Insurance EMEA at UBS Investment Bank. He currently serves as Chairman of the Board of Amlin International SE and a member of the Investment Committee of Concertgebouw Fonds. In the past, Herman Hintzen also acted as an advisor to the Executive Board at APG Asset Management and served as Managing Director at Morgan Stanley, Credit Suisse and JP Morgan.
1 Cor van den Bos 2 Kick van der Pol 3 Annet Aris 4 Herman Hintzen
28a.s.r. 2015 annual report Report of the Executive Board 2.1 Themes in 2015
In addition to recurring topics, the Executive Board also discussed a number of specific themes in its routine meetings in 2015, as well as scheduling extra meetings. More details on some of the themes listed above are provided below.
Customers We exist by the grace of our customers. This is top of mind for us in everything we do. That is why we place great focus on customer-related issues, also in our internal meetings and sessions, and in our internal communications. Various reports, including the TCF Dashboard, complaint reports and the NPS, are used to gain an understanding of developments in, and our performance on, TCF on a highly regular basis. A lot of attention is also being paid to knowledge dissemination by sharing and discussing best practices. At the same time, we continuously review our products and processes in order to align them to the interests and needs of our customers.
The Executive Board also regularly addresses issues related to the network of advisors that a.s.r. frequently likes to work with. It is crucial that we provide appropriate and timely services to them and actively request their feedback if we want to improve the processes underlying the services to them on a continual basis.
29a.s.r. 2015 annual report Report of the Executive Board our people make an important contribution to turning a.s.r. into the socially relevant insurer that we want to be.
A key objective of a.s.r.’s HR policy is to strike the right balance between trust in the intrinsic motivation of all a.s.r. employees on the one hand and to agree on clear targets and assess employee performance on the other. The Executive Board firmly believes that we can only be a sustainable and socially relevant insurance company if we onboard the right and motivated people, and do not place financial incentives above all else.
The risk appetite was an important criterion for the Executive Board in making both tactical and strategic decisions in 2015 too. Solvency levels remained acceptable and more than adequate in 2015 thanks to the organization’s prompt and adequate response to external developments based on the chosen risk appetite and the associated risk-mitigating measures. a.s.r.’s risk appetite was redefined in 2015 with a view to the introduction of the Solvency II regime.
Governance, shareholder and supervision The managing and supervisory bodies of the supervised entities ASR Levensverzekering N.V., ASR Schadeverzekering N.V., N.V. Amersfoortse Algemene Verzekering Maatschappij, Europeesche Verzekering Maatschappij N.V., ASR Basis Ziektekostenverzekeringen N.V., ASR Aanvullende Ziektekostenverzekeringen N.V. and ASR Bank N.V. met at least four times in 2015. The managing and supervisory bodies of the supervised entities De Eendragt Pensioen N.V. and AXENT NabestaandenZorg N.V. met at least two times The standing agenda items included the financial (quarterly) results and the audit, compliance and risk reports. Other topics of discussion were entity-specific issues, including the impact of the changing markets for various entities.
a.s.r. attaches great value to a good relationship with the regulators. It is in frequent contact with both the Netherlands Authority for the Financial Markets (AFM) and the Dutch Central Bank (DNB). Outside of our routine contacts, a.s.r. spoke with DNB in 2015 about its reasons for not issuing a bid for VIVAT, about the preparations for the potential privatization and about unit-linked policies. a.s.r. was also in frequent contact about unit-linked policies with AFM.
Finally, the Executive Board believes that there should be a keen sense of awareness throughout the organization of compliance with rules and regulations as well as codes governing a.s.r. That is why it has been decided to have all a.s.r. employees take the professional oath, so that everyone has a thorough understanding of the importance of the related principles. The deadline for all employees having taken the oath is 1 April 2016. At year-end 2015, 70% of all employees had taken the oath.
Environment issues came to the fore in various discussions about sustainability in 2015. The environment was a key factor in every decision we took in relation to the renovation of the building at Archimedeslaan. This was reflected in the building being awarded the BREEAM Excellent label. It has also been decided to take measures to further reduce the carbon emissions caused by our lease car fleet.
Renovation of head office In 2009, we made the choice to move our people to a single building, which should help to reduce costs (from 15 locations to one) and create a shared culture for our organization. a.s.r. is committed to sustainability, which was one of the reasons for not leaving behind a vacant property, but renovating it and preparing it for the new world of work, which is characterized by customer focus. The renovation was undertaken while business went on as usual in the building; colleagues from other locations were moved gradually to Utrecht.
No bid for VIVAT Various players, including DNB, feel that consolidation in the Dutch insurance market is a must and an inevitable fact of life. Given its robust capital position and efficient operations, a.s.r. is perfectly positioned to consider potential consolidation opportunities provided that they fall in line with its risk appetite and meet other requirements in the areas of capital, risk and return. After a thorough due diligence, the Executive Board decided early in 2015 not to submit a binding offer for VIVAT. Together with a consortium of investors, which had been formed for the purpose of funding a potential bid, a.s.r. looked at all the ins and outs of a bid. Based on the findings, it was decided not to submit a final bid for VIVAT.
The accomplishments over the past few years show that a.s.r. is on track for a successful privatization. In November 2015, Dutch Finance Minister Dijsselbloem submitted his plan to the Dutch Parliament in which he announced his intention to sell a.s.r. and to ask a.s.r. and its shareholder NLFI to start preparing for an IPO in the first half of 2016. The Dutch Parliament agreed to the Minister’s plans at 28 January 2016. A potential IPO will not affect the service provision to our customers. We will continue on the path we have chosen by demonstrating every day that we are committed to building an insurance company that helps people and continuously works to develop sustainable relationships with its customers.
Developments in premium income/cost ratio In 2015, the Executive Board went on to make costs more flexible and manage them, while constantly working to improve service quality. New pension and health insurance propositions, for instance, are administrated using SaaS solutions at low and flexible costs. But with respect to existing portfolios too, choices have been made to reduce costs and make them more flexible, while improving our service provision at the same time, e.g. by outsourcing the pension business’s back office and transferring life policies to a SaaS solution.
In the Executive Board’s opinion, costs should be viewed in relation to premium income and earnings. Acquisitions, for
Closing remark from the Executive Board The Executive Board is grateful to all employees for their unrelenting commitment to helping customers every single day and to making a.s.r. the valued and socially relevant insurance company that it aspires to be, and for the results that were achieved in 2015 in particular. The Executive Board also wants to express its appreciation to the Supervisory Board and the shareholder for their constructive input. The sessions and discussions about such issues as a.s.r.’s planned potential privatization were intensive and of great added value to our business. But most of all we owe a debt of gratitude to our customers who have chosen our products and services. It is only by their grace that we exist.
2015 annual report Report of the Executive Board 2.2 Financial Performance 2.2.1 a.s.r.
• The operating result was up € 104 million, rising from € 417 million in 2014 to € 521 million in 2015.
• A sound performance by the Non-life segment, partly due to the robust combined ratio of 95.0%.
• Strong improvement of results in the Life segment, where incidental expense items still had an adverse effect on earnings in 2014.
• Profit for the year rose from € 423 million in 2014 to € 601 million in 2015, mainly due to the higher operating result, an increase in one-off investment income from equities and an increase in the value of the property portfolio.
• The Solvency II ratio 1 continued to rise, standing at a midpoint estimate of 185% at year-end 2015 after distribution of the proposed dividends (year-end 2014: approx. 170%) 2.
• Equity attributable to holders of equity instruments (IFRS-based equity) was up € 550 million, rising from € 3,709 million at year-end 2014 to € 4,259 million at yearend 2015.
• Operating expenses came to € 575 million (2014: € 524 million). This increase was primarily due to a rise in regular expenses as a result of the strategic acquisitions. Operating expenses were also affected by a number of incidental expense items.
De Eendragt and AXENT). • Bolstering of our strategic position in the intermediary distribution channel (acquisitions of Van Kampen Groep and Dutch ID).
• Classification of the real estate development operations and emergency assistance services as ‘non-core’, which resulted in the sale of SOS International on 26 January 2016.
1 The Solvency II figures are based on the standard formula, the application of which will be further developed in some respects.
Operating expenses -575 -524 - Banking and Asset Management -48 -46 - Distribution and Services -22 -6 - Holding and Other -112 -96 - Real Estate Development -6 -7
Operating result 521 417 - Banking and Asset Management 12 7 - Distribution and Services 3 2 - Holding and Other -93 -102 - Real Estate Development - -
Income tax expense -150 -108 Profit/(loss) for the period from continuing operations 630 426 Profit/(loss) for the period from discontinued operations -26 -5 Non-controlling interest -3 2
Demography At the end of 2015, the Netherlands had 17 million inhabitants. While the population has been growing at a 0.5% compounded annual growth rate (‘CAGR’) over the past twenty-five years, the population is also aging (18% 65+ in 2015 as compared to 13% in 1990). Consistent with other Western European countries, stabilisation of the population is expected around 2035, while the aging phenomenon will continue. Demographic developments vary by region, with some regions expecting population shrinkage within the next twenty years.
In the second quarter of 2014, the Dutch economy had recovered such that it was almost the same size as before the financial crisis of 2008. GDP was € 663 billion (the thirteenth largest GDP per capita globally) with a growth of 1.9% for the year ended 31 December 2014. In the second quarter of 2015 GDP growth in the Netherlands was 1.8%, up compared to the second quarter of 2014. On 31 August 2015 unemployment was 6.8%. S&P expects the Dutch economy to grow 1.7% on an annual basis through 2017 (2014: 0.9% growth). Today, the Netherlands has an AAA rating with all three rating agencies: Moody, Fitch, S&P.
Financial sector The Dutch financial sector is large (measured by GWP) compared to other EU countries. During the 2008 financial crisis, key banks and insurers were nationalised or received state aid, but the process of re-privatisation has started. As a result of the financial crisis there is increasing attention on transparency, customer care, simpler products and moderate remuneration in the financial sector by regulators, politicians and the general public. As of 1 January 2016, Solvency II regulations came into force after many years of preparation. The Solvency II regime comprises requirements for insurance companies. The introduction of the new regime is meant to harmonize the European insurance market, increase the protection of policyholders and improve risk awareness in both the governance and management of insurance companies. Solvency II sets more sophisticated solvency requirements and will form an integral part of the risk management of insurance companies.
Combined ratio, Non-life 95.0% 94.8% Return on equity 17.2% 11.0% Operating return on equity 13.9% 11.7%
Solvency I ratio 305% 285% Solvency II ratio (standard formula) – after dividend midpoint estimate c. 185% c. 170%
Incidental items not included in the operating result mainly related to the increase in investment income, which was driven mainly by higher realized capital gains and the revaluation of the property portfolio. In the first half of 2015, a.s.r. scaled back its equity exposure on relatively high price levels in order to stay within the set risk bandwidths. Other incidentals relate to: (i) Recognized provisions for losses suffered by the real estate development business; (ii) Consulting fees for acquisitions, restructuring expenses and shareholder-related expenses.
The Solvency II ratio stood at midpoint estimate 185% as per 31 December 2015 after distribution of the proposed dividend of € 170 million, based on the standard formula (year-end 2014: approx. 170% based on the methodologies in force at the time). a.s.r. applies a bandwidth of +10%-points and -10%-points around this midpoint estimate reflecting both potential positive and negative factors of which the final impact still needs to be determined, referring to the interpretation of the delegated acts.
The Solvency II ratio increased by gains from business performance, traditional measure in equity risk and issuance hybrid capital. This positive effect was partly offset by changes to non-economic assumptions and an increase in the capital requirement due, for instance, to the acquisitions of De Eendragt and AXENT, and a prudent margin on the potentially assumed tax factor under Solvency II (loss-absorbing capacity of deferred tax). The DNB solvency ratio strengthened further at year-end 2015 to 305% (2014: 285%).
New business in the Non-life segment rose to € 208 million, € 7 million higher than in 2014. This increase occurred mainly in the health insurance business (€ 6 million), due to growth in the Ditzo portfolio. P&C and occupational disability were virtually stable. In the Life segment, new business fell from € 140 million in 2014 to € 92 million in 2015. The difference was mainly attributable to the signing of a large pension contract in 2014,
The number of internal FTEs rose by 136 (or 4%) from 3,513 in 2014 to 3,650 in the reporting period, due to the strategic acquisitions in 2015 (an increase of 344). Disregarding the effect of the strategic acquisitions, the headcount fell by 208 to 3,306. This was the result of previous restructuring operations designed to reduce costs on a sustainable basis and increase cost flexibility. In line with this, about 90 people (80 FTEs) in the a.s.r. pension business transferred to Infosys in the reporting period as part of an outsourcing drive.
Objective: further improve and differentiate on financial performance • Very strong financial result; a.s.r. delivered € 521 million operating profit and 13.9% Operating ROE. IFRS ROE grew to 17.2%; • Dividends paid to shareholder grew further 22% to € 170 million; • Strongly enhanced financial disclosure with new segmentation and additional details on Solvency II.
a.s.r.’s strategy is an extension of its corporate strategy, one of the pillars of which is that a.s.r. is committed to corporate social responsibility. With this in mind, a.s.r. wants to be a socially responsible taxpayer. This is reflected in the level of professionalism of the tax compliance function. a.s.r. does not push its limits when it comes to tax planning and arm’s length principles are always leading.
a.s.r. is developing an in-house Tax Control Framework. This framework is designed specifically to manage tax issues affecting a.s.r.’s business practices and will encompass all policies, procedures and controls. The purpose of this internal system of managing tax risks is to file correct and complete returns for all types of taxes and to do so within the set deadlines. Being in control of tax risks also guarantees that tax debts are paid on time.
• Regular operating expenses were down 4%, due to further efficiency improvements.
Commission ratio 15.0% 15.5% Expense ratio 8.9% 9.3% Claims ratio 71.1% 70.0% Combined ratio, Non-life 95.0% 94.8%
The Dutch non-life insurance market (including health insurance) was the fourth largest non-life insurance market in Europe in 2014 measured by GWP, behind Germany, the United Kingdom and France. General insurance density (including health insurance) in the Netherlands measured by GWP per capita was $ 4,393 (€ 3,631 at the exchange rate of € 1 = $ 1.2098 as at 31 December 2014) in 2014.
The Dutch non-life insurance market (excluding health insurance) measured by GWP amounted to € 14.3 billion in 2014, representing 19.5% of the total Dutch insurance industry. With a 12.1% market share in 2014, a.s.r. was the second largest insurer in the non-life insurance market (excluding health insurance). The Dutch health insurance market amounted to € 41.5 billion, representing 56.6% of the total Dutch insurance industry in 2014.
The Dutch non-life insurance market is a mature and highly competitive market, with 74 insurance groups active in the nonlife market excluding health in 2014, and nine insurance groups active in the health insurance market in 2014.
Market P&C accounts for 14.7% of the Dutch insurance market. Between 2010 and 2014, the Dutch P&C market declined with -3.2% CAGR, primarily as a result of the economic downturn (lower insured sums), increased transparency and increased pressure on premiums.
The outlook for 2016 and 2017 is fairly stable with limited growth expected in the mid-term, in line with GDP development. Growth potential is somewhat hampered by the (already) high penetration for most product groups and limited room for premium increases due to fierce competition in the market.
The P&C insurance market is competitive, with the top six insurers having a combined market share of approximately 60% and few foreign market participants. In recent years new, specialised market participants and brands have entered the retail P&C segment, often as subsidiaries of larger insurers.
Distribution In the Dutch P&C insurance market, most products are distributed via advisors, mandated brokers and through direct distribution. The distribution channel mix varies for retail and commercial market segments. In terms of new production, the direct channel has become increasingly important in the retail market segment (47% direct in 2014, 30% via advisors, 16% via Bancassurance and 6% via other), in particular for the sale of less complex products. In terms of portfolio size, the direct channel is not growing (but remains stable at around 20% of portfolio), mainly as a result of the high churn rate in the direct channel. In the commercial market segment (in particular SME which represents the majority of the P&C volume), intermediaries remain dominant, as the commercial market generally requires more complex and customised products.
Trends • Changing customer behaviour and commoditisation of retail P&C In respect of financial products which are less complex
(commoditised), easily comparable and not linked to other financial products (such as mortgages), retail customers increasingly tend to gather information online. After orientation, customers tend to use the intermediary or direct channel for the product purchase.
Market The overall disability market measured by GWP is 4.8% of total insurance market. The combined ratio of the disability insurance market was calculated in accordance with DNB methodology was 121.6% in 2012, 107.2% in 2013 and 105.6% in 2014. The peak in 2012 was mainly due to the Group disability WGA-ER product, which resulted in market-wide losses for disability insurance companies. The market has been declining in recent years due to the economic downturn along with the 2013 commission ban.
40a.s.r. 2015 annual report Report of the Executive Board a.s.r. has a leading position in the disability market with the brand De Amersfoortse. The six largest market participants all provide the full product range (disability self-employed, sickness leave and Group disability WIA/WGA).
Distribution In the disability insurance market most products are distributed through intermediaries. For the product categories sickness leave and Group disability, there is a requirement for customers to obtain advice, given the relatively complex products offered. In relation to self-employed disability there is an option for sophisticated clients to buy disability products via an execution-only structure directly from an insurer, without any advisory service.
• Dominant intermediary channel Historically, distribution of insurance products in the disability insurance market has primarily been through intermediaries. This was mainly driven by the requirement for customers to obtain advice prior to the purchase of a complex disability insurance product.
Health is a highly regulated market. The Dutch healthcare system distinguishes two types of insurance: basic and supplementary coverage. All Dutch residents are required to have basic health insurance coverage, although coverage is free for minors. Basic coverage is the same across insurers as coverage is government driven. Consumers are free to decide whether they purchase supplementary coverage. Supplementary coverage, which has higher margins than basic insurance, is often offered in packages and varies by insurer. Insurers are required to accept all Dutch residents for basic coverage. A government-run system of risk equalisation enables the acceptance obligation and provides insurers with compensation for excessive costs resulting from their customer base.
Market In 2014, 13.4 million adults in the Netherlands paid for basic coverage. In the same year, 84% of adult Dutch residents paid for supplementary coverage. The CAGR in terms of GWP of the health insurance market in the Netherlands was 1.3% between 2010 and 2014. In 2015 new legislation transferred an estimated € 3.5 billion of healthcare costs from the public system to the private insurance system. The average combined ratio of Dutch health insurers calculated in accordance with DNB methodology amounted to 97.1% in 2012, 96.9% in 2013 and 98.1% in 2014.
The Dutch health insurance market is a concentrated market, with nine insurance groups active in the market in 2014. The top four health insurance companies held a combined market share of approximately 90% measured by GWP in 2014.
The Dutch health insurance market is dominated by mono-line insurers with origins in the Dutch public healthcare segment. The number of customers who switched per calendar year has been stable in the last three years at approximately 7%.
Distribution Consumers have two options to take out health insurance: individually or through a collectively agreed scheme. Products are sold via, for the most part, healthcare collectives with employers, customer groups and unions, which together represent approximately 6.5 million insured (65% of the collective health insurance market). Health insurance products for employers making arrangements for their employees are distributed through intermediaries and the direct channel. Health insurance products in the retail segment are primarily distributed through the direct channel (including aggregators). During the last four years, the distribution mix has remained fairly stable with the direct channel accounting for >80% of volume, with advisors’ share of distribution in a high singledigit range and banks’ share in the low single-digit range. Aggregators account for the vast majority of direct individual sales.
2015 annual report Report of the Executive Board provide good access for all residents, however at the same time healthcare expenses are growing due to the ageing population, technological advancements and increasing costs of medicine. The Dutch government is continuously reorganising and optimising the healthcare system, with new legislation aimed at improving quality and reducing costs. Key initiatives of the Dutch government include: • Cost control, quality improvement and a volume shift towards insurers. Technology companies, healthcare providers and insurers alike are pushing for innovation and the use of the internet in the health sector, which is expected to contribute to higher quality and lower cost. In 2015 new legislation transferred an estimated € 3.5 billion of healthcare costs from the public system to the private (insurance) system; • Increased risk for health insurers due to changes in the government-run system of risk equalisation; and
• Health insurers seeking differentiation Differentiation occurs across various factors: e.g. healthcare commissioning, new propositions, additional services and marketing. From 2010 to 2015 the number of basic health insurance labels has risen from 52 to 70, while the number of insurance groups owning these labels (nine) has not changed. In addition, health insurers are increasingly investing in infrastructure and in technology.
Regular operating expenses fell by € 8 million to € 207 million in 2015, driven by greater operational efficiency.
• Health insurance, including basic health insurance and supplementary health insurance.
Products a.s.r. believes that P&C insurance products in the Dutch market are fairly standardised. a.s.r.’s broad P&C insurance product offering can be divided into the following categories of policies: • Motor a.s.r.’s motor policies for retail and commercial clients provide third-party liability coverage for motor vehicles and commercial fleets, including property damage and bodily injury, as well as coverage for theft, fire and collision damage.
• Other a.s.r. also offers other Non-life insurance products such as transport (only Non-life in transit), liability, agricultural and construction motorised vehicles, construction all risk and assistance.
a.s.r. was the second largest insurance provider with a market share of 9.2% in motor, the fourth largest provider with a market share of 8.8% in fire, the fifth largest provider with a market share of 3.9% in transportation and the third largest provider with a market share of 9.4% in other P&C insurance (including liability, travel and leisure) in the Netherlands in 2014 measured by GWP.
The following chart shows a.s.r.’s P&C product mix by GWP in 2015 (€ 1,005 million)
Distribution a.s.r. utilises multiple distribution channels for its P&C insurance products and the choice of a particular channel depends primarily on the preference of customers. SME clients and families often seek advisory support and are served by advisors and/or mandated brokers. In the Dutch market, aggregators are frequently used for orientation and act as mandated brokers.
a.s.r. has a strong position in the intermediary channel (in 2014, a.s.r. was the market leader with a 24% market share in retail P&C and had the third largest market share of 16% in commercial P&C measured by GWP). The a.s.r. brand is a.s.r.’s P&C brand for intermediaries, and a.s.r.-branded products are also sold under brand names of mandated brokers (including aggregators) with a high average duration of client relationships and high average retention of customers (retail: 16.4 years with a retention rate of 86% in 2015, SME: 11.2 years with a retention rate of 87% in 2015). In 2015, the retail segment had a total GWP of € 258 million and 572,432 customers, while the SME segment had a total GWP of € 218 million and 19,414 customers, in each case excluding customers served via the mandated broker channel. This excludes GWP for mandated brokers, which accounted for € 344 million of GWP in 2015.
Individual clients seeking direct online purchase and online services are best served via Ditzo. Ditzo had 70,390 P&C customers in 2015 with total GWP of € 23 million and a retention rate of 72%.
General a.s.r. has been a market leader in respect of disability insurance since 2007, and in 2014 its market share in the Netherlands measured by GWP was 21.9%, with more than 99,000 retail and self-employed clients and approximately 78,000 SME and commercial clients. The total Dutch disability insurance market measured by GWP amounted to € 3.5 billion GWP in 2014. a.s.r.’s Disability segment maintained a combined ratio of 91.3% and 89.6% in 2014 and 2015, respectively. a.s.r. has reduced its disability claims ratio from 94.2% (excluding WGA-ER: 72.7%) at 31 December 2013 to 69.6% at 31 December 2015. a.s.r.’s retention ratio of 94.5% for Disability is above the market average of 94.1%.
Based on rules set by the Dutch Association of Insurers (Verbond van Verzekeraars) in a code of conduct, (Gedragscode geïnformeerde verlenging en contractstermijnen zakelijke schade- en inkomensverzekeringen) Dutch disability policies can be entered into for an initial term of up to three years and are thereafter automatically extended every year for a period of one year, with a termination right by policyholders upon 30-day notice.
Products a.s.r.’s disability business line comprises two primary categories: Self-employed (including self-employed and retail customers)
2015 annual report Report of the Executive Board and group disability. For both product categories, in addition to insurance products, a.s.r. offers the services of in-house medical advisors, re-integration managers, vocational experts and external parties offering reintegration, health and safety services (arbodiensten), combined with skilled claim handlers, for all policyholders, to assist with their reintegration. In Group disability, a.s.r. also has a joint venture with NN Group called ‘Keerpunt’ (a workplace reintegration services provider), in addition to its own in-house specialists. • Self-employed a.s.r. provides disability coverage to self-employed individuals for loss of income caused by disability. In case of disability, customers are provided with a payment until recovery, death or in case of permanent disability up to late age or the retirement age. a.s.r. offers self-employed disability products for all professions. Individual employees can insure themselves for disability protection for e.g. mortgage payment protection and supplementary wage protection (wia excedent) in addition to that provided under social legislation, i.e. income protection against disability for employees whose disability risk is not insured by their employers. The average customer duration was 10.6 years.
1 a.s.r. also offers products related to sickness leave and group disability via mandated brokers. Due to the importance of this distribution channel, a.s.r. presents these sales as a part of a separate product category (‘Other’). The average customer duration was 1.1 years.
Distribution a.s.r.’s clients in the disability business line range from multi-national corporations to individual clients. a.s.r.’s main distribution channel for disability insurance products is the intermediary channel, including via mandated brokers for group disability products. a.s.r. is a market leader in the intermediary channel in disability insurance in the Netherlands with a market share of 42% for self-employed and 32% for group disability products in 2014 measured by GWP. On average, duration of client relationships within Disability is high, with average customer durations of 7 years, 10.6 years and 8.8 years for group disability, self-employed and sickness leave, respectively. Due to tightening regulatory requirements in the Dutch insurance market, there is a general trend toward consolidation in the intermediary market, which is particularly visible in group disability. Smaller brokers remain an important distribution channel for self-employed disability products, where smaller local intermediaries traditionally have strong positions. The share of sales by mandated brokers has been increasing and reached 12% of the total disability portfolio in 2015.
a.s.r. had a customer base of approximately 316,000 customers in 2015 who have taken basic health insurance and/or supplementary health insurance, of which approximately 180,000 were served by Ditzo, 125,000 by De Amersfoortse and 11,000 via mandated brokers.
The following chart shows the a.s.r.’s health product mix by GWP in 2015 (€ 616 million): By brand, in 2015 Ditzo accounted for € 173 million of GWP (of which € 150 million were attributable to basic insurance and € 23 million to supplementary insurance) and De Amersfoortse for € 156 million (of which € 111 million was attributable to basic insurance and € 45 million to supplementary insurance), while mandated brokers accounted for €14 million (of which € 10 million was attributable to basic insurance and € 4 million to supplementary insurance). These GWP’s are exclusive of the governmental contribution for risk equalisation of € 273 million in 2015.
Leverage on existing strength and distinctive profitability a.s.r. aims to continue developing its expertise in differentiated pricing, underwriting and claim handling, which a.s.r. believes are key drivers for sustainable value creation. a.s.r. believes it can achieve this through, for example, hiring additional senior insurance specialists and further analysis of data. The further analysis of data can improve a.s.r.’s business rules by making them more comprehensive, to apply them to its clients and to strictly monitor the performance of the different channels, while aiming for a more diversified P&C portfolio.
Investing in SaaS solutions a.s.r. plans to implement a SaaS solution for the P&C business. a.s.r. believes that this SaaS solution will improve the robustness of its P&C systems and reduce the P&C business’ fixed cost base while decreasing costs overall. An additional benefit a.s.r. expects from a SaaS solution is an improvement in connectivity with intermediaries through the creation of service concepts such as client portals.
Profitable and selective growth in market share a.s.r. intends to selectively grow in the intermediary channel through more active intermediaries, acquiring a greater percentage of the business of the market’s largest 650 advisors and by pursuing a retention strategy based on good customer service. Furthermore, a.s.r. aims to increase its market share in the SME liability and transport markets. a.s.r. intends to bring proven innovative products and services to the wider market, but only after testing these products and services by leveraging the distribution power and innovation skills of VKG and the learning and innovation skills of Ditzo.
Commercial insurance a.s.r. intends to establish its position in the commercial mid-sized P&C insurance market as a.s.r. believes this will offer an opportunity for profitable growth. Commercial insurance products historically have not been a priority of a.s.r. a.s.r. aims to focus on selective and controlled growth in this
Disability a.s.r. is the number one insurer in terms of GWP in the Dutch disability insurance market and, with its strong De Amersfoortse brand, a.s.r. believes that it is well-positioned to capture profitable growth opportunities in this market. Furthermore, a.s.r. holds a leading position in the advisory distribution channel. Disability insurance is expected to grow in line with general macro-economic trends. In addition to maintaining its focus on market leadership and achieving attractive combined ratios, a.s.r. intends to pursue growth opportunities especially within the SME and self-employed customer segments, leveraging on its strength in the intermediary channel.
Hybrid distribution to improve and secure distribution channels a.s.r. intends to assist the intermediary channel with e-based underwriting systems and online channels to provide online product offerings. In addition, a.s.r. aims to support the mandated brokers in exploring the local SME market, including the introduction of new propositions. Furthermore, with the acquisition of Boval/Felison, a.s.r. believes it has strengthened its position in the mandated brokers segment.
a.s.r. believes that this approach should contribute to maintaining its market leading position in disability insurance. Legislative changes that further privatise care linked to reintegration could result in additional growth of the disability insurance market. An example in this respect is the currently proposed BeZaVa act. If the proposed BeZaVa act is adopted, temporary employees are expected to largely become managed by the private sector and the disability market is expected to shift from public to private. a.s.r. believes that it is well positioned to take advantage if this change occurs.
• Maintain brand appreciation Health insurance is a product with a high degree of customer interaction. a.s.r. believes that the customer’s perception of Ditzo Health and De Amersfoortse as measured by NPS of '9' leads to increased appreciation of a.s.r.’s overall brands. Therefore, a.s.r. intends to take advantage of the high degree of customer contact to offer the highest levels of customer service so as to maintain and, where possible, improve the brand appreciation of both its direct Health brands as well as its other, associated brands.
2015 annual report Report of the Executive Board particularly as the cost of acquisition for new health business is lower than the independent cost of acquiring new P&C customers. The sale of health insurance products via De Amersfoortse and Ditzo increases brand recognition and thereby improves retention rates. In 2015 23% of new Ditzo P&C customers also had a Ditzo Health product. Since the introduction of Ditzo Health in 2011, the number of insured individuals reached approximately 180,000 as at 31 December 2015 increasing opportunities for crossselling. Furthermore, a.s.r. recently introduced the new product ‘Doorgaanverzekering’, which combines health and disability products, with a resulting cross-selling level of approximately 32% by Health. These cross-selling initiatives are also important for a.s.r. because retention rates of customers who purchase multiple products with a.s.r. are significantly higher compared to customers who only have one of a.s.r.’s products (the lapse rate for customers to whom a.s.r. cross-sold an Amersfoortse disability or health product decreased from 8.1% to 6.7% and from 8.7% to 4.5% respectively in 2015).
• The operating result increased from € 349 million to € 434 million in 2015, mainly because incidental provisions formed in 2014 no longer adversely affected earnings in 2015.
• Profit for the year was up € 257 million from € 299 million in 2014 to € 556 million in 2015 due to an increase in the operating result, higher indirect investment income and incidental items in 2014.
• Gross written premiums increased by 18% to € 1,828 million due to the buy-out of a pension fund at year-end 2014 and strategic acquisitions in 2015.
Regular premiums written 1,256 1,308 Single premiums 572 235 Gross insurance premiums 1,828 1,543
Profit/(loss) before tax 709 373 Profit/(loss) for the period attributable to holders of equity instruments 556 299
Profile The Life segment comprises all life insurance entities and their subsidiaries. These entities offer insurance policies that involve asset-building, asset reduction, asset protection, term life insurance and Funeral expenses for consumers and business owners. These operations are being conducted by ASR Levensverzekering N.V. (‘a.s.r. Leven’) and, since 2015, also by De Eendragt and AXENT, which a.s.r. intends to merge with a.s.r. Leven in the course of 2016-2017.
The Dutch life insurance market was the 13th largest life insurance market in Europe in 2014 measured by GWP, accounting for 2.2% of the European life insurance market. Life insurance density in the Netherlands measured by GWP per capita was $ 1,296 (€ 1,071 converted at the exchange rate of € 1 = $ 1.2098 as at 31 December 2014) in 2014. The Netherlands has the 14th highest life GWP per capita in Europe, excluding premiums paid into non-commercial pension funds/schemes. The GWP of the life insurance market in the Netherlands amounted to € 17,5 billion in 2014, and the life insurance market represented 23.9% of the total Dutch insurance market. Total assets of life insurers amounted to € 436 billion at 31 December 2014. The CAGR in terms of GWP of the life insurance market in the Netherlands was -5.1% between 2010 and 2014. With an 8.8% markt share in 2014, a.s.r. was the sixth largest insurer in the life insurance market.
Dutch insurance companies had a 20% market share of the Dutch pension market, generating € 8.7 billion measured by GWP and representing approximately € 200 billion of AuM. Industry-wide pension funds and company pension funds held 78.5% market share in 2014, accounting for € 33.7 billion measured by GWP in 2014 and representing € 1,133 billion of AuM. IORP’s accounted for the remaining 1.5% market share. GWP in the group life market has grown by 3.9% per year between 2010 and 2014, mainly due to the transfer of assets from smaller and liquidated pension funds to commercial insurance companies. These assets are incorporated in GWP as single premiums, which have shown a strong increase between 2012 and 2014. Recurring unit-linked premiums have decreased due to changes in regulation and the success of IORPs. In 2014, the IORP GWP had grown to € 380 million, from € 112 million in 2013 and a level of € 11 million in 2012 and representing approximately € 500 million of AuM in 2014.
The combined market share measured by GWP of the top six providers of group life insurance was approximately 99% in 2014. With respect to pensions, the large insurers differ from each other in their product focus, specialising in DB, DC, IORP and/or APF.
• Tightening regulation: Tightening regulation drives smaller pension funds either into consolidation or into insurance.
Market Individual life accounts for 11.9% of the insurance market, with € 8.7 billion GWP and 75% recurring premiums. The latter can be almost fully (98%) attributed to existing contracts in 2014. The CAGR of the individual life market is -11.2% for the period 2010-2014.
Distribution In the Netherlands, individual life insurance products are sold through intermediaries (including advisors), Bancassurance, direct and other channels. The intermediary channel is the main distribution channel for individual life products and accounted for approximately 55% of life insurance GWP in 2014. The number of intermediaries declined as a result of the introduction of a prohibition on commissions for intermediaries. The direct channel for term life (26% in 2014) is growing.
Trends Trends in the individual life market centre around three topics: market, legislation/economy and the customer. • Market • The ongoing decline of the traditional and unit-linked markets is expected as a result of multiple factors. The market is returning to simple risk products. The demand for term life is expected to grow due to a foreseen recovery of the housing market.
• The individual life market is mainly seen as a closed book market. Many of the Dutch insurers consider their individual life books as closed books and are looking for ways to manage individual life portfolios in a cost efficient way; most continue to manage their own portfolios, but especially the smaller market participants may experience scale issues. The uses of BPO and ITO to reduce costs and make costs more flexible are being analysed by several insurers. Further consolidation is expected.
• Customers • Want more and direct service from insurers, including information on existing or new products or advice. • Good service is an important condition for customers to remain with their insurers and is therefore an important driver for retention rates.
Market Approximately 70% of the adult Dutch population has funeral insurance and average premium levels vary from € 5 to € 15 per month. Of this 70%, approximately 50% are considered to be underinsured as a result of non-indexing. New business levels are low, mainly as a result of lower appetite for this product with younger generations, the intermediary commission ban (incentive for sale removed) and cost for advice is high in comparison to monthly premium level. Funeral insurance is characterised by low premium levels, predictable cash flows and relatively stable portfolios.
The Dutch funeral market is a mature market, with over 90% of the open book market controlled by five market participants. Only two large generalist Dutch insurance companies are currently offering funeral insurance, though more used to do so. The funeral insurance market comprises insurers who offer funeral insurance with in-kind benefits, supporting their funeral services business.
New entrants are not expected in the short-term and further consolidation is expected, as market participants seek economies of scale. Intermediaries are selling portfolios rights (advice will be the responsibility of insurers going forward), and the amount of smaller specialist market participants is expected to decrease (26 market participants with GWP below € 7 million, of which 19 have GWP below € 1 million).
Trends There are three key trends in the Dutch funeral market: consolidation, a shift to the direct channel and a decrease in customer demand. • Decrease in and change of customer demand Overall new production levels are expected to decline, as many customers are not willing to pay for advice on funeral insurance and as new generations show limited interest for
In the Life segment the technical provisions increased by € 2.4 billion, climbing to € 26.1 billion.
Life – Movements in technical provision (own account) (in € millions)
Net interest income (including shadow accounting) -258 4,942 Change in group composition (strategic acquisitions) 3,168 -
Developments in interest rates and the related recognition of developments in the value of fixed-income investments in the technical provision through shadow accounting, affect the changes in net interest income. In 2014, the effect was major, as a result of decreasing interest rates and the resulting increase in the value of fixed-income investments and derivatives.
Products a.s.r.’s Pensions offering includes the following products: • Defined benefits: a.s.r.’s DB Pension products are traditional
‘capital-heavy’ insurance products based on life-long guaranteed pension payments with recurring premiums with or without profit-sharing. These products also provide an option for additional single premiums for indexation and back services. DB products can be distinguished between general account and separate account products: • For general account products, the underlying assets are invested in a.s.r.’s general account and thus not attributable to a specific policyholder or liability. Within the general account, a.s.r. bears the investment risks related to assets backing the liability obligations; and
52a.s.r. 2015 annual report Report of the Executive Board the established market. An IORP is a pension vehicle in the form of a separate legal entity that can operate a defined contribution pension scheme on a separate account basis during the pension accrual phase. When an employee reaches retirement age, the IORP transfers the accrued capital to a pension insurer at the employee’s discretion to make the pension payments. Employers that wish to insure any additional risks (such as survivors’ pensions) can do this through the IORP. However, since regulations prohibit the IORP from carrying these risks itself, these additional risks are insured by a.s.r. As part of the IORP joint venture with Brand New Day, a.s.r. is the sole insurer connected to Brand New Day involved in delivering additional risk cover as included in Brand New Day’s proposition to the clients. In 2015, Brand New Day had GWP of € 108 million (2014: € 53 million) and 1,578 customers were served (2014: 1,004), comprising 38,715 participants (2014: 24,506). The GWP of Brand New Day is not included in a.s.r.’s Life segment.
Distribution Distribution of pension products to SMEs and other corporate clients under the De Amersfoortse and a.s.r. brands takes place only via advisors. a.s.r. utilises smaller local advisors, actuarial offices and larger national pension advisors.
General a.s.r. was the fourth largest provider of individual life insurance products in 2014 in the Netherlands measured by GWP with a market share of 10.5%. a.s.r. offers individual life insurance products under the a.s.r. brand.
Products a.s.r.’s individual life product line primarily consists of an in-force book of Individual life portfolios. In 2005, a.s.r. made a decision to simplify its Individual life insurance product portfolio, and consolidate its sales and operations under the a.s.r. brand. The active product range of the individual life product line is limited and consists mainly of sales of its term-life product or sales of immediate annuities to customers whose traditional life savings products are maturing. Customers with expiring policies and customers who would like to switch prior to expiry are either offered an insurance product, including more transparent unit-linked products, or a bank saving product, suited to new customers. a.s.r. ended the active sale of unit-linked and universal life capital policies.
• Immediate annuities a.s.r.’s immediate annuities are traditional life insurance products with guaranteed returns for the customer. Under an immediate annuity, the annuitant pays a single premium, in return for which a.s.r. agrees to make life-long annual payments to the annuitant immediately. a.s.r.’s immediate annuities are mainly sold to customers whose traditional life savings products are maturing.
2015 annual report Report of the Executive Board policies were sold in combination with mortgage loans; • Traditional savings life insurance a.s.r.’s life insurance products are traditional individual savings plans with recurring or single premium payments and benefits based on a guaranteed interest rate and nonguaranteed profit-sharing. These policies were sold for a wide variety of savings purposes (for example, to finance college tuition or repayment of loans); and
• Unit-linked/universal life These policies provide savings from recurring or single premium payments. The value of capital is based on the value of the investments at the chosen end date, with the possibility of guaranteeing a minimum return under certain conditions. Unit-linked and universal life savings can be regular, mortgage-related or annuity-related. Unit-linked or universal life products are often referred to as the same products. Unit-linked refers to policies of which costs and other charges such as term life cover are deducted first and then invested. With Universal life premiums are invested directly and costs and other charges are deducted from investment (i.e. the proceeds). a.s.r. currently offers unitlinked policies solely to existing customers who would like to switch to a more transparent product.
Unit-linked/Universal life portfolio Due to a shortfall of investment returns, unit-linked insurance policies have become less attractive which in 2006 triggered litigation and an industry-wide discussion regarding the transparency of product features. The criticism and scrutiny of unit-linked life insurance products led to the introduction of compensation schemes by Dutch insurance companies that had offered these products. On the basis of the compensation scheme, a.s.r. offered compensation to unit-linked policyholders whose individual unit-linked policies had a cost charge and/or risk premium charge in excess of an agreed maximum.
a.s.r. has responded proactively to its clients in addressing these issues. As from 2012 a.s.r. took additional measures which, amongst others, included: a. Cost compensations; b. Free advice to customers; c. Improved product offerings (lower costs, abolition of penalty and switching fees); and d. Continuous efforts to further improve the situation e.g. by lowering mix funds fees.
This approach was adopted by the Ministry of Finance as bestin -class and resulted in ten principles (flankerend beleid) which a.s.r. has fully implemented.
a.s.r. mobilises customers by prioritising the most vulnerable groups. The interim results on customer mobilisation of all insurers, including a.s.r., were made public by the AFM on 28 October 2015 in a report (Rapportage nazorg beleggingsverzekeringen) (available at www.afm.nl/ nl-nl/consumenten/nieuws/2015/okt/rapport-nazorgbeleggingsverzekeringen ). This report includes the mobilisation targets for which a.s.r. is on track. As at 21 August 2015, a.s.r. had mobilised 100% of the most vulnerable group of policy holders (niet opbouwende polissen) and 83% of the policy holders with an individual unit-linked life insurance policy combined with a mortgage. At the end of 2017, all policy holders with an individual unit-linked life insurance policy must be mobilised.
In 2015, the remaining unit-linked portfolio accounted for 42% of Individual life’s GWP. As at 31 December 2015, a.s.r. had 375.000 Individual life unit-linked policies that accounted 37% of the technical reserves of the Individual life service book. Approximately 31% of the in-force policies were taken out with a view to receiving an annuity at maturity, 35% for the purpose of funding a mortgage loan redemption, and 33% for purposes not known to a.s.r.
General a.s.r. acquired (or agreed to acquire) three blocks of funeral business (de Facultatieve and AXENT were acquired in 2012 and 2015, respectively, and the insurance portfolio of NIVO was acquired in 2016) and anticipates being able to realise cost synergies from these acquisitions in the coming years. In addition, a.s.r. intends to shift remaining policies previously issued under the a.s.r. brand to the Ardanta book (the majority of the 3.5 million policies were transferred in 2011). a.s.r. is the only active major main stream insurance company in the funeral insurance business in the Netherlands and its primary competitors are funeral service providers. a.s.r. offers funeral insurance products under the Ardanta brand and with the acquisition of AXENT and NIVO a.s.r. has two additional funeral brands. a.s.r. administered 6.3 million policies (including 2.2 million of policies of AXENT and excluding 0.3 million of policies of NIVO, with the transaction being approved by DNB in 2016) in 2015, 4.0 million policies in 2014 and 4.1 million policies in 2013.
The following chart shows a.s.r.’s funeral product mix by GWP in 2015 (€ 129 million).
Distribution Ardanta mainly utilises the intermediary distribution channel. Due to changing customer preferences and a ban on commissions introduced in 2013, Ardanta accelerated the implementation of new distribution channels including the direct channel. The customer contact sales team advises new and existing customers by telephone, personal visits and Internet channels. This change in distribution strategy has resulted in an increase in direct sales by the front office and via the internet channel (2015: 26%, 2014: 18%, 2013: 2%), measured by APE and a decrease of new business from indirect sales via intermediaries (2015: 55%, 2014: 60%, 2013: 67%).
Preserve value and enhance cost coverage in existing defined benefits book a.s.r. has an explicit focus on the preservation of value in its existing DB pension book.
55a.s.r. 2015 annual report Report of the Executive Board included in the BPO contract with Infosys, covering explicitly timelines, quality and completeness of client services and communication to participants. This will also be facilitated via digital communication. The migration of six legacy back-office administrative functions occurred at the end of 2015. The migration of two additional systems might enable further reduction of the cost base, i.e. the migration and decommissioning of the existing book and legacy ICT systems of De Amersfoortse and the existing book and legacy ICT systems of the in 2015 acquired De Eendragt.
Gain market share in capital light pension solutions In the pension market there is a shift towards capital light products. a.s.r. believes that it is well positioned to gain market share in this segment with APF, DC and IORP propositions, through high service delivery, cost effectiveness and execution power, while meeting its pricing policy. The IT back-office system for capital light pension products consists of SaaS solutions and is low cost. It primarily consists of variable costs. Because of the low costs, a.s.r. believes that it can offer attractive prices to the market, benefitting from a strong solvency position and socially responsible investment policy. Furthermore, a.s.r. believes that for each of its capital light pension products, a.s.r. offers a high level of services, including, in certain cases, self-service and dedicated mid-office teams. The APF market was introduced in 2016 and a.s.r. intends to offer products to it within the overall context of their capital light product focus.
Lower its cost base and shift towards a higher percentage of variable costs In order to preserve the value of the individual life in force portfolio, a.s.r. aims to simplify its organisation and shift its cost base from fixed costs towards variable costs. In 2011, 3.5 million funeral insurance policies were migrated to Ardanta, focusing the Individual life organisation on more complex products. In order to lower costs and shift the overall cost mix in the individual life book, a.s.r. has developed two strategies. In 2013, a portion of the back office and IT operations associated with the individual life portfolio was outsourced. In 2015, the first of 7 individual books of business within the individual life portfolio was simplified and migrated to a SaaS platform. a.s.r. intends to maintain this strategy, analysing books on an individual basis to find the most appropriate and value enhancing solution while minimising operational costs and complexity.
Funeral a.s.r., including AXENT and NIVO, has a leading position in this niche market. a.s.r. is the largest composite funeral insurer with a hybrid servicing model, the number two in terms of GWP in the funeral market and number one in terms of ‘number of policies’. The strategy of a.s.r.’s funeral insurance is to focus on optimisation of the value of the existing book and the acquisition of blocks of business. The funeral portfolio is a book with 100% mortality risk which naturally hedges the longevity risk of pensions to a significant extent and that hedge is expected to increase over time due to interest accrual within the funeral book. In order to maximise the value of the funeral book, a.s.r. has three primary areas of focus.
Maintain its strong distribution network and focus on customer satisfaction a.s.r. offers funeral insurance through both the direct and intermediary channels. These channels are supported by a dedicated sales force that services all distribution channels by visits, telephone and the internet. Under the Ardanta brand a.s.r. has launched an innovative online platform to help customers. Due to the large scale of the existing book, retention of existing customers is very important. a.s.r. believes that improving service levels increases customer satisfaction and the duration of cash flows. Cost effectiveness In order to maximise the value of the portfolio, minimising the cost base is crucial. a.s.r.’s strategy is to maintain a lean funeral organization, located in Enschede, and a low cost IT system which services already over four million policies. a.s.r. believes that the cost per policy of the a.s.r.’s funeral business is one of the lowest in the market. a.s.r.’s plans to continue to focus on maintaining the low cost base of the funeral portfolio, while maintaining its good customer service. In the coming years, a.s.r. intends to migrate AXENT and NIVO to this low cost platform in order to achieve anticipated cost synergies.
58a.s.r. 2015 annual report Report of the Executive Board 2.2.4 Banking and Asset Management segment 4
Profile The Banking and Asset Management segment consists of all the banking activities and the activities related to asset management including investment property management. These activities are carried out by ASR Bank N.V., ASR Vastgoed Vermogensbeheer B.V., ASR Nederland Beleggingsbeheer N.V. and ASR Hypotheken B.V. (‘ASRH’)
The Dutch investment management market comprises more than € 1,300 billion AuM as of 2014. These assets are mainly managed by three types of parties: (a) in-house asset managers of sector pension funds, (b) foreign and domestic asset managers, and (c) insurers. In general, the business model in the Dutch investment management market is shifting from distribution of investment products towards the actual management of assets.
Products Discretionary mandates represented approximately 85% (approximately € 400 billion of AuM) of the Dutch investment management industry at 31 December 2013, while investment funds represented 15% (approximately € 70 billion of AuM).
Next to discretionary mandates and investment funds, intermediary and fiduciary services for institutional customers are a third product category within the Dutch investment management market. Fiduciary management is an approach to investment management that involves an asset owner, such as a pension fund, appointing a third party to manage its assets on an integral basis.
Trends The key trends in the investment management industry are generally global: • Institutionalisation of the customer base In the European investment management industry, the market share of institutional customers on investment managers’ books increased from 69% in 2007 to 74% in 2014. Since the financial crisis, there has been a gradual decrease in investment managers securing business directly from retail customers. This development reflects a growing tendency towards the institutionalisation of the customer base of the investment management industry. Retail customers have continued to make use of insurance companies and pension funds to fund their retirement longterm savings needs, whilst reducing their direct exposure to investment risks. Simultaneously, insurance companies and pension funds have increasingly used the expertise of the investment management industry to manage the assets entrusted to them.
• Increased market share of cross-border funds The UCITS Directive has allowed investment managers to operate more internationally and has facilitated the crossborder exchange of investment management products. For investment managers, it is efficient to distribute funds domiciled in one country across the border to other distribution countries. Increasingly, the UCITS Directive passport has not just been seen as a European fund passport, but also as a global one. UCITS are recognised and distributed outside of the EEA in Asia, Latin America, Central and Eastern Europe and the Middle East. As a consequence of the growth of guided and open-architecture fund distribution, and supported by regulation, the market share of funds offered on a cross-border basis has increased at the expense of funds domiciled locally. Fund managers manage funds that are domiciled in another country for efficiency reasons. The combined market share of the two largest cross-border domiciles for fund distribution (Luxembourg and Ireland) has increased from 28.3% in 2004 to 40.8% as of June 2013.
• Passive management increases market share Passive management (through a combination of index funds and exchange traded funds) has become more popular with institutional and retail investors. Passive management accounted for 12% of the European fund market in December 2014 (compared with 5% in June 2008). In addition, the number of ‘enhanced‘ or near-index strategies has increased substantially.
Measured by the share of total assets of the five largest banks, the Netherlands has the fifth highest banking sector concentration in the Eurozone. The sector is dominated by
ABN AMRO, ING and Rabobank which hold a joint market share of over 75%.
Dutch Retail Savings Market The Dutch retail savings market was € 340 billion as at 30 November 2015. In 2014, the Netherlands had the third highest savings rate compared to disposable income in Europe, after Germany and Sweden and Dutch residents increased their savings amount with € 4 billion in 2014. There are two types of savings accounts: (i) with agreed maturity and (ii) redeemable at notice. The savings redeemable at notice is the largest group of savings (around 85% of market in November 2015).
Trends • Introduction of legislation to temper interest-only and high loan to value (‘LTV’) mortgage lending In January 2013, measures were implemented to discourage interest-only and high LTV mortgage lending in order to improve stability in the Dutch housing market, to reduce private household debts, and to reduce the government budget deficit. These measures included that new mortgage loans must be repaid on an annuity or linear basis within 30 years to qualify for tax deductibility on mortgage interest and that the maximum LTV ratio for new mortgage loans was
60a.s.r. 2015 annual report Report of the Executive Board set at 105% in 2013 and will be reduced annually until 100% in 2018.
In the Banking and Asset Management business, profit before tax amounted to € 10 million, a € 4 million increase on 2014. This was mostly attributable to a higher net interest margin and higher fee income, which was partially offset by higher operating expenses.
General a.s.r. Bank offers savings to, and services investment products for, retail customers. It does not have branches and primarily focusses its sales activities on selling tax-driven savings products (banksparen). a.s.r. Bank offers its products primarily through the intermediary channel. In order to generate yield to pay interest on the savings products, a.s.r. Bank primarily invests its assets in mortgages originated by the Life segment. a.s.r. Bank neither originates mortgages itself, nor purchases mortgages from third parties. a.s.r. Bank has a bank licence and is subject to DNB supervision.
Asset Management a.s.r.’s asset management business comprises two organisational units: a.s.r. Group Asset Management (‘a.s.r. GAM’) and a.s.r. Real Estate Investment Management (‘a.s.r. REIM’).
a.s.r. GAM a.s.r. GAM provides a full range of asset management services for a.s.r. In addition, a.s.r. GAM is responsible for managing investment funds for the account of a.s.r.’s policyholders as well as for a number of separate accounts for a.s.r.’s pension customers.
a.s.r. GAM offers a number of investment management services, which comprises the following categories: • Fiduciary asset management services These include strategic and tactical advice, portfolio construction, manager selection and monitoring, risk management and reporting to a.s.r. entities. In the near future, a.s.r. GAM plans to offer these products to Dutch institutional investors including APF’s. As at 31 December 2015, this category accounted for € 25 billion of AuM; • Balanced mandates These products are managed for e.g. reinsured pensions contracts, offering a diversified portfolio and taking into account the relevant investment restrictions. As at 31 December 2015 this category accounted for € 3 billion of AuM; • Institutional mandates in specific asset classes This includes tailor-made solutions to specific investors (e.g.
and overlay strategies. At the start of 2016, this category accounted for € 5 billion of AuM; and
As at 31 December 2015, a.s.r. GAM managed € 25 billion of AuM for a.s.r. and € 10 billion of AuM for third parties, which excludes the € 5 billion of AuM for BNG managed for third parties.
As at 31 December 2015, a.s.r. REIM managed € 4,215 million of AuM in commercial (both offices and retail), residential properties, land positions and real estate equities under management. As at 31 December 2015, a.s.r. REIM managed € 2,896 million of AuM held for a.s.r.’s own account.
a.s.r. offers mortgages to customers to diversify and optimise the asset mix of a.s.r. a.s.r. plans to continue its strategy of originating a substantial amount of mortgages every year in order to align its assets with the long term liabilities of some of its insurance operations. a.s.r. also aims to create a mortgage fund for external investors, complementing its asset management offering. Furthermore, since settling a mortgage is a life event for a customer, a.s.r. aims to stay active within this market to further improve its brand recognition and potentially capitalise on cross-selling opportunities.
VKG is a full service provider and a mandated broker to a number of Dutch insurance companies, including a.s.r.’s P&C insurance business. As at 31 December 2015, VKG acted as service provider and as a mandated broker for 28 financial institutions and distributes products from 76 insurers, banks and other credit institutions through VKG’s relationships with intermediaries. VKG also offers access to the insurance exchange (de beurs) and mortgages. Based on these associations, VKG provides administration and consulting services to advisors in respect of their commercial and back-office operations. As at 31 December 2015, VKG had agreements with approximately 3,000 advisors in the Netherlands, approximately 10% of which have fully outsourced their administrative functions to VKG.
Boval is an advisor, service provider and mandated broker to a.s.r.’s P&C and disability insurance businesses, as well as to other insurance companies operating in the Dutch non-life insurance market.
As at 31 December 2015, Boval acted as an advisor for 14 insurance companies and provided mandated broker services for certain of their products and business lines. Based on these associations, Boval provides administration services as a service provider to advisors in respect of their commercial and backoffice operations. Furthermore, Boval offers consulting and other services such as claims management, risk management, prevention, reintegration and leasing. Boval focusses primarily on the agricultural, transport, overhaul and civil construction sectors. Boval has ties with business associations of the agricultural (LTO) and transport (EVO) sectors. In 2014, Boval distributed € 84 million of insurance premiums, primarily to SMEs.
Het AssuradeurenHuys B.V. is a back-office service provider for agents and intermediaries, which is expected to be integrated in VKG in the second half of 2016.
Strategy a.s.r. operates several businesses in this segment.The main businesses are VKG and Boval. VKG’s stand-alone strategy is aimed at being a full service provider for more than 3,000 connected intermediaries. 217 intermediaries do all of their business with VKG and over 390 intermediaries use the VKG service provider platform as their primary insurance application. As a full service provider, VKG gives connected intermediaries access to a wide array of insurance products.
Boval is a service provider and mandated broker specialising in the disability market. Boval’s focus has been on the agricultural and transport sectors, striving to offer customers income protection with a full service concept supporting its proposition (including occupational health services, reintegration services and financing/leasing). Boval’s strategy is to further develop its service provider proposition in respect of the disability insurance market.
The acquisitions of the service providers VKG and Boval are consistent with a.s.r.’s strategy of seeking to enhance and strengthen its relationships with intermediaries. These acquisitions offer forward integration in the insurance chain and therefore better insights into client needs, which a.s.r. believes will enable it to adjust its product portfolio and/or distribution mix and therefore better align with customer needs. a.s.r. also believes that these acquisitions provide learning and innovation opportunities, as a.s.r. now has the ability to develop and test new product ideas with direct input from the distribution and customer sides. a.s.r. believes that implementing innovations and new products and bringing them to the market is much faster with these entities through their more flexible organisations and systems. a.s.r. expects that this will offer it the opportunity to innovate quickly and implement its learning in the rest of a.s.r.
64a.s.r. 2015 annual report Report of the Executive Board 2.2.6 Segment Holding and Other6
7 This segment comprises all real estate development activities undertaken by ASR Vastgoed Ontwikkeling N.V. Since a.s.r. no longer considers real estate development as a core activity, it was decided to find a strategic buyer for this segment. Most of the real estate development is now classified as ‘held for sale’ and the operations are accordingly recognized as discontinued operations in the income statement. Having been classified as discontinued operations, gains and losses from the real estate development business are disclosed in condensed form in the income statement. They are no longer included in gains and losses before tax from continuing operations.
65a.s.r. 2015 annual report Report of the Executive Board a.s.r. announced in the first half of 2015 that it planned to sell or discontinue its real estate development business. As a result, the assets of this business are measured at their recoverable amount. This has resulted in the recognition of impairments of these assets.
Profile The Real Estate Development segment (other than the discontinued operations) consists primarily of a.s.r.’s Leidsche Rijn Centrum project (including commitments and guarantees in respect thereof) and the Centrum Plan Waddinxveen project.
Historically, the real estate development business of a.s.r. was expanded when it was part of Fortis and consisted of large and complex real estate (re-)development projects in urban areas in the Netherlands. a.s.r. experienced significant losses in this business in 2012 and 2013 primarily as a result of the conditions in the Dutch property development market. In 2014 and 2015, a.s.r. scaled down its exposure to the real estate development portfolio, terminated a number of development projects, with a view to limiting additional write-offs and provisions, and reclassified part of its real estate development activities as discontinued operations. a.s.r. considers the activities of the Real Estate Development segment, which were not classified as discontinued operations, as non-core and currently intends to complete the projects in the portfolio or dispose of the remaining activities of this segment if it can do so on commercially attractive terms.
a.s.r. values real estate development projects, in line with IFRS requirements, at the lower of (i) the project’s carrying amount; or (ii) fair value less costs to sell. Based on management’s best knowledge at that time, all expected future losses for a project are taken into account in the valuation. When the valuation is below the cost-price of the project, a.s.r. takes a write off on the book value of the project. This accounting policy has led to a substantial level of provisioning in the Real Estate Development segment in previous years, mainly attributable to pre-crisis investments by a.s.r. in real estate development projects. Due to these impairments and a.s.r.’s policy of decreasing its exposure to real estate development projects, the total book value of real estate development projects (including Leidsche Rijn and Centrum Plan Waddinxveen) has been downscaled from € 118 million at 31 December 2013 to € 39 million at 31 December 2015.
Discontinued real estate operations consist of nine projects and related commitments, as well as the acquisition portfolio and a number of land banks that are separated from the results of the Real Estate Development segment. The main projects that are part of discontinued operations are project Kruisvaartkade in Utrecht, project Amsterdam Osdorp in Amsterdam, project Norfolk in Scheveningen aimed to develop residential plots and project Bleiswijk which comprises commercial property. a.s.r. remaining commitments in respect of these projects vary from the purchase of land to the development and construction of the real estate.
Fixed-income securities (fair value) 24,491 24,060 Equities (fair value) 2,706 2,023 Property (fair value) 2,817 2,965 Real Estate/other loans (carrying amount) 6,522 5,552
Investments on behalf of policy holders 7,924 7,957 Other assets 8,760 9,011
The acquisitions of AXENT and De Eendragt added € 3.5 billion to a.s.r.’s asset base. The AXENT and De Eendragt portfolios were integrated into a.s.r.’s investment policy over the course of 2015. The related increase in the investment portfolio was cancelled out in part by the fall in value of the bond portfolio as a result of accrued interest and spreads. The fixed-income portfolio saw slight growth from € 24.1 billion to € 24.5 billion. It continues to qualify as high-grade, even in the current low interest rate environment. The core is made up of government bonds, mainly with an AAA rating, and selective exposure to peripheral countries. More than 70% of the government bond portfolio of € 12.4 billion has been invested in Dutch and German government bonds. Over the course of 2015, the exposure to German government bonds rose by 25%, while exposure to Dutch debt instruments was up 4%. All leading rating agencies awarded the Netherlands an AAA rating at year-end 2015, which is why the share of AAA ratings in the fixed-income portfolio (exclusive of derivatives) increased from 28% to 45%. The exposure to government bonds issued by peripheral countries in the eurozone was reduced by 11% to € 636 million.
These steps have clearly benefited a.s.r.’s investment performance, its robust solvency position and the limited sensitivity of the balance sheet to market risks over the past few years.
a.s.r. REIM invests for its clients in retail properties, residential units and agricultural land. a.s.r. REIM seeks to achieve a stable development in the value of real estate for users, investors and society at large, through active fund, asset and property management.
By creating property funds, a.s.r. REIM has increased the flexibility of its investment property portfolio without affecting the portfolio’s critical mass that has taken more than a century to build. Boasting funds and in-house asset and property management specialists, a.s.r. REIM has broad experience and a good reputation in the Dutch property market.
In 2015, the ASR Dutch Core Residential Fund made a fair number of pipeline acquisitions that will serve to shore up the portfolio of the residential fund. The ASR Dutch Prime Retail Fund purchased a number of properties in the reporting period, which bolstered its position.
AIFMD licence The Netherlands Authority for the Financial Markets (AFM) has granted a.s.r. REIM an AIFM licence to act as a manager of investment institutions. Besides managing the ASR Dutch Prime
Retail Fund, the ASR Dutch Core Residential Fund and the ASR Property Fund, a.s.r. REIM also manages the a.s.r. agricultural land and office portfolio via a separate mandate.
68a.s.r. 2015 annual report Report of the Executive Board 2.3 Capital and liquidity management
The a.s.r. capital policy ensures careful monitoring and control of solvency ratios in the organization, both at group and at entity level. Capital management comprises all activities that focus on controlling, managing and monitoring available and required solvency.
The regulator has based the current supervisory framework for capital policy and management on the Solvency I regime. The regulator will switch to the Solvency II regime as of 1 January 2016. a.s.r. has already prepared its structure and processes for the introduction of this new regulatory regime. The Solvency II regime requires a different methodology for measuring and managing available and required capital. a.s.r. regularly measures and manages its available and required capital under Solvency II; this process is an integral part of managing the capital position of a.s.r. as a whole. The internal minimum Solvency II ratio for ASR Nederland N.V. as formulated in the risk appetite statement is 120%.
a.s.r.’s robust financial position in terms of market value is guaranteed by the routine and integrated management of its capital position, based on Solvency I, the standard Solvency II model and ECAP. Treasury & Capital Management is responsible for implementing the capital management policy. This guarantees the independent position and the segregation of duties, and is in line with the a.s.r. governance structure. Treasury & Capital Management regularly reports on capital management issues to the risk committee structure that was created especially for this purpose.
Solvency II is the regulatory framework for European insurance companies that will replace the Solvency I regime as of 1 January 2016. The introduction of the new regime is intended to harmonize the European insurance market, increase the protection of policyholders and improve risk awareness in both the governance and management of insurance companies. Solvency II sets more sophisticated solvency requirements and forms an integral part of the risk management structure of insurance companies. In anticipation of the implementation date of 1 January 2016, EIOPA has published Preparatory Guidelines, in particular regarding Pillar 2 themes such as the System of Governance and Forward-Looking Assessment of Own Risks and Pillar 3 Reporting guidelines. DNB has adopted these guidelines that have governed Dutch insurance companies since 1 January 2014.
1 The estimate at year-end 2014 and 2013 was based on the methodology in force at the time.
2 The Solvency II ratios are presented net of foreseeable dividend.
The figure below breaks down the tiering of a.s.r.’s eligible own funds at year-end 2015: • Tier 1 capital comprises 84% of total own funds • Tier 1 capital alone represents 155% of SCR • Restricted Tier 1 capital contains grandfathered hybrid capital instruments • Own funds do not contain Tier 3 capital.
Equity risk Measured by the impact of a 20% drop in equity prices
Interest rate risk Measured by the impact of a parallel 1% upward and downward movement in interest rates. A UFR is applied to the valuation of the liabilities. This means that the forward interest rates of maturities of 21 years or more are extrapolated by taking a weighted average of the forward rates in the market and the UFR. For this sensitivity, the extrapolation to the UFR of 4.2% will not change.
Interest rate risk – UFR Measured by the impact of a lower UFR. The UFR decreases from 4.2% to 3.2%. For the valuation of liabilities in this scenario the extrapolation to the UFR of 3.2% is not changed.
In the calculation of the interest rate sensitivity of the solvency ratio including UFR, the UFR is kept constant. The shock on the discounting curve for the liabilities is mitigated for maturities longer than 20 years through the application of the UFR. As a result, the assets are more sensitive than the liabilities including UFR. This explains why a downward shock in interest rates has a positive effect on the available capital and vice versa. Apart from that, an interest rate shock will impact the calculation of the required capital. The interest rate rises as the required capital drops, whereas the required capital increases as interest rates fall.
Equity attributable to holders of equity instruments (IFRSbased equity) was up € 550 million, rising from € 3,709 million at year-end 2014 to € 4,259 million at year-end 2015. This increase was mainly driven by the addition of the profit for 2015 (€ 601 million) and actuarial gains and losses (€ 167 million). Actuarial gains and losses are the result of changes in actuarial parameters of a.s.r.’s own pension scheme (increase in discount rate and indexation changes). The unrealized losses (€ 51 million) were caused by changes in the investment portfolio. The other losses of € 170 million in total consisted mainly of the dividend distributed for 2014 (€ 139 million) and the payment of accrued interest on a Tier 1 loan (€ 34 million).
At present, a.s.r. achieves this both in terms of secured and unsecured financing by keeping its programmes up-to-date. This ensures access to the money and capital markets, which means that a.s.r. has plenty of options for meeting its financing requirements with the necessary flexibility where needed and appropriate. Over the past year, the market lent itself well to raising liquidity and capital because of record low interest rates. Following up on the capital issue in 2014, a.s.r. again issued € 500 million worth of hybrid capital in 2015, which marked a successful step in the further optimization of its balance sheet in the context of Solvency II. The proceeds from the bond loan were used primarily to repay an existing senior bank loan and to finance selective acquisitions. The market transaction led to an increase in capital under all capital regimes (Solvency I, Solvency II, ECAP and the S&P Capital Model), thereby strengthening a.s.r.’s already robust balance sheet. The successful placement also contributed to a.s.r.’s brand awareness among investors and underlined the sustainability of its financial robustness and the strong liquidity position. Combined with the financing options that are in place, a.s.r. currently has ample cash reserves to carry on its operations.
Rating a.s.r. seeks to secure an ‘A’ rating from Standard & Poor’s for the required capital of ASR Levensverzekering N.V. and ASR Schadeverzekering N.V. On 7 July, Standard & Poor’s confirmed the ‘A’ rating of ASR Levensverzekering N.V. and ASR Schadeverzekering N.V.
Standard & Poor’s ratings were as follows at year-end 2015: Type Rating Outlook Since
ASR Nederland N.V. CCR BBB+ Stable 15 May 2014 ASR Schadeverzekering N.V. FSR A Stable 23 August 2012 ASR Schadeverzekering N.V. CCR A Stable 23 August 2012 ASR Levensverzekering N.V. FSR A Stable 23 August 2012 ASR Levensverzekering N.V. CCR A Stable 23 August 2012
Risk management is an integral part of our daily business operations. a.s.r. applies an integrated approach to managing risks, ensuring that our strategic objectives (customer interests, financial solidity and efficiency of processes) are achieved. This integrated approach ensures that value will be created by striking the right balance between risk and return, while ensuring that obligations to our stakeholders are met. Risk management helps a.s.r. to identify, measure and manage risks, and to monitor whether adequate and immediate actions are taken in the event of changes in our risk profile.
a.s.r. further improved its internal control structure in 2015. The enterprise-wide internal control framework has been largely implemented in the business lines. Operational (including IT) risks have been identified and controls have been assessed and tested from an enterprise risk management perspective. The implementation of a company-wide internal control framework has contributed to an increase in awareness of operational risk management. The internal control structure has become a management tool and contributes to the enhancement of operational excellence.
• a.s.r. acquired De Eendragt and AXENT and issued new hybrid debt.
The exposure to market risk was increased in 2015. The exposure to equities rose due to new investments, positive return on equities yields, and the acquisition of De Eendragt and AXENT. The interest rate hedge was adjusted such way that the SCR ratio was less sensitive to interest rate movements. The outstanding amount of mortgages increased by € 1.0 billion during 2015, in line with the strategic investment plan.
In 2015 efforts were put forth to further align the risk profile of a.s.r. group and its business lines to the defined risk targets. The non-financial risk dashboard describes the performance of a.s.r. group, the underlying entities and business lines on certain key risk indicators. It is a tool that can be used by management to assess and identify key risk issues. The risk profile and internal control performance of each business line are discussed on a quarterly basis with senior management in the business risk committees.
a.s.r. further improved its Management in Control system in 2015. This enterprise-wide internal control framework addresses the key risks for a.s.r.’s most important operating processes. All business lines have identified operational risks and periodically assess and test controls. Where needed, plans were designed to further increase the effectiveness of operating processes. The centralized Enterprise Risk Management department periodically reviews the quality of a.s.r.’s Management in Control framework. The NFRC decides whether additional actions need to be taken to ensure that non-financial risks are managed properly.
A Control Risk Self-Assessment (CRSA) is conducted annually to identify the most important strategic risks for a.s.r. group and its business lines. Key risks threatening the achievement of the organization’s strategic objectives are identified in the CRSA, including actions that need to be taken to mitigate these risks. The CRSA reports and the mitigating actions are authorized by the management teams of the business lines and the Executive Board. Every year, senior management of each business line signs a Management in Control Statement (MCS) which is based on the CRSA findings and the results of their Management in Control process. Progress on mitigating actions for the risks identified in the CRSA is monitored on a quarterly basis in the Business Risk Committees and reported to the NFRC.
The risk priorities of a.s.r. are defined annually by the Executive Board in a bottom-up process. Risk priorities are based in part on the CRSA reports of the business units. The actual status of the risk priorities and progress on the defined actions is reported to the a.s.r. Risk Committee on a quarterly basis.
It will be an increasing challenge to adjust our product portfolio and distribution channels quickly enough to meet the changing needs of customers and to achieve the planned cost reductions as premiums fall. These challenges may put pressure on a.s.r.’s margins (profitability and solvency) and premium income.
• DNB intention to impose administrative fine In March 2015, the Bank determined that the calculation method for solvency purposes of specific investment categories, specifically certain subordinated notes issued by other financial institutions, was inaccurate. Immediately following that determination, the Bank reported this to DNB and took remedial actions, including the sale of subordinated notes in order to comply with its capital requirements and further improvements to its control framework.
The information security risk has increased due to new technological developments, such as cloud computing, bringyour -own device, social networks and online transactions with customers. In order to prevent cyber-attacks and information security risks, a.s.r. needs to be sufficiently aware of potential threats. a.s.r. runs the risk that new technological developments require different expertise and alternative mitigating measures. The risk that confidential information becomes available to third parties, either intentionally or unintentionally, is a serious risk for a.s.r. and its customers, and could cause significant reputational harm. Every a.s.r. employee is expected to be fully aware of the risks attaching to handling confidential information concerning our customers, employees, financials and strategy, and should do their utmost to protect our assets.
Solvency II is the regulatory framework for European insurance companies that came into force at 1 January 2016 after many years of preparation. The Solvency II regime comprises requirements for insurance companies. The introduction of the new regime is meant to harmonize the European insurance market, increase the protection of policyholders and improve risk awareness in both the governance and management of insurance companies. Solvency II sets more sophisticated solvency requirements and will form an integral part of the risk management of insurance companies.
The European Commission and EIOPA have announced that they will review the Solvency II regulatory framework after its implementation. In this review, which that will take place in 2018, adjustments will be proposed to improve the quality of the framework. One of the items for which the review has already started is the methodology for setting ultimate forward rates. EIOPA intends to decide on the outcome of this review in September 2016. Adjustments to the ultimate forward rates in an environment of persistently low interest rates could have a major impact on the insurance industry.
Solvency II ratio in 2015 In 2015, Group Risk Management monitored, on a quarterly basis, whether a.s.r. was ready for the introduction of the Solvency II Directive. The outcome of this assessment were reported to the Group Risk Committee and the Audit & Risk Committee. A number of transitional measures were added to the Solvency II requirements for the smooth introduction of the new regime for insurance companies. One of these transitional measures was the calculation of the equity risk sub-module.
During the transitional period, the standard parameters to be used for relevant equities will be calculated as the weighted average of the standard parameter. a.s.r. has decided to apply this transitional measure to the calculation of the equity risk sub-module.
The consolidated and company financial statements for 2015 of ASR Nederland N.V., as well as chapter 1, 2 and 7 of the annual report, have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and with Part 9, Book 2 of the Netherlands Civil Code.
80a.s.r. 2015 annual report Report of the Supervisory Board 4.1 Financial statements and profit appropriation
Financial performance (quarterly, interim and annual results) Mergers, acquisitions and divestments Solvency Potential IPO Investment plan Composition of the Supervisory Board Dividend proposal Unit-linked policies Multi-year budget Continuing education Risk management and risk appetite Solvency II Privatization Treating Customers Fairly (TCF) Compliance reports Audit reports Governance Performance targets of identified staff ICT-projects
The status of cost cuts and improvements in claims management were discussed extensively. The combined ratios of the different non-life operations were well below 100%. The solvency ratio is more than adequate. The commercial drive was boosted by the acquisitions of Van Kampen Groep and Dutch ID; in addition, the Supervisory Board considers that one of a.s.r.’s key priorities is to increase premium income where possible, despite the fact that the market can be challenging, for instance due to saturated submarkets and the low level of interest rates. In this process, a.s.r. favours value over volume.
Risk management and solvency At the beginning of the year, the Supervisory Board approved the risk appetite for both ASR Nederland N.V. and the supervised entities. a.s.r.’s risk appetite is based on the Solvency II regime and a prudent approach to risk management, transposed into standards for solvency, liquidity and achievable returns.
Market developments, strategy and M&A A key issue in the meetings of the Supervisory Board in 2015 was the potential consolidation of the insurance sector and a.s.r.’s possible role in this process. In January, the Supervisory Board decided, both independently and in dialogue with the Executive Board, not to submit a bid for Vivat (formerly Reaal N.V.). The Supervisory Board considered that a bid would entail irresponsible risks for customers, employees and other stakeholders. The Supervisory Board closely monitored the deliberations of the Executive Board that ultimately led to this conclusion, and took the time to form its own opinion as well.
Unit-linked policies The members of the Supervisory Board thoroughly educated themselves about developments in unit-linked policies in 2015. They appreciate the manner in which the Executive Board and the senior managers involved have taken up the extra challenge that was put to them after the introduction of the General Order in Council. a.s.r. has gone to great lengths for its unit-linked policyholders, having actively followed up with nearly all of them at this time.
In addition to the TCF Dashboard, the Supervisory Board also discussed other reports and disclosures designed to give the members an understanding of the results achieved on quality mark requirements and the NPS scores. The members of the Supervisory Board are pleased with the progress made on treating customers fairly; they will continue to weigh customer interests when forming their opinion and making decisions on key issues in the year to come.
Solvency II Solvency II was addressed regularly in the meetings of the Audit & Risk Committee, as well as in the meetings of the Supervisory Board. This crucial change in the statutory regime demanded much of the organization’s attention in 2015 and will continue to do so in the year to come. The Supervisory Board attaches great value to a.s.r.’s prudent approach to compliance with these new regulations and regularly engaged in dialogue with the Executive Board about its view of the targets and intervention level concerning Solvency II ratios.
Composition of the Supervisory Board In 2015, Margot Scheltema announced that she planned to leave the Supervisory Board to accept the role of supervisory director of the Dutch Central Bank (DNB). Following on from this and in connection with the privatization process, the Supervisory Board considered its composition. Based on these discussions, a job profile was formulated and Herman Hintzen was appointed as a new member of the Supervisory Board of a.s.r. with effect from 1 January 2016. Herman Hintzen has a background in the financial services sector and he is a good match with the profile formulated by the Supervisory Board.
After each quarter end, the Committee met to discuss the financial results based on detailed audit reports and analyses. The full reporting year 2015 was discussed on the basis of the press release, the annual report, the financial statements, the board report and the actuarial report. The meeting to discuss the actuarial report was also attended by the certifying actuary. The Committee issued positive opinions on the annual report and the financial statements to the Supervisory Board.
During the year, the Committee met on three occasions outside meetings with the audit, compliance and risk management functions in their role of countervailing powers. The Chair of the Committee had two one-on-one meetings with each of the Directors of Audit, Compliance and Group Risk Management.
83a.s.r. 2015 annual report Report of the Supervisory Board report of the meeting of the Audit & Risk Committee was submitted to the Supervisory Board before the start of the next Supervisory Board meeting. The Chair of the Committee gave an account of the key issues discussed and the findings and recommendations of the Committee at the beginning of each Supervisory Board meeting.
The Selection, Appointment & Remuneration Committee (SAR) was in session on four occasions in 2015. In accordance with policy, the Committee advised the Supervisory Board on targetsetting, performance appraisals and the ex-post assessment of the variable pay awarded to identified staff. The Committee looked at the competitiveness of the a.s.r. salary structure in 2015. Hay Group reviewed the salary structure.
Because of the resignation of one of the supervisory directors, attention was devoted to formulating a new profile for the recruitment of a new supervisory director. This search was outsourced to an agency.
The remuneration policy, including the RACI matrix, was reviewed and approved by the Supervisory Board. The same applied to the rules of procedure for the Committee, which were aligned to the review of the remuneration policy. The Committee also covered the policy introduced as a result of a change in the law on 1 January 2015, on which basis the option to accrue pension on salary in excess of € 100,000 has been cancelled.
84a.s.r. 2015 annual report Report of the Supervisory Board 4.3 Management and supervision
See chapter 1.6 for the full CVs of the members of the Executive Board.
Education and evaluation The members of the Executive Board took individual courses in 2015 as part of their continuing education (CE). In addition, much attention was devoted to knowledge-building in the areas of investment and asset management, and to potential interest rate developments, including the impact of the low level of interest rates and hedging policy. The reputation survey held by Erasmus University Rotterdam was explained by the professor responsible for conducting it; aspects specific to a.s.r. were highlighted and potential implications were discussed. Finally, partly within the scope of compliance with Solvency II, all the different measurement methods used were covered in a CE session organized specifically for this purpose.
In addition to the self-evaluation, the performance of the members of the Executive Board was also assessed by the Supervisory Board in 2015 within the scope of the annual assessment round.
Kick van der Pol Male Chair 2008 2014/2018 Annet Aris Female Member 2010 2014/2018 Cor van den Bos Male Member 2008 2015/2019 Herman Hintzen* Male Member 2016 2016/2020 Margot Scheltema** Female Member 2008 2012/2015 * Appointed on 1 January 2016 ** Resigned on 31 August 2015
See chapter 1.6 for the full CVs of the members of the Supervisory Board.
The composition of the Supervisory Board is such that each supervisory director should have the skills to assess the main aspects of the overall policy and that the Supervisory Board as a whole meets the profile thanks to a combination of the experience, expertise and independence of the individual supervisory directors. The Supervisory Board is diverse in terms of the gender and professional background of its members. The diversity of its members ensures the complementary profile of the Supervisory Board.
The Supervisory Board had four members until September 2015. On 1 September 2015, Margot Scheltema relinquished her position on the Supervisory Board to join the Supervisory Board of the Dutch Central Bank. The Supervisory Board owes a debt of gratitude to Margot Scheltema for her commitment
85a.s.r. 2015 annual report Report of the Supervisory Board to the company over the long stretch in which she served as a supervisory director. After Margot Scheltema’s resignation, the Supervisory Board had three members. To return the number of members to four, a profile was formulated and a search to recruit a new supervisory director was initiated. The search proved successful, and the appointment of Herman Hintzen to the Supervisory Board as of 1 January 2016 was announced in December 2015.
The members of the Selection, Appointment & Remuneration Committee are Annet Aris (Chair) and Kick van der Pol. Its meetings are attended by the CEO (except when issues relating to the Executive Board are being discussed) and the Human Resources Director, who doubles as secretary of the Committee. The Committee solicits support and advice from departments such as Group Risk Management, Compliance, Audit and HR. Where needed, it calls in the expertise of independent legal and pay-and-benefits experts.
The Supervisory Board performs a self-assessment annually, which it did in 2015 as well. The assessment was based on written input and an oral elaboration by all members of the Supervisory Board and the Executive Board. The following aspects were assessed: • Composition of the Supervisory Board: strengths and weaknesses. • Effectiveness of the Supervisory Board processes: information-gathering, decision-making, focus on core themes.
• Role of employer: strengths and weaknesses; Supervisory Board involvement or HR duty?
The overall impression that emerged from this self-assessment was positive. After the appointment of a fourth supervisory director with a background in the financial services sector, the envisaged composition will be fleshed out further.
In 2012, Margot Scheltema announced that her appointment as of 1 January 2013 as a deputy member of the Enterprise Division of the Amsterdam Court of Appeal might cause a conflict of interest. In April 2014, she filed a report due to her appointment as Chair of the Monitoring Committee for the Code of the Dutch Pension Funds. These external positions did not lead to potential conflicts of interest in 2015. Margot Scheltema announced in 2015 that she would be appointed to the Supervisory Board of DNB, which is why she planned to resign from the Supervisory Board of a.s.r. She did so with effect from 1 September 2015. There were no reports of potential conflicts of interest involving the other supervisory directors. The Supervisory Board has been able to discharge its duties completely independently.
Contacts with the Works Council Four Supervisory Board members attended a routine consultative meeting of the Works Council. The supervisory directors have great admiration for the approach taken by the Works Council to major developments affecting a.s.r. Considering the interests of both a.s.r. as a whole and those of its employees, the Works Council prepares thoroughly for the wide range of issues it is presented with, discusses them in constructive dialogue with the executive, and issues wellbalanced and considered opinions and recommendations.
Contacts with the independent external auditor The independent external auditor attended all the Supervisory Board meetings discussing the annual and interim financial results. In this process, the auditor elaborated on the audit reports and answered specific questions put by the supervisory directors. The independent external auditor also attended all meetings of the Audit & Risk Committee. The Chair of the Audit & Risk Committee consulted with the independent external auditor once outside the presence of the other regular attendants of Audit & Risk Committee meetings; one of the topics discussed was the auditor’s independence.
Contacts with external regulators and internal control functions The supervisory directors consulted periodically with the Netherlands Authority for the Financial Markets (AFM) and the Dutch Central Bank. The Audit & Risk Committee spoke twice with the heads of Audit, Integrity and Risk Management (i.e. the internal control functions). The Chair had a one-on-one meeting with each of these directors in 2015.
The Executive Board is responsible for the day-to-day conduct of business at a.s.r. as a whole, devises the company strategy and formulates policy. To discharge its duties, the Executive Board takes decisions, which are submitted to the Supervisory Board or the AGM for approval where required.
The Supervisory Board has every power the law confers upon a Supervisory Board of a two-tier company subject to the partial regime. The Supervisory Board supervises the policy pursued by the Executive Board and the general course of affairs at the company and its group entities, and advises the Executive Board.
The AGM appoints the members of the Supervisory Board on the recommendation of the Supervisory Board. Both the AGM and the Works Council are entitled to nominate supervisory directors. The Supervisory Board duly notifies the AGM and the Works Council as to when and why they are entitled to nominate a supervisory director, stating the profile required of the nominee.
Members of the Supervisory Board can be removed only by the Enterprise Section of the Amsterdam Court of Appeal if they neglect their duties, for other compelling reasons or because of a drastic change in circumstances. In addition, the AGM may dismiss the entire Supervisory Board by adopting a motion of no confidence, resulting in the immediate dismissal of all supervisory directors. Finally, the Supervisory Board may also suspend an individual supervisory director.
For details on corporate governance, see the Governance Statement on www.asrnl.com.
Banks authorized to operate in the Netherlands have been subject to the new Dutch Banking Code since 1 January 2015. This Code, which was drafted by the Dutch Banking Association, contains principles for governance and governance oversight, risk management, audits and remuneration policy. ASR Bank N.V. is governed by this Code.
Details on how ASR Bank N.V. applies the Dutch Banking Code can be found in its annual report that is available online at www.asrnl.com.
89a.s.r. 2015 annual report Report of the Supervisory Board 4.5 Remuneration policy
2. The remuneration policy may not restrict a.s.r.’s ability to strengthen its regulatory capital, solvency margin or equity.
3. The remuneration policy complies with prevailing national and international legislation and regulations.
5. The remuneration policy reflects a balance between trust in intrinsic motivation on the one hand and agreement of clear targets and assessment of the performance and remuneration based on these targets on the other.
6. The level of remuneration is slightly lower than the median for the peer group.
11. Severance pay awarded by a.s.r. to policy-makers will not exceed 100% of the fixed annual remuneration1.
13. The total pay-and-benefits package is sufficiently attractive to allow a.s.r. to compete in the relevant segments of the labour market and attract and retain competent people.
16. The remuneration is evaluated periodically and is modified, if necessary, to ensure compliance with new legislation and regulations or market circumstances.
The Supervisory Board is responsible for implementing and evaluating the remuneration policy applying to the members of the Executive Board as adopted by the AGM. It approves the remuneration policy for senior management and monitors its implementation by the Executive Board. The Supervisory Board also assesses the principles of the remuneration policy for other employees. The Executive Board is responsible for adopting, implementing and evaluating the remuneration policy applying to other employees.
Pursuant to European directives (CRD IV), governance and risk management procedures are required to be in place for employees qualifying as identified staff. The remuneration policy governing this group of employees is subject to the approval of the Supervisory Board. The Supervisory Board monitors the implementation of this policy by the Executive Board. The group of identified staff includes at least the members of the Executive Board and senior management.
In its remuneration policy, a.s.r. distinguishes between five groups, as follows: 1. Executive Board 2. Senior management 3. Higher management 4. Back office 5. Front office
1 Based on legislation and regulations, a lower maximum may apply.
Variable remuneration awarded to identified staff before 1 July 2014 will be paid in instalments over the next few years. Identified staff are conditionally awarded a material share (i.e. 50%) of their variable pay in the form of cash and non-cash instruments. The conditional variable pay is deferred for three years; a reappraisal is performed at the end of the three-year period, after which the cash component is paid out. The noncash component is subject to an additional retention period of two years. Some of the unconditional variable pay is paid out in cash immediately. The non-cash component of the unconditional variable pay is also retained for two years.
This group is also subject to a claw-back mechanism, a fairness clause and a penalty scheme, meaning that the Supervisory Board can claw back any variable pay already awarded if it was determined and awarded based on incorrect information. In addition, the Supervisory Board has the right to adjust the level of the conditional variable pay if leaving the payment unchanged would go against the principles of reasonableness and fairness.
As a result of the change to the pension plan agreed with the Works Council, an additional pre-pension allowance was introduced with effect from 1 January 2015 for employees who had a pension accrual rate of 2.25% at year-end 2013. The supplementary pre-pension allowance has been set at 2.25%. The allowance is paid until the end date of the (regular) prepension allowance, subject to a maximum of five years.
The members of the Supervisory Board would like to express their gratitude for the efforts of the members of the Executive Board and the openness that they displayed in their dialogue with the Supervisory Board.
dedication to the organization and its customers, and in the professional way in which the acquisition and integration process was structured and implemented by the Executive Board and senior management. The Supervisory Board would like to express its great appreciation for the drive and commitment it saw in this process, while business as usual continued for everyone at the same time.
93a.s.r. 2015 annual report 2015 consolidated financial statements ASR Nederland N.V.
Cash and cash equivalents 5.11 2,628 3,135 1,521 Assets held for sale 5.36 78 - -
Liabilities arising from insurance contracts 5.16 30,573 28,226 23,893 Liabilities arising from insurance contracts on behalf of policyholders 5.16 9,997 9,779 8,992
Realized gains and losses 5.24 716 451 373 Fair value gains and losses 5.24 922 565 304 Result on investments on behalf of policyholders 559 841 767 Fee and commission income 5.25 52 35 45
Insurance claims and benefits 5.27 -5,541 -5,197 -5,113 Insurance claims and benefits recovered from reinsurers 5.27 291 100 110 Net insurance claims and benefits -5,250 -5,097 -5,003
Income tax (expense) / gain 5.32 -150 -108 -74 Profit after tax from continuing operations 630 426 243
Basic earnings per share from continuing operations 5.14 2,965 1,735 1,075 Basic earnings per share from discontinued operations 5.14 -130 -25 -5 Basic earnings per share 2,835 1,710 1,070 5.1.2 Consolidated income statement5.1 Consolidated financial statements 5.1.1 Consolidated balance sheet (before profit appropriation)
Unrealized change in value of available-for-sale financial assets 5.11 -877 1,643 -502
Segregated investment pools 15 -25 -34 Share of other comprehensive income of associates and joint ventures - -6 -3 Unrealized change in value of cash flow hedges - 1 2 Tax relating to components of other comprehensive income 21 -50 -3 Total items that may be reclassified subsequently to profit and loss -55 156 80
Attributable to: - Attributable to non-controlling interests 3 -2 -5 - Shareholders of the parent 683 -29 411 - Holders of other equity instruments 45 108 44 - Tax on interest of other equity instruments -11 -27 -11 Total comprehensive income attributable to holders of equity instruments 717 52 444 5.1.3 Consolidated statement of comprehensive income
U n re al iz e d g ai n s an d lo ss e s
O th e r e q u it y in st ru m e n ts
Discretionary interest on other equity instruments - - - - -108 -108 - - -108 Tax relating to interest on other equity instruments - - - - 27 27 - - 27 Issue of other equity instruments - - - - - - 497 - 497 Redemption of other equity instruments - - - - - - -311 - -311 Cost of issue of other equity instruments - - - - -2 -2 - - -2
The actuarial gains and losses (after tax) primarily increased by € 167 million (€ 220 million before tax) (2014: decreased by € 527 million after tax; 2013 increased € 117 million after tax) due to an increase (2014 decrease, 2013 increase) in the discount rate of the benefit pension obligation.
Adjustments on non-cash items included in profit: Revaluation through profit and loss -150 -16 -1 Retained share of profit of associates and joint ventures -3 9 13
Income tax received (paid) -551 -289 -140 Cash flows from operating activities -485 1,683 -811
a.s.r. believes that this disclosure is relevant for users of financial statements to fully understanding of the cash flow and the relationship with other statements.
Cash and cash equivalents as at 31 December 2,631 3,135 1,521
Total cash and cash equivalents Cash and cash equivalents from continuing operations 2,628 3,135 1,521 Cash and cash equivalents classified as Assets held for sale 3 - -
5.2 Accounting policies 5.2.1 Changes in accounting policies and presentation as of 1 January 2015 a.s.r. has made voluntary changes in its accounting policies for investment property, property for own use and deferred acquisition costs (DAC) as of 1 January 2015. The DNB solvency ratio remains unchanged following these voluntary changes. In accordance with IFRS the changes in accounting policy for investment property and DAC are applied retrospectively whereby the 2014 and 2013 comparative figures are restated. The change for property for own use is applied prospectively as a revaluation with effect from 1 January 2015 and the 2014 and 2013 comparative figures are not restated. The change in accounting policy results in an increase of total equity as at 31 December 2014 of € 682 million (2013: € 642 million) which results in total equity after tax from € 3,027 million (2013: € 3,015 million) to € 3,709 million (2013: € 3,657 million).
As per 1 January 2013 the fair value of the investment property amounted to € 3,000 million, an increase of € 1,226 million compared to the value under a cost model. The 2014 and 2013 comparative figures for property for own use are not restated. See chapter 5.2.2. sub E and 5.2.3 sub U for the revised accounting policy for investment property and property and equipment.
Deferred acquisition costs a.s.r.’s accounting policy until and including 2014 was to capitalize commission fees for non-life and life insurance contracts and to amortize it over the period over which the relevant premiums are realized. The deferred acquisition costs (DAC) capitalized as at 31 December 2014 amounted to € 213 million. As per 1 January 2014 the capitalized acquisition costs amounted to € 241 million of which € 28 million was amortized in 2014.
As a result of these changes in accounting policy and presentation changes, a.s.r. has chosen to present two comparative years in the 2015 consolidated financial statements. The comparative figures for 2014 and 2013 (being the 2013 restated figures as included in the 2014 consolidated financial statements) have been restated for the changes in accounting policy and presentation.
As from 1 January 2015 a.s.r. presents the savings components of savings linked mortgage insurances for the hybrid type insurance contracts included in Insurance contracts on behalf of policy holders under loans and receivables. Prior, the savings components were included in Investments on behalf of policyholders.
In addition to the change in accounting policies and the changes in presentation as disclosed above, the current presentation differs from last year’s presentation in some other minor aspects. Where applicable, in accordance with IFRS, comparative figures have been included in the new presentation format to ensure comparability.
Balance sheet as at 31 December 2014 As reported Changes in accounting policies
Total equity attributable to shareholders 3,047 682 - 3,729 Equity attributable to holders of equity instruments -20 - - -20
Insurance claims and benefits -5,214 1 16 -5,197 Insurance claims and benefits recovered from reinsurers 100 - - 100 Net insurance claims and benefits -5,114 1 16 -5,097
Income tax (expense) / gain -94 -14 - -108 Profit after tax from continuing operations 379 42 5 426
Total equity attributable to shareholders 3,033 642 - 3,675 Equity attributable to holders of equity instruments -18 - - -18
Realized gains and losses 486 -113 - 373 Fair value gains and losses 348 -44 - 304 Result on investments on behalf of policyholders 783 - -16 767 Fee and commission income 45 - - 45
Share of profit/(loss) of associates and joint ventures 14 - 1 15
Discontinued operations Profit (loss) from discontinued operations net of tax - - -1 -1
The changes have also been recognized in the relevant notes to the consolidated financial statements.
Other changes The following other changes in the EU-endorsed IFRS standards and IFRIC interpretations are effective from 1 January 2015. • Amendment to IAS 19 Employee Benefits: Defined Benefit
Except for the change in accounting policy as a result of the voluntary changes in accounting policy as mentioned above, these changes have no material effect on the total equity attributable to shareholders or profit or loss for the reporting period of a.s.r.
Balance sheet as at 1 January 2013 As reported Changes in accounting policies
Pursuant to the options offered by Section 362, Book 2 of the Netherlands Civil Code, ASR Nederland N.V. has prepared its company financial statements in accordance with the same principles as those used for the consolidated financial statements.
B. Estimates and assumptions The preparation of the financial statements requires a.s.r. to make estimates, assumptions and judgements in applying accounting policies that have an effect on the reported amounts in the financial statements.
The estimates and assumptions are based on management’s best knowledge of current facts, actions and events. The actual outcomes may ultimately differ from the results reported earlier on the basis of estimates and assumptions. A detailed explanation of the estimates and assumptions are given in the relevant notes to the consolidated financial statements.
A financial instrument is quoted in an active market if: • quoted prices are readily and regularly available (from an exchange, dealer, broker, sector organization, third party pricing service, or a regulatory body); and
This category primarily includes: • financial instruments: unlisted fixed-interest preference shares and interest rate contracts; • financial instruments: loans and receivables 1 (non-recurring); • other non-financial assets and liabilities 1 (non-recurring).
Financial instruments: unlisted fixed-interest preference shares and interest rate contracts This category includes unlisted fixed-interest preference shares and interest rate contracts. The valuation techniques for financial instruments use present value calculations and in the case of derivatives, include forward pricing and swap models. The observable market data contains yield curves based on company ratings and characteristics of the unlisted fixedinterest preference shares.
Financial instruments: Loans and receivables The fair value of the loans and receivables is based on the discounted cash flow method. It is obtained by calculating the present value based on expected future cash flows and assuming an interest rate curve used in the market that includes an additional spread based on the risk profile of the counterparty. The valuation method used to determine the fair value of a.s.r.’s mortgage portfolio bases the spread on the interest rate curve for discounting the mortgage portfolio cash flows on consumer rates.
This category primarily includes: • financial instruments: private equity investments (or private equity partners); • investment property and property for own use.
Financial instruments: private equity investments The main non-observable market input for private equity investments is the net asset value of the investment as published by the private equity company (or partner).
(including buildings for own use); • other – based on reference transaction and DCF method; • under construction - based on both DCF and income capitalization method.
For the categories residential, offices and other in applying the DCF method, the significant inputs are the discount rate and market rental value. These inputs are verified with the following market observable data (that are adjusted to reflect the state and condition, location, development potential etc. of the specific property): • market rent per square meter for renewals and their respective re-letting rates; • the 10 year discount rate as published by the Dutch Central
When applying the DCF method for rural valuations, the significant inputs are the discount rate and market lease values. These inputs are verified with the following market observable data (that are adjusted to reflect the state and condition, location, development potential etc. of the specific property): • market value per acre per region in accordance with the
Income capitalization method Under the income capitalization method, a property’s fair value is estimated based on the normalized net operating income generated by the property, which is divided by the capitalization rate (the investor’s rate of return). The difference between gross and net rental income includes the same expense categories as those for the DCF method with the exception that certain expenses are not measured over time, but included on the basis of a time weighted average, such as the average lease up costs. Under the income capitalization method, rents above or below the market rent are capitalized separately.
The significant inputs for retail valuations are the reversionary yield and the market or reviewed rental value. These inputs are generally verified with the following observable data (that are adjusted to reflect the state and condition, location, development potential etc. of the specific property): • market rent per square meter for renewals; • reviewed rent per square meter (based on the rent reviews performed in accordance with Section 303, Book 7 of the Netherlands Civil Code).
The fair value of investment properties and buildings for own use, are appraised annually. Valuations are conducted by independent professional appraisers who hold recognized and relevant professional qualifications and have recent experience in the location and category of the property being valued. Market value property valuations were prepared in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation Standards, 7th Edition (the ‘Red Book’). a.s.r. provides adequate information to the professional appraisers, in order to conduct a comprehensive valuation. The professional appraisers are changed or rotated at least once every three years.
The accounting policies for the treatment of investment property and buildings for own use is described in accounting policy E and U respectively. The fair value of investment property and buildings for own use is disclosed in chapter 5.6, 5.8 and 5.9.
Goodwill Acquisitions by a.s.r. are accounted for using the acquisition method. Goodwill represents the excess of the cost of an acquisition over the fair value of a.s.r.’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 (CGU’s) that are expected to benefit from the business combination.
If the outcome of the first step indicates that the difference between the recoverable amount and the carrying value may not be sufficient to support the amount of goodwill allocated to the CGU, an additional analysis is performed in order to determine a recoverable amount in a manner that better addresses the specific characteristics of the relevant CGU.
E. Investment property Investment property is property held to earn rent or for capital appreciation or both. Property interests held under operating leases are classified and accounted for as investment property. In some cases, a.s.r. is the owner-occupier of some investment properties. If owner-occupied properties cannot be sold separately, they are treated as investment property only if a.s.r. holds an insignificant portion for use in the supply of services or for administrative purposes. Property held for own uses (owneroccupied ) is recognized within property plant and equipment.
Investment property is primarily recognized using the fair value model. After initial recognition, a.s.r. remeasures all of its investment property (see accounting policy C) whereby any gain or loss arising from a change in the fair value of the specific investment property is recognized in the income statement under fair value gains and losses.
part of an asset can be used separately, the borrowing costs for each part that reaches completion are no longer capitalized.
Financial assets at fair value through profit and loss Financial assets at fair value through profit and loss include: • derivatives that do not qualify for hedge accounting (see accounting policy C and I); and • financial assets, designated by a.s.r. as carried at fair value through profit and loss. This option is available whenever: • it eliminates or significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities on different bases (accounting mismatch); or
• a.s.r. 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; • the financial assets contain one or more embedded derivatives and a.s.r. does not separate the derivative from the host contract.
In the case of equity investments available for sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment. a.s.r. considers as a significant or prolonged decline to have occurred if the fair value: • has fallen 25% or more below cost; or • has fallen below cost for an uninterrupted period of twelve months or longer.
Fixed-income financial assets available for sale are 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. This assessment is made at each reporting date by the Level of Concern Committee, where the portfolio managers and analysts assign a level of concern from ‘Nil’ to ‘Three’ to each of the fixed-income assets. A level of concern ‘Nil’ means that there is no reason for concern, while a level of concern ‘Three’ indicates that the situation is critical and that an impairment is highly recommended. The final decision to recognize an impairment loss on a financial asset or to reverse a prior impairment loss is taken in the quarterly Impairment Committee, chaired by the Group Assets Management director.
on the effective interest rate method, less impairments where deemed necessary.
At the inception of the hedge, a.s.r. 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 highly effective throughout the hedging period. The effectiveness of the hedge is assessed on an on-going basis throughout the financial reporting periods for which the hedge was designated. A hedge is considered highly effective if the change in the fair value or the cash flows of the hedged item is offset by changes in the fair value or the cash flows of the hedging instrument.
Changes in the fair value of the effective portion of derivatives that have been designated and qualify as cash flow hedges are recognized as unrealized gains or losses 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 or loss in the same period or periods during which the hedged firm commitment or highly probable forecast transaction affects results.
The Group’s shadow accounting policy is applied to certain types of insurance liabilities: • insurance contracts with participation features; • non-participating insurance contracts if and to the extent that the IFRS LAT would be triggered. This would be the case when current interest rates are lower than the interest rates that were used in the pricing principles at inception of the insurance contract.
The related adjustment to the insurance liability is recognized in OCI if, and only if, the unrealized gains or losses are recognized
in other comprehensive income. Unrealized gains and losses on assets at fair value through profit and loss are recognized in the income statement with a corresponding adjustment for shadow accounting in the income statement under ‘Net insurance claims and benefits’.
No shadow accounting is applied to: • impairments; • revaluations of debt instrument that have been subject to impairment.
The LAT for the disability portfolio is based on cash flow projections using realistic assumptions comparable to the LAT for the life portfolio (see below).
IFRS Liability Adequacy Test Life The LAT is performed at each reporting date to assess the adequacy of insurance liabilities. Liabilities are adequate if the technical provision recognized in a.s.r.’s balance sheet for Life segment as a whole at least equals the best estimate of the life insurance liabilities including an appropriate risk margin. If there is a deficiency in the life insurance liabilities, those liabilities are increased to adequate levels through a charge to the income statement.
Risk margin The risk margin is determined for each homogeneous risk group using the CoC method. For life a CoC rate of 5% (2014: 5%; 2013: 4%) is used. a.s.r. uses the latest standard Solvency II model, to quantify the risks. The risks that are incorporated in the risk margin are: mortality, longevity, disability, lapse, catastrophe, expense and operational risk. A projection of expected future risks is made and 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.
ASR Levensverzekering N.V. and another group insurance entity administer most of the post-employment benefit plans and hold the investments that are intended to cover the employee benefit obligation. These investments do not qualify as plan assets in the consolidated financial statements under IFRS.
O. Basis for consolidation - subsidiaries The consolidated financial statements include the financial statements of ASR Nederland N.V. and its subsidiaries. Subsidiaries are those entities over which a.s.r. has control.
Control exists when a.s.r. is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. This is the case if more than half of the voting rights may be exercised or if a.s.r. has control in any other manner. Subsidiaries are fully consolidated from the date on which control is acquired by a.s.r. Subsidiaries are deconsolidated when control ceases to exist. 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 a.s.r.’s accounting policies, which are consistent with IFRS.
Non-life insurance contracts Non-life insurance contracts are contracts that provide cover that is not related to the life or death of insured persons. These insurance contracts are classified into the following categories: Disability, Health, Property and Casualty (motor, fire and liability) and Other.
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 accounting policy J); • 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 borne fully for policyholders (see accounting policy K). Life insurance contracts for the account and risk of policyholders generally consist of contracts where premiums, after deduction
T. Statement of cash flows The statement of cash flows classifies cash flows by operating activities, investing activities and financing activities. Cash flows denominated in foreign currencies are converted at the exchange rates applicable on the transaction date.
Land N.A. Shell 50 Outer layer 30 Systems 20 Fittings and fixtures 15
Joint ventures Joint ventures are contractual arrangements whereby a.s.r. and one or more parties undertake an economic activity that is subject to joint control. Joint control exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control.
Joint operations a.s.r has a limited number of non-material joint operations. These are recognized in relation to a.s.r.’s interest in the joint operation’s individual balance sheet and income statement items.
accounting policy U); • reserve for discretionary participation features (see accounting policy J); • reserve for exchange rate differences arising from financial assets available for sale.
Actuarial gains and losses Actuarial gains and losses result from the post-employment benefit pension plans (see accounting policy L).
Non-controlling interest The non-controlling interest relates to the equity in a consolidated subsidiary not attributable, directly or indirectly, to a.s.r. (see accounting policy O).
BB. Insurance premiums Non-life insurance premiums Non-life insurance premiums are accounted for in the period in which they are earned. As indicated in accounting policy J, invoiced but not yet earned premiums are included under liabilities arising from insurance contracts.
Life insurance premiums Life insurance premiums relating to life insurance contracts are recognized as income when received from policyholders. Liabilities arising from insurance contracts are recognized based on estimated future benefits and expenses, and charged to the income statement. These expenses are recorded within ‘technical insurance claims and benefits’. Therefore, in accordance with the matching principle, the profits are realized over the estimated term of the contracts.
CC. Investment income Investment income primarily comprises interest income, dividends on equities and rentals from investment property.
Rental income Rental income from investment property are allocated to the period to which they relate.
DD. Realized gains and losses Realized gains and losses include proceeds from the disposal of investment property, financial assets available for sale, associates and joint ventures. With respect to financial assets available for sale, realized gains or losses comprise: • the proceeds from the sale or disposal of an asset or liability less the amortized cost of the asset or liability sold; • impairments previously recognized (except for equity instruments); • hedge accounting adjustments.
Any unrealized gains and losses previously recorded in equity (the difference between the carrying amount and amortized cost) are recognized in the income statement.
EE. 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, derivatives and investment property held at fair value. With respect to derivatives, this is based on the fair value excluding accrued interest (clean fair value).
FF. 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.
II. Operating expenses This item relates to expenses associated with a.s.r.’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.
Payments made under operating leases (a.s.r. is the lessee) are recognized in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognized as an integral part of the total lease expense, over the term of the lease.
5.3 Risk management Risk management is an integral part of our daily business activities. a.s.r applies an integrated approach in managing risks, ensuring that our strategic goals (customer interests, financial solidity and efficiency of processes) are maintained. This integrated approach ensures that value will be created by identifying the right balance between risk and return, while ensuring that obligations towards our stakeholders are met. Risk management supports a.s.r. in the identification, measurement and management of risks and monitors if adequate and immediate actions are taken in the event of changes in a.s.r.’s risk profile.
This chapter describes the risk management organization, the risks that a.s.r. is exposed to and how these risks are managed.
General • Risk appetite statements are established at both group and legal entity level including risk tolerances, limits and targets, which are also described in underlying risk policies. Risk appetite statements are linked to strategic pillars: Capital, Value and Return, Liquidity, Reputation and Operational and Governance. Risk appetite statements are used for strategic management decisions throughout the organization; • The Economic Capital model (ECAP) of a.s.r. is aligned with the Company’s internal view of certain specific risks and an essential part of the capital steering and risk management framework. In the dynamic investment policy specific risk budgets are determined periodically based on the ECAP model; • a.s.r. uses mature scenario analyses and stress testing techniques, such as an Own Risk and Solvency Assessment (ORSA), Recovery planning and Strategic Asset Allocation studies. These techniques measure the impact of environmental or internally identified risks and threats on the a.s.r. solvency position; • During 2015 a.s.r. purchased AXENT (funeral) and De Eendragt (group life). At the same time hybrid loans were issued in order to keep the solvency at a strong level; • Standard and Poor’s has confirmed a.s.r.’s A rating for its core insurance companies and confirmed the BBB+ rating for the holding (ASR Nederland N.V.). All ratings have a stable outlook.
Counterparty default risk • In accordance with the strategic investment plan, the mortgage portfolio increased in 2015. The majority of new mortgages are guaranteed by the Dutch national mortgage guarantee fund (NHG).
is used to determine relevant changes in our risk profile and to quantify the impact of identified risks on the forward-looking solvency position. The ORSA makes risk management part of strategic decision making processes on group and business units level. Management needs to ensure that a.s.r.’s capital requirements are sufficient to be and remain a financial solid insurer; • a.s.r. has a recovery plan in place. The goal of this recovery plan is to ensure that a.s.r. has effective plans in place to deal with potential severe financial stress resulting from a wide range of different causes of various circumstances.
Operational risk • a.s.r. has further improved its system of internal control in line with formulated ambition levels. The enterprise wide internal control framework is largely implemented in the product lines; • In 2015, the non-financial risk dashboard in which nonfinancial risk profile of each business unit is reported, was further aligned with the formulated risk appetite.
The primary objective of risk management is to support a.s.r. in achieving the required balance between risk and return, while ensuring that strategic goals will be realized. The risk appetite describes the level of risk a.s.r. is prepared to take. Risk exposures are actively managed to ensure that the risks will stay within the defined limits.
Risk appetite The risk appetite reflects the risk management strategy of a.s.r. and influences the way the organization is managed. Risk appetite is defined at both group level and at legal entity level (OTSO -‘Onder Toezicht Staande Onderneming’) for financial and non-financial risks. Risk tolerances, limits and targets have been set for all risk appetite statements.
Objectives of the risk appetite are: • Important steering instrument on a daily basis: a pragmatic approach at both group, legal entity and business unit level
to develop a vision with respect to risk, which is used in the day-to-day decision making process; • The risk appetite is linked to the strategic pillars and indicates a.s.r.’s willingness to take risks.
The risk appetite is based on a.s.r.’s three strategic objectives: customer interests, financial solidity and efficiency of processes and five risk appetite pillars. These risk appetite pillars, viewed as key elements for the realization of our strategy, are: Capital: Adequate solvency takes priority over profit Adequate capital buffers and financial power to facilitate future developments and continuously meeting our obligations towards policy holders, supervisors and rating agencies. Ensuring the capital buffer is sufficient to maintain an ‘A’ rating.
Reputation & Operational: Responsibility towards our stakeholders Maintaining continuity by accepting only risks that a.s.r. understands and by efficient, controlled and sound business operations. Ensuring customer satisfaction and offering safety and reliability in the long run while maintaining a good reputation.
3 ASR Nederland N.V. has effectively embedded processes and reliable reports.
4 ASR Nederland N.V. complies to current laws, regulation and ethical norms. ASR Nederland N.V. has a zero-tolerance policy in case of deliberate violation of these laws, regulation and ethical norms.
5 ASR Nederland N.V. exclusively does business with partners who comply to the appointing- and procurement policy of ASR Nederland N.V. In the case of outsourcing, ASR Nederland N.V. verifiably complies to the outsourcing policy and a sound operational management is ensured.
12 ASR Nederland N.V.’s technical provisions are at all times sufficient according to IFRS LAT.
14 ASR Nederland N.V. can clear at least € 1 Billion liquidities in a one month period, taking the contractual cash flows and a worst case liquidity scenario (redemption of insurance products, withdrawal of savings, collateral) into account.
15 ASR Nederland N.V.’s activities result in a risk-adjusted return on risk-adjusted capital (RARORAC) larger than 5,3%.
ASR Nederland N.V. has a Value Added New Business (VANB) which is at all times larger than € 0 million, including UFR (Ultimate Forward Rate).
17 ASR Nederland N.V. has a maximum combined ratio of 99%.
These risk appetite statements are further translated into boundaries (risk tolerances, limits and targets) in order to make sure that material risks are managed in accordance with our predefined risk profile. Risk limits are formulated in line with a.s.r. ambition levels, regulatory requirements and S&P requirements. The most important limits for financial solidity are set on the solvency ratio according to the internal model (ECAP), the standard model of Solvency II (SCR) and the current regulatory solvency (Solvency I). Breaches need to be reported and addressed immediately in accordance with our risk policies. Risk appetite statements ensure that risk considerations are being addressed in strategic decision making processes. Our risk profile is monitored by a.s.r.’s risk committees on a quarterly basis. Per year-end 2015, a.s.r. has sufficient capital to meet the limits as formulated in the a.s.r. risk appetite.
The risk management organization and the risk committee structure, which are part of the risk governance, are described in more detail in the next section.
FRM is also responsible for the actuarial function. As part of the actuarial function, FRM reviews the technical provisions, monitors methodologies, assumptions and models used in these calculations and assesses the adequacy and quality of data used in the calculations. FRM regularly reports to the Financial Risk Committee, the Executive Board and the Audit and Risk Committee on the reliability and adequacy of the calculation of the technical provisions.
Risk committee structure The objective of the risk committees is to manage the risk profile for a.s.r. group, its legal entities and its business lines in order to ensure that the risk profile remains within the risk appetite and the underlying risk tolerances, risk limits and risk targets.
Committee a.s.r. Risk Committee The a.s.r. Risk Committee is a sub-committee of the Executive Board and monitors a.s.r.’s overall risk profile on a quarterly basis. In the a.s.r. Risk Committee the Executive Board gives final approval upon relevant risk policies as discussed in the NFRC and FRC. Every year, the Risk Committee approves the risk appetite statements, limits and targets for a.s.r. The a.s.r. Risk Committee also monitors the management of a.s.r.’s risk priorities’. a.s.r.’s Executive Board members all participate in the a.s.r. Risk Committee, which is chaired by the CEO. The involvement of the Executive Board ensures that risk decisions are being addressed at the appropriate level within the organization. In addition to the Executive Board, the Chief Risk Officer, Director of Audit, Director of Integrity and Director Group Asset Management are members of the Committee.
Non-Financial Risk Committee The Non-Financial Risk Committee (NFRC) discusses and decides upon non-financial risk policies. The most relevant risk policies are approved by the a.s.r. risk committee. The NFRC monitors that non-financial risks are adequately managed and monitors that the risk profile stays within the agreed risk limits. If the risk profile exceeds the limits, the NFRC takes mitigating actions. The NFRC reports to the a.s.r. Risk Committee. The
Financial Risk Committee The Financial Risk Committee (FRC) discusses and decides upon financial risk policies. The most relevant risk policies are approved by the a.s.r. risk committee. The FRC manages and controls financial risks (market, insurance (life and non-life) and counterparty default risk). The FRC also monitors whether the risk profile stays within the risk limits. If the risk profile exceeds these limits, the FRC takes mitigating actions. The FRC reports to the a.s.r. Risk Committee. The Chairman of the FRC is the CFO. Members of the Committee include the Chief Risk Officer, Directors of Group Asset Management, Finance and Risk, Real Estate, Group Accounting Reporting & Control and a representative for the actuarial function. The FRC is supported by the Capital, Liquidity & Funding Committee (CLFC) and the Model Validation Committee (MVC).
The Directors of all business lines are members of the Product Approval Committee. The Director Marketing is the chairman. Group Risk Management, Integrity and Juridical Affairs also participate in the Product Approval Committee. All these departments evaluate if risks in newly developed products are sufficiently addressed. New products need to be developed in a way that they are cost efficient, reliable, useful and secure. New products also need to have a strategic fit with a.s.r.’s mission to be a solid and trustful insurer. Also the risks of existing products are evaluated, as requested by the PARP as a result of product reviews. Group Risk Management and Compliance have the right of veto in the Product Approval Committee.
5.3.2.4 Risk procedures & policies a.s.r.’s risk classification covers all Solvency II risks and is in line with the Focus approach as applied by DNB. These policies describe how risks are identified, measured and managed throughout a.s.r. a.s.r. has established policies for each of the risks (market, counterparty default, insurance, strategic and operational). In each case the policy defines the risk, the risk limits and the risk mitigation strategies.
Liquidity risk Liquidity risk is the risk that one of a.s.r.’s entities does not have sufficient liquid assets to meet its financial obligations when they become due and payable, at reasonable cost and in a timely manner.
IFRS refers to credit risk as spread risk or counterparty default risk.
As part of the ORSA an assessment was made on the completeness of identified risk categories in relation to the risk profile of a.s.r.
Market risk is the risk of potential losses due to adverse movements in financial market variables. Exposure to market risk is measured by the impact of movements in financial variables such as equity prices, interest-rates and property prices. The several types of market risk, which are discussed in this section, are: • interest-rate risk; • equity risk; • property risk; • currency risk; • spread risk; • concentration risk.
In the calculation of the interest-rate sensitivity of the solvency ratio including UFR, the UFR is kept constant. The shock on the discounting curve for the liabilities is mitigated for maturities longer than 20 year through the application of the UFR. As a result, the assets are more sensitive than the liabilities including UFR. The solvency ratio including UFR increases with 14% when the interest-rates drop 1%.
In 2015 the interest-rate hedge was adjusted in line with the policy (see 5.3.4.1). As a result, the Solvency I ratio (including UFR) became less sensitive to interest-rates, while the Solvency I ratio excluding UFR became more sensitive to interest-rates. The latter was strengthened by the acquisition of De Eendragt and Axent, whose insurance liabilities have a long duration.
The next table shows sensitivities of total equity and profit for the year. Due to the IFRS accounting treatment (including insurance liabilities discounted with a fixed interest-rate, shadow accounting, part of the investments are valued at amortised cost, post-employment benefits), these sensitivities can vary substantially from the sensitivities of regulatory solvency (Solvency I).
The sensitivities of total equity and profit for the year to market risk are as follows: Scenario Total equity
During 2015 the interest-rates decreased on average 20 bp for maturities longer than 10 year.
An interest-rate risk policy is in place for the group as well as for the registered insurance companies. All interest-rate sensitive balance sheet items are in scope, including the post employee benefit obligations of the group (see chapter 5.17.1). In principle the sensitivity of the Solvency II ratio to interest-rates is minimized, as long as the sensitivity of the Solvency II ratio excluding UFR to interest-rates is not too high. In addition, the exposure to interest-rate risk for various term buckets is subject to maximum amounts.
In 2015 the interest-rate hedge was adjusted in line with the policy. As a result, the Solvency I ratio (including UFR) became less sensitive to interest-rates, while the Solvency I ratio excluding UFR became more sensitive to interest-rates. The latter was strengthened by the acquisition of De Eendragt and Axent, whose insurance liabilities have a long duration.
The fair value of equities and similar investments at year-end 2015 was € 2,803 million (2014: € 1,990 million, 2013: € 1,967 million). The increase in 2015 is a result of new investments and favourable development of equity prices. A part of the downside risk of the equities is hedged. A portfolio of put options with an underlying value of € 885 million is in place.
5.3.4.3 Property risk Property risk is the risk of loss of market value of real estate assets due to a change in rental prices, required investor yield, or other factors.
The property risk depends on the total exposure to property. In order to gain a total understanding of the actual property risk, a.s.r. includes property for own use and development property amounting to € 100 million (2014: € 100 million, 2013: € 125 million) in the analysis of its property risk. The fair value of property was € 2,939 million at year-end 2015 (2014: € 3,070 million, 2013: € 3,028 million ), including property for own use.
5.3.4.4 Currency risk Currency risk measures the impact of losses related to changes in currency exchange rates. The table below provides an overview of largest currency exposures in the portfolio.
The policy is primarily to hedge currency risks of fixed income investments and the insurance liabilities. However, certain currency exposures are permitted from a tactical perspective within a specific risk budget. The currency risk of equities is not hedged.
The foreign currency position is monitored on a quarterly basis. The total net exposure in foreign currency is € 1,375 million (2014: € 477 million, 2014: € 389 million). The table shows the currencies with the largest exposures.
Change in equity prices 31 December 2015 Percentage 31 December 2014 Percentage 31 December 2014 Percentage
Changes in the rating distribution of the fixed income portfolio are attributable to a number of factors, such as interest rate and spread movement, implementation of the investment policy and asset allocation decisions, as well as rating actions by S&P and Moody’s rating agencies and acquisitions. Acquisition of Axent and De Eendragt in the course of the 2015 are the main driver of the increase in the exposure to the fixed income investments. Without these acquisitions, the market value of the fixed income portfolio would have decreased following changes in asset allocation and the combination of the rise in the interest rates and widening spreads observed in 2015. The main reason for the significant increase in the AAA-rated bonds at the expense of AA- rated bonds is the upgrade of Dutch government bonds from AA to AAA by S&P. The decrease in the category Lower than BBB is due to significant redemptions in subordinate financials and an upgrade in the preference shares portfolio. The category not rated consists of investment funds and loans to intermediaries, the increase in 2015 is due to positions in new investment funds.
The increase in the government bond portfolio is solely due to the acquisition of Axent and De Eendragt. The increase of corporate bond investments is explained by changes in asset allocation, while redemptions are responsible for the decrease in the structured entities investments.
Financial institutions 31 December 2015 31 December 2014 31 December 2013
The table above shows the exposure of the corporate bonds to sectors.
As a.s.r. participates in structured entities solely for investment purposes, no other commitments or guarantees have been made to the structured entities concerned. The maximum exposure is therefore limited to the fair value of the structured entity and amounts to € 402 million (2014: € 556 million; 2013: € 600 million).
Asset-backed securities (ABS) An ABS is a financial security backed by a portfolio of loans, leases or receivables against assets other than real estate and mortgage-backed securities. Half of this portfolio consists of a bond issued by a ring-fenced entity of a large UK airport. The other half of this portfolio consists of various securities backed by several types of assets.
Mortgage-backed securities (MBS) MBS’s are a type of asset-backed security that is secured by a portfolio of mortgages. The MBS portfolio of a.s.r. consists of mainly AAA tranches in Dutch residential mortgage backed securities. The rest of the portfolio consists of investments in the senior tranches of UK RMBS (around 3.5%) and some peripheral exposure, mostly in Spain (5.5%), all of which have started to redeem.
The next tables give a detailed overview of the distribution of the total-fixed income portfolio over ratings and sectors.
Government Financial institutions 31 December 31 December 31 December 31 December 31 December 31 December
are predominant factors responsible for increase in the market value of the A and BBB rated financials. Decrease in the subinvestment grade category is mainly due to redemptions in junior subordinate financials portfolio.
Increase in the AA rated category is due to execution of the sector allocation decisions as well as re-allocation of bonds from sector Financials, following significant changes in the business profile of the issuer. Increase in A and BBB rating categories are attributable to combination of sector allocation decisions and rating actions by S&P and Moody’s. An upgrade of a position in our preference shares portfolio explains substantial decrease in sub-investment grade corporates. The non-rated category corporates includes predominantly externally managed fixed income funds and loans issued to intermediaries, the increase in 2015 is due to positions in new investment funds.
The parameters of the internal risk-rating model are regularly adjusted in response to market conditions as well as new legislation. The ban on commissions regarding so-called ‘complex’ insurance products was introduced in 2013 and has a minor impact on the rating of the loan portfolio issued to intermediaries due to the aforementioned internal risk-rating model. The group has anticipated on the ban on commissions and has therefore granted fewer loans as a result of restrictions in our loan policy. The current value of the collateral incorporates the effect of the ban on commissions. This value is used in our internal risk-rating model. The table below provides an overview of the loans to intermediaries.
In order to avoid concentrations in a single obligor, a.s.r. applies a limit on maximum exposure of € 700 million for issuers rated single A rating and higher and € 350 million for issuers rated BBB. The limits apply to the total investment portfolio, where government bonds are not included, which is consistent with Solvency II. The CLFC monitors concentration risk on a quarterly basis. All exposures were within the limits at year-end 2015.
5.3.4.7 Liquidity risk Liquidity risk is the risk that a.s.r. is not able to meet its financial obligations to policyholders and other creditor when they become due and payable, at reasonable cost and in a timely manner.
a.s.r. recognizes different levels of liquidity management. Shortterm liquidity, or daily cash management covers the day-today cash requirements under normal business conditions and targets funding liquidity risk. Long-term liquidity management considers business conditions, in which market liquidity risk materialises. Stress liquidity management looks at the ability to respond to a potential crisis situation as a result of a market event and an a.s.r. specific event. Unexpected cash outflows could occur as result of lapses in the insurance portfolio, withdrawals of savings, or payments related to the CSA of derivatives. a.s.r. monitors its liquidity risk scenario’s via different risk reporting and monitoring processes including daily cash management reports, cash flow forecasts and stress scenario liquidity reports.
a.s.r. liquidity management principle consist of three components. First, a well diversified funding base is necessary in order to provide liquidity for cash management purposes. A portion of assets must be invested in unencumbered marketable securities that can be used for collateralized borrowing or asset sales. Second, the strategic asset allocation should reflect the expected and contingent liquidity needs of liabilities. Finally, an adequate and up-to-date contingency liquidity plan is in place to enable management to act effectively and efficiently in times of crisis.
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; • savings-linked mortgage loans; • derivatives; • reinsurance; • receivables; • cash and deposits.
5.3.5.1 Mortgages Mortgages are granted for the account and risk of third parties and for a.s.r.’s own account. The a.s.r. portfolio consists only of Dutch mortgages with a limited credit risk. In line with the strategic investment plan, the mortgage portfolio increased by € 985 million in 2015. The majority of new mortgages in 2015 were guaranteed by the Dutch national mortgage guarantee fund (NHG).
Mortgage: loan to collateral value Amount Percentage Amount Percentage Amount Percentage
At year-end 2015 0.57% (2014: 0.65%; 2013: 0.59%) of mortgages were more than three months in arrears.
The credit risk of the savings-linked mortgage loans depends on the counterparty. For 63% of the portfolio the counterparties are Special Purpose Vehicles. The risk is limited due to the robust quality of the mortgages in the Special Purpose Vehicles in combination with the tranching.
a.s.r. has a cession-retrocession agreement with the counterparty for 25% of the portfolio, for which the risk is limited. Effectively, a.s.r. receives the underlying mortgage loans as collateral, mitigating the credit risk of the savings-linked mortgage loans.
5.3.5.3 Derivatives OTC derivatives are primarily used by a.s.r. to manage the interest-rate risks incorporated in the insurance liabilities. Interest-rate derivatives are traded with a well-diversified and qualitative dealer panel with whom there is an established International Swaps and Derivatives Association (ISDA) contract and a Credit Support Annex (CSA) in place. These CSA’s include specific agreements on the exchange of collateral limiting market and counterparty risk.
5.3.5.4 Reinsurance When entering into reinsurance contracts for fire and catastrophe, a.s.r. requires the counterparty to be rated at least single A. With respect to long-tail business and other sectors, the minimum permitted rating is single A.
Ratings reinsurance 31 December 2015 31 December 2014 31 December 2013
The table above shows the exposure to reinsurers per rating. The total exposure to reinsurers at year-end 2015 was € 611 million (2014: € 419 million; 2013: € 407 million). The increase in the total exposure in 2015 is explained by the reinsurance agreement with Legal and General Re (via Hannover Re as fronting reinsurer).
5.3.5.6 Cash and deposits The current accounts amounted € 1,444 million in 2015 (2014: € 571 million; 2013: € 750 million).
Total deposits amounted to € 1,178 million (2014: € 2,626 million, 2013: € 1,079 million).
Ratings deposits 31 December 2015 31 December 2014 31 December 2013
Property and 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; • Other liability: this involves third-party liability insurance for both private individuals and businesses.
Non-life insurance liabilities In Property and Casualty and health insurance, the provisions are based on case reserves estimates for reported claims, as well as additional provisions such as IBN(E)R provisions. In disability insurance the provisions are based on assumptions underlying the premium calculation. In the case of disability current information is taken into account. By applying shadow accounting, recent impact of movements in the interest rates and credit spreads on corporate bonds are recognized in the provisions.
In particular for WGA the provision unavoidably depends on expert judgement. Since the WIA law was introduced in 2006 and the WGA product has a two year waiting period, only limited and often unstable claims information is available. In particular, expert judgment is used on longer term recoveries and the outflow to the IVA (Inkomensvoorziening Volledig Arbeidsongeschikten) for fully disabled. Both are being stimulated by disability reassessments. Indications are that these are effective.
The provision for claims for disability insurance equals the present value of the expected benefits, taking account of the policy terms and conditions and waiting periods, as well as the chances of recovery and death.
For the retained disability portfolio, a provision is formed for current risk exposure on contracts concluded in 2015 that run until 31 December 2016. This provision is based on the difference between premiums required for accounting and actuarial purposes.
The balance sheet of a.s.r.’s basic health insurance (‘Basisverzekering’) includes an estimate related to the expected settlement because of equalization (‘vereveningsmethodiek’). The estimate is made by internal actuaries per year based on the latest updated health information for the Netherlands. At the end of the first quarter, a.s.r. monitors if the assumptions used are correct. The final settlement is recognized three years after the end of the financial year.
The provisions for claims and the provision for unearned premiums at year-end 2015, 2014 and 2013 can be broken down as follows:
Provision for claims 303 346 345 Provision for unearned premium 39 25 5
P&C insurance risk P&C insurance risk is the risk that future P&C insurance claims and benefits cannot be covered by premium and/or investment income, or that P&C insurance liabilities and results are threatened because the assumptions, used in the development and premium-setting of a product are not realistic.
Disability and health insurance risk The main risks within the disability and health portfolio are disability, health, lapse and revision risk.
Health risk is the risk that future health insurance claims and benefits cannot be covered by premium and/or investment income, or that health insurance liabilities and results are threatened because the assumptions, used in the development and premium-setting of a product are not realistic.
Lapse risk is the risk that policyholders use options available in the insurance contracts in a way that is different from a.s.r.’s expectations. Lapse therefore affects the profitability of the insurance contracts.