ASR Nederland is the largest private land owner in the Netherlands. A socially responsible investor, its land ownership includes Landgoed De Utrecht, a 6,671-acre estate in the south of the Netherlands. ASR Foundation supports many community initiatives every year, one example being the ‘Verzekerd van Jeugdzorg’ (Assured of Youth Care) programme.
With nearly 4,500 employees and having generated € 4.7 billion in revenue for 2010, ASR Nederland is the third largest insurance company in the Netherlands. ASR Nederland offers insurance products, such as pensions, life insurance, non-life insurance, occupational disability and health insurance contracts, to Dutch retail and corporate clients. ASR Nederland also sells mortgages and provides banking services (ASR Bank and ASR Hypotheken).
N ed erlan d an n u al rep o rt
1 Profit for the year attributable to holders of equity instruments. 2 Presented Total equity (including property revaluation) is a combination of Total equity and the revaluation of property. Per 31 December 2010, Total equity amounted € 2,451 mln and the revaluation of property €1,042 mln. Per 31 December 2009, Total equity €1,955 mln and the revaluation of property €1,020 mln.
Part III: Governance 67 3.1 Corporate Governance 68 3.2 Remuneration policy 70
Mission ‘What is our direction and what kind of business do we want to be?’ Two questions that ASR Nederland explicitly asked itself in 2010. One of the key priorities in 2010 was to overhaul the existing cost structure. ‘ASR Nederland’s traditional structure was too complex. We made an in- depth analysis of customers and products, and came to the conclusion that we offer too many products and operate too many systems. We now know that we need to change in order to create a better cost structure that will be sus- tainable in the long run. We want to combine fewer products and systems with customer-orientated services,’ Jos Baeten stresses.
Three areas of focus ASR Nederland’s ambitions for the coming years boil down to three areas of focus: making the business more efficient, strengthening financial solidity, and focusing on what is best for the customer. ‘We used to be a business with many different branches and an island culture. But we’ve decided to make a clean break with the past. We’re moving towards a single business, at one location and with a shared culture. That’s an important choice,’ proclaims Jos Baeten. What is more, ASR Nederland wants to focus on the customer and
Delivering on ambitions in 2011 2011 will be an important year in achieving ASR Nederland’s goals for 2015. One of the challenges is to produce evidence for ASR Nederland’s ambition to streamline the organization. In Baeten’s opinion, the only way forward is ‘to really do it’.
ASR Nederland provides people with financial continuity in their lives and enables them to take well-considered risks in achieving their ambitions; in that, insurance is the essence, and providing security is its raison d’être. For ASR Nederland, service that customers experience as valuable begins with understanding what is important to people. ASR Nederland believes that customers should be able to insure themselves in the way that is most appropriate to their situation, preferences and possibilities.
Insurance is all about offering security; about building confidence in the future. ASR Nederland’s future also stands or falls on the trust that those around ASR Nederland place in the company. That trust has to be earned, starting anew every day. Trust is earned by putting customers’ interests first, knowing customers well, understanding them and offering them outstanding service; by giving customers the extra attention that makes the difference and by exceeding their expectations. ASR Nederland also earns this trust by offering employees an inspiring and challenging working environment: by partnering successfully with its distribution partners and by offering shareholders the prospect of attractive returns. And, in all of this, by giving due consideration to social involvement and environmental concerns. ASR Nederland seeks to earn the trust of all stakeholders, because ASR Nederland knows this is crucial for the success of its mission.
ASR Nederland is a top-3 player in the Dutch insurance market. ASR Nederland has a strong position in the inter- mediary channel. In the direct channel, ASR Nederland is rapidly developing its position with internet insurer Ditzo, particularly in the non-life market. ASR Nederland’s core markets are Non-life, Occupational disability, Individual-life and Pensions.
In 2010, ASR Nederland took further steps to streamline its brand portfolio, with the brands positioned to enable an optimum focus on specific products and target groups.
The ASR Verzekeringen and De Amersfoortse brands have been more clearly positioned in relation to each other in 2010, with the result that: • De Amersfoortse is the brand through which ASR
In the future, intermediaries will strengthen their individual positions more than ever by supporting the customer with advice for which the customer will pay them directly. A ban on commissions for complex products is expected to come into force from 2013. Customers will increasingly carry out some of the administrative tasks themselves. The direct relationship of the customer with ASR Nederland – as well as the customer’s relationship with his or her advisor – will therefore become increasingly important. ASR Nederland is attuning its organization and website to this development.
Strengthening ASR Nederland’s position in relation to larger and specialized intermediaries and banks is important for its growth in the commercial market (Non-life, Occupational disability and Pensions). ASR Nederland can expand its market share in these sectors, and is doing so through outstanding service aimed at this target group, support processes, and propositions and partnerships with intermediaries. ASR Nederland aims to maintain its leading position with tied agents. All major banks offer insurance aimed at their private and business customers. For private customers, they often provide this service through their ‘preferred suppliers’. For their commercial customers, they need a diverse product portfolio. ASR Nederland aims to play a prominent role in these areas.
Direct distribution will be of increasing importance in the insurance market, with changing customer behaviour as the main driving force behind this. Through the Ditzo label, ASR Nederland focuses on the private customer who wants to take out and manage insurance directly. This currently applies to private non-life insurance only, but in the future Ditzo will also expand its services to include other product groups. As the product becomes more complex as part of this process, advice will play an increasingly important role, bringing about a synergy of direct and intermediary distribution this way.
Helping to solve problems ‘Consumers each have different needs. The difference may be in terms of convenience, or in the risk perception of the products bought. It’s our job to adapt to these differing needs,’ says Ditzo’s Peter Hoitinga. ‘There is now a difference in how consumers have developed and how organizations are structured. When customers are faced with a problem, they want someone to help them solve it. If your car gets damaged in an accident, you ask yourself how you’re going to get to work. This is why we offer a pick-up and drop-off service, so that customers can get on with their day, because that is the problem they then face. The other things can be sorted out later.’
We know a lot about customers, and with that knowledge we can help ASR Nederland and our intermediaries. Ditzo customers are people who are able or willing to make their own choices. What we do is reaffirm their choice. If their personal situation is more complex or if a customer wants the convenience of comprehensive advice, an advisor can be of added value,’ says Peter Hoitinga.
Working hard on better products The big challenge faced by insurers is to adapt their systems and products so that they match what customers want. ‘A customer who has purchased insurance should feel happy with the company, the business and the brand. That’s easier said than done these days,’ says Boudewijn van Uden. ‘We need to support intermediaries in their role as advisors. The product should sell itself, so that the intermediary can concentrate on his job as an advisor.
This means that we have to offer products that stand out in terms of proposition, price and process. The advice and the product are separating more and more. This demands a different approach from us. As an insurer, we will increasingly be judged on our proposition, price and process. We will have to work harder to strengthen our position in the market. This is a big deal for us,’ says Boudewijn van Uden.
‘ The times when business came knocking at the door are gone’
Boudewijn van Uden Director of Marketing & Sales at ASR Verzekeringen and De Amersfoortse
For Ditzo, working hard for customers is not a new approach – it was never any different. Peter Hoitinga: ‘We want to add value by working for the customer. This added value lies in the service, and this binds the customer to you. We want people in our organization who are curious and sincerely interested in people. Our experience shows that this benefits customer contact. We are service providers. For us, it is not about the product, but about the relationship with our customers. This is the culture. The product and the process are just factors. They simply need to be right, because that’s what customers expect.’
‘So the real difference we make is in the relationship. We do not want to earn money from uninformed customers, but from customers who know exactly what they want. Customers’ interests are in our blood. They are the foun- dation of our existence,’ concludes Peter Hoitinga.
Peter Hoitinga, Director of Ditzo, and Boudewijn van Uden, Director of Marketing & Sales at ASR Verzekeringen and De Amersfoortse on customer value and distribution
‘ It is our job to improve how we transpose customer needs into products’
On the basis of this strategy, a good balance is created between the interests of all stakeholders: customers, shareholders, employees, distribution partners and society as a whole.
Customer satisfaction is measured using a tool called the Net Promoter Score (NPS). ASR Nederland strives to achieve a higher NPS than its main competitors.
In 2010, the following steps were taken to strengthen this pillar of ASR Nederland’s strategy: • expansion of next generation products characterized by low costs, transparency and clarity; • introduction of solutions with regard to unit-linked insurance; • faster and more effective support to customers through the Customer Contact Centre; • incorporation of a customer satisfaction component in the remuneration structure of the Executive Board and senior management.
Unit-linked insurance compensation scheme In the course of 2010, it became clear that the compensation scheme that ASR Nederland had earlier entered into with consumer associations did not live up to customer expec- tations. With the use of customer research, ASR Nederland has identified the essence of customers’ objections. This research shows that customers do not want to wait until the end of a contract’s term – which is often long – to be compensated for any excess charges they have paid. Customers want to know if it might be better to terminate their current unit-linked insurance contracts now, or to convert it to an alternative that better matches their personal situations and aims. If customers want a change, ASR Nederland does not want to put any financial obstacles in their way.
3. Within our new range, ASR Nederland is offering customers products that are competitive with those of other providers (including banks) in terms of price, and also fulfil contemporary (social) demands. These products are 100% transparent, and have a different cost structure and an extremely low cost level averaging less than 1%. What’s more, the new products no longer include built-in life insurance: the customer can buy this separately at a low cost if required. Commission no longer makes up a component of the costs of the new products. In the future the intermediary’s advisory fee will be included in the agreements between the customer and the intermediary. In this way ASR Nederland is acting ahead of proposed legislation.
New framework for integrated risk management In 2010, a new framework was created for integrated risk management. This framework is in compliance with Solvency II requirements, which will come into force from 2013. The framework includes structures for Control Risk Self Assessment (CRSA) and Own Risk Solvency Assessment (ORSA). In addition, a risk framework has been developed to determine the amount of economic capital to be retained (ECAP) for both insurance and investment risks. This ECAP framework, which is specifically designed to comply with Solvency II, will be rolled out to the product lines in 2011. Furthermore, the strategic investment mix has been optimized in accordance with Solvency II.
Constant strong solvency ASR Nederland’s DNB solvency fell by 11 percentage points to 221% at the end of 2010 (2009: 232%), but still remains firm. This reduction was primarily caused by an increase in the value of the insurance liabilities in the liability adequacy test as a result of the fall in the interest rate applied for this calculation in 2010. This fall in the interest rate was partly compensated for by an associated rise in the value of bonds and swap options. Because of the low interest rate, the sensitivity to changes in interest rates of the DNB solvency and the buffer capital have increased, despite risk mitigating measures. The rise in the value of shares and property made a positive contribution to the available solvency.
Legal restructuring In 2010, various life insurance entities were merged into a single unit: ASR Levensverzekering N.V. In this way, ASR Levensverzekering N.V. can achieve diversification benefits in both mortality risk and longevity risk. For example, ASR Levensverzekering N.V. sells both term life insurance (mortality risk) and whole life insurance (longevity risk) contracts. Because of this legal merger, the DNB solvency of ASR Levensverzekering N.V. remains at a strong level. The impact of rising life expectancy forms an element of the liability adequacy test.
To achieve satisfactory profitability levels, it is necessary to systematically reduce costs even further. This is achieved by phasing out old systems and replacing them with efficient systems that can be operated at lower overall costs. In addition, ASR Nederland is working towards a permanent improvement of efficiency through the Operational Excellence (OpEx) programme, based on the lean principle, whereby the organization is structured so as to prevent wastage. This is in customers’ interests, and also leads to the standardization of processes and products, the enhance- ment of the Straight Through Processing level (automation of procedures) and the reduction of complexity and number of products. Support services such as HR and ICT are also working on the restructuring of the organization in accordance with lean principles.
In 2010, the following steps were taken to strengthen this strategic pillar: • target of € 100 million in cost savings achieved; • Complexity Reduction programme initiated; • integration of Falcon Leven into ASR Verzekeringen: activities integrated; • decision to relocate to a single location, and renovation of Archimedeslaan 10 in Utrecht.
The Complexity Reduction programme has provided greater insight into the amount and overlap of product variants, processes and IT systems. These insights are utilized to reduce these factors, but they also serve as a point of departure for the further development of ASR Nederland’s next generation products.
ASR Nederland’s long-term financial targets are clear and serve to offer both current and future shareholders security regarding the safeguarding of their investments. The long-term targets are more specific: • profitability in the range of 8-12% on total assets; • capital in line with an ‘A’ rating; • combined ratio for: - Occupational disability of 92% - Non-life of 98%
ASR Nederland defines its CSR principles and targets in cooperation with all stakeholders. These principles and targets play a role in the corporate strategy, the goal being that customers appreciate ASR Nederland as a reliable, transparent insurer that attaches value to social responsibility. Long-term benefits should have preference over potential short-term gain. This is the leading principle of ASR Nederland’s sustainability policy.
ASR Nederland has a code of conduct containing guidelines for how to interact with each other and how to approach specific situations. The rules that apply to ASR Nederland employees include the insider rules, the whistle-blowing procedure, the incentive policy and various codes of ethics.
Financial Markets ASR Nederland’s asset management operations are governed by the ASR Nederland policy for Socially Responsible Investment (SRI). This policy focuses on selecting best practices and best products based on environmental, social and governance (ESG) criteria. This involves investments in countries (state loans) and in enterprises (equities and corporate bonds). Based on this policy, ASR Nederland invests more in businesses that have the best ESG rating in their industry or that make a sustainable contribution to society, e.g. in waste processing/recycling and clean energy. At the same time, ASR Nederland uses criteria to exclude producers of controversial weapons, nuclear energy, pesticides, alcohol and tobacco, the gambling and sex industry, and businesses that engage in animal testing.
In a survey by the Association of Investors for Sustainable Development (Dutch acronym: VBDO), ASR Nederland ranked second of the Dutch insurers in 2010 (2009: sixth). Part of this success is attributable to improvements in communication. ASR Nederland is a member of VBDO’s feedback group of insurers and makes its sustainability policy available to the public, for instance by posting it on the corporate website. ASR Nederland is also more outspoken about its role as a pioneer. These efforts are undertaken to keep all stakeholders posted regarding the CSR policy.
ASR Vastgoed Ontwikkeling is one of the largest residential, retail and office developers in the Netherlands and seeks to develop the most sustainable property concept for a direct impulse to the community or the environment, in partnership with local authorities, businesses, owners and users.
ASR Vastgoed Ontwikkeling recruited a Sustainability Officer in 2010 who is responsible for safeguarding the sustainability of the property developments. ASR Vastgoed Ontwikkeling has the ambition to lead the field of sustainability. Via the so-called ‘Lenteakkoord’ (agreement for energy-efficient development) ASR Vastgoed Ontwikkeling has committed to achieving a 50% reduction in energy used in its developments by 2015.
The sustainability of ASR Vastgoed Ontwikkeling manifests itself in many ways in the division’s property developments, e.g. in the use of sustainable timber and energy reduction that is often achieved through a geothermal heat pump. But at ASR Vastgoed Ontwikkeling sustainability is much more than saving energy alone. ASR Vastgoed Ontwikkeling has been an active member of the Dutch Green Building Council (DGBC) since it was established. With BREEAM, DGBC has embraced an internationally recognized sustainability label that not only incorporates energy consumption into a property development’s sustainability rating, but also makes allowance for aspects such as use of materials, health and safety, and location.
GPR is a recognized sustainability label for Dutch residential buildings. In addition to energy efficiency, GPR also addresses environmental impact, health issues and user quality. In 2010, ASR Nederland formalized the ambition to reach a GPR score of 7.5 on 50% of properties to be developed in 2011.
In 2008, 2009 and 2010, all electricity purchased for ASR Nederland was renewable. An Energy Efficiency Plan has been prepared for 2009-2012.
Ground source heating and cooling In order to conserve energy in the building located at Archimedeslaan 10 in Utrecht, a system is being used that takes advantage of the earth’s capacity to store energy (ground source heating and cooling).
Paperless office The Volledig Digitaal (‘Fully Digital’) project focuses on electronic cooperation between ASR Nederland and inter- mediaries. This project was launched in response to the needs of intermediaries for convenience, speed and efficiency.
ASR Nederland endeavours to be a reflection of the Dutch multi-faceted society. This is crucial for synchronizing the service offering to the needs of the market. At ASR Nederland, diversity is being enhanced in many ways. Employees are encouraged to be active in all manner of networks in order to broaden their horizons and advance their personal growth, one example being the Colourful Ambitions network. A lot of attention is focused on the equal treatment of employees, as well as on supporting the divisions in promoting diversity in and around the workplace. The ultimate goal is that everyone should feel welcome at ASR Nederland.
After the split from Fortis Foundation, 2010 was the first year in which ASR Foundation gave independent shape and substance to community involvement by trying to make wishes happen (‘Mensen voor Wensen’). It is ASR Foundation’s ambition to encourage ASR Nederland employees to become involved in the community and to help them support social initiatives. ASR Nederland would also like to see joint efforts strengthen team spirit among employees.
Targets for 2011 ASR Nederland plans to further embed CSR in its business processes in 2011. With the hope of soliciting a positive response from employees, insurance brokers and customers by educating them about ASR Nederland’s CSR policy. Every consumer needs to know exactly what product they purchase, what conditions are attached to it, and what the term of the contract is.
In the insurance business, focus will continue to be placed on restoring customer confidence. Where governance is concerned, rules of ethics and conduct will be given priority, and ASR Nederland will continue to pay attention to CSR at group level. ASR Nederland’s managers are responsible for implementing the CSR policy in their respective areas of focus. This makes sustainability a standard aspect of the business practices of ASR Nederland.
ASR Nederland’s investment policy as an asset manager will be publicized more widely in 2011, both within ASR Nederland and to the world. ASR Nederland’s SRI (Social Responsible Investments) policy is well regarded externally and ASR Nederland wants to maintain this positive momentum. For this reason, its ambition is to continue to provide correct and easily accessible information to customers, insurance brokers, shareholders and the public at large. ASR Nederland’s SRI policy and information on sustainable funds will become a standard section in its brochures. ASR Nederland will also ratify the UN Principles for Responsible Investments.
Existing initiatives to conserve energy, resources and water will continue. Sustainability is also a guiding principle in introducing Next Generation Working. Facilities for NGW are purchased from sustainable sources and sustainability is also a priority in ASR Nederland’s mobility policy.
Organization in change In support of the changes within the organization, there was a particular focus on the importance of talent development, growth towards a different culture and support for Next Generation Working in 2010. 102 employees were directly involved as culture coaches in ASR Nederland’s culture programme in 2010. Together they gave 908 culture workshops.
Talent development ASR Nederland offers young and promising talent an inspiring trainee programme. In 2010, in addition to the management trainee programme, a group of ICT/IM trainees started a two-year traineeship. The trainees who completed the traineeship in 2010 have all found positions within ASR Nederland. 18 male and 18 female employees, divided into five groups on different levels, took part in the management and professional development programme in 2010. These participants will complete the programme at the end of 2011. Five new groups have now started the development programme. These groups, with a total of 14 female and 22 male participants, will complete the programme at the end of 2012.
ASR Nederland’s Management Development Programme can be distinguished from comparable programmes at other companies by the large proportion of the programme’s content that is determined by the participants themselves.
ASR Nederland is one of the companies that have signed the ‘Talent to the Top’ charter, which aims to increase the percentage of women at management level to at least 25% by 2014. The target figure for 2010 was 16%, and at ASR Nederland the figure for that year came out at 12%.
Culture and leadership ASR Nederland aims towards a culture of openness and transparency, with the involvement of employees as a key factor. This involvement will be measured every two years by an employee motivation scan at departmental level. In 2011 the emphasis will be on the further development of a leadership style that reflects ASR Nederland’s core values. All managers will receive training in the first half of 2011.
Earnings back on the rise ‘The upward trend in earnings continued in 2010. After considerable losses in 2008 and modest profits in 2009, 2010 was a good year in terms of financial performance, with a profit of € 317 million. We were helped in this by investment returns on the sale of property, for instance. Underlying earnings, net of exceptional items, fell. The causes for this can be found, for example, in a fall in direct investment returns and the increased claims ratios. Furthermore, start-up costs were incurred for the launch of our banking activities, and a number of transparency provisions were formed for Individual-life and Pensions. Operating expenses dropped at non-life.’
Cost cuts according to plan Wijmenga is proud of the outcome of the drive on costs started in 2010, which aimed to cut costs by € 100 million. ‘We achieved these cost cuts ahead of our target of mid- 2010. The combined ratio for occupational disability insurance, for which ASR Nederland is market leader, can still be described as healthy despite the economic decline and a slight rise. This is because we are good at prevention and reintegration. Despite measures taken, the ratios for traditional non-life insurance, such as fire, motor, home contents and hazard insurance are still too high. We will have to improve these ratios in 2011.’
Focus on returns ‘ASR Nederland currently has a solid investment plan in place that is based on the new capital requirements (Solvency II). This means that we are already a step ahead of future regulatory requirements. In 2011 this methodology will also be introduced for the product lines, allowing us to weigh risk, capital requirements and returns on the basis of modern and future-proof foundations and methods. That further promotes the correct weighting of each component. And that’s where we want to be,’ explains Roel Wijmenga.
Hans van der Knaap is the Chief Operating Officer (COO) of ASR Nederland. He is responsible for the product lines Non-life, Occupational disability, Pensions, Individual-life and Banking. He is also accountable for the ICT and Information & Project Management support departments.
Roel Wijmenga has served as Chief Financial Officer (CFO) of ASR Nederland since early 2009. He is responsible for Accounting, Reporting & Control (ARC), Financial Markets, Risk Management and Integrity & Operational Risk Management.
Wijmenga studied econometrics and earned a Ph.D. in economics from Erasmus University Rotterdam. He began his career in insurance at AMEV, one of ASR Nederland’s legal predecessors, where he held several positions until 2003. He then became a member of the Board of Directors of Fortis ASR Verzekeringsgroep and Interpolis. Prior to his appointment as CFO at ASR Nederland, Wijmenga served as CFO of Eureko/Achmea.
• DNB solvency robust at 221% (2009: 232%) • Gross insurance premiums down 4%, dropping to
Operating expenses, Life and Non-life -541 -572 operating expenses, other -131 -80
Total equity (including revaluation of property ) * * 3,493 2,975
employee base (fTe) 4,333 4,454 * Attributable to holders of equity instruments.
The overall economic climate improved slowly over the past year, causing the financial markets to recover somewhat despite ongoing uncertainty about the financial position of some European countries. Consumer confidence in the insurance business has not yet been restored and the debate about unit-linked insurance contracts is far from over.
Total investment income rose in 2010 thanks to one-off gains on the sale of assets and reversed impairments following the upswing in the financial markets. In addition, earnings increased due to realized capital gains on equity investments and investment property. Profit for 2010 also included a non-recurring income within the property portfolio due to the early termination of the lease for Archimedeslaan 6 in Utrecht (recognized within other income). In 2009, a non-recurring income item of € 96 million after tax was recognized, which stemmed from the conversion of hybrid financial instruments (TOPr’s).
In the Life segment, profit for 2010 rose from € 248 million to € 276 million. Nearly all of this increase was attributable to higher investment income. In the Non-life segment, profit was up from € 82 million in 2009 to € 104 million in 2010, which was due to lower operating expenses as a result of the cost reduction programme and to higher investment income. The profit for the year in the Other segment (including eliminations)* improved from € 75 million negative in 2009 to € 63 million negative in 2010. This increase in result could be attributed, to a strong improvement in earnings at Vastgoed Ontwikkeling (property development). This was largely cancelled out by the costs of building up the new banking operations.
ASR Nederland’s gross insurance premiums were down 4%, falling from € 4,914 million in 2009 to € 4,738 million in 2010. In the Life segment, gross insurance premiums dropped from € 2,692 million to € 2,514 million. Despite higher sales of mortgage-associated products, total sales of standard products lagged behind last year’s figures.
* * Total equity disclosed is an aggregation of equity and the revaluation of property. At 31 December 2010, equity stood at € 2,451 million and the revaluation of property at € 1,042 million. These figures amounted to € 1,955 million and € 1,020 million respectively at 31 December 2009.
The Cost Reduction programme was brought to a successful conclusion in 2010. The drop in internal employee base (in FTE), from 4,454 to 4,333, can partly be explained by this programme. The programme did not lead to a visible decline in operating expenses in 2010. The effects of the Cost Reduction programme were seen in particular in the insurance business, where the cost-premium ratio was down from 13.3% in 2009 to 12.7% in 2010.
Despite the cost control, the cost-premium ratio was up slightly in the Life segment due to a fall in revenue. This ratio improved strongly in the Non-life segment thanks to a further decrease in costs in spite of a slightly lower revenue figure. Operating expenses were up in the Other segment as a result of the development of the new banking operations. The related development costs were mainly of a non-recurring nature.
Increase of profit for the year mainly due to incidental investment gains in Life and Non-life
The Life segment is comprised of life retail and commercial lines. The ASR Verzekeringen portfolio contains products designed for asset-building and asset protection, including term life insurance, funeral insurance (under the Ardanta label), savings-linked contracts, unit-linked contracts, annuities and pension insurance for the retail market. Ardanta offers funeral insurance for the retail market. The majority of these contracts are distributed via the intermediary channel.
The Dutch life insurance market decreased for the second year in a row, although the 20% drop in new production was lower than in 2009 (24%). This decrease was due, among other factors, to the rise of tax driven bank savings products, a lack of consumer confidence in unit-linked contracts, and low sales of new mortgages.
Pension business The pension market is experiencing turmoil and pressure. Increased competition, low interest rates, volatile capital markets, liquidating pension funds and lagging transfers of accrued benefits, as well as an increase in life expectancy mean choices need to be made.
Funeral business In 2010, the market for funeral insurance focused on fee transparency and incentive rules for initial and ongoing commissions. This caused pressure on the Dutch market for funeral insurance. New lifelong insurance contracts, for instance, showed a 30% drop on average in regular premiums.
Fundamental changes were made to products where required. They were brought in line with public opinion on transparency, information provision, structure, costs and consultancy fees. A number of new products have been introduced in the interim, including VermogenGarant, VermogenBelegd and Lijfrente Opbouw Rekening, a tax driven bank savings product. Other products will be launched in 2011. Individual-life focused heavily on providing a solution to unit-linked contracts in 2010. These efforts will continue on into 2011 (see page 17 for further details).
ASR Nederland performed a customer survey following up on responses received to the compensation scheme for unit-linked insurance contracts that was agreed to earlier with consumer platforms. Based on the outcome of this survey, ASR Nederland will make customers with unit-linked insurance contracts an offer that makes allowance for the criticisms of the existing compensation scheme. The offer will be implemented in stages from May 2011, possibly extending into 2012.
• Market share increased in Individual-life, especially in Mortgage and Funeral business
Where efficiency was concerned, further digitization was a main area of focus in 2010. Mijnpensioen.nl and Contractmanager are tools that helped to provide easy online access to relevant pension details for customers and distribution partners. The ASR Nederland pension details were included in the national pension register in 2010. Hard work also went into further digitalizing the processing of alterations and accelerating lead time in process flows.
Gross insurance premiums Gross insurance premiums in the Life segment were down 7% in 2010, dropping from € 2,692 million to € 2,514 million, due to a fall in both regular premiums (-6%) and single premiums (-8%). New life business, measured as Annual Premium Equivalent (APE), increased by 4%, to € 196 million in 2010.
Despite the adverse market, total new mortgages sold were up 26% in 2010, rising to € 1,558 million. ASR Nederland introduced self-funded mortgages late September; total sales of the WelThuis mortgage were still limited in 2010. Mortgage-associated new production for the Life segment increased sharply for 2010.
• Profit for the year of Life business improved with 11%, due to higher investment results
Revenue from the pension business stayed up to par in spite of the difficult market. New production rose significantly, which was due in part to an active retention policy with a success factor of 96%.
Individual-life The Individual-life business is expecting to feel the pinch of low consumer confidence in 2011, the debate about transparency and the continued growth of bank saving products. Recovery is not expected in the short term.
ASR Nederland will work in 2011 to improve its competitive position in the market for asset-building and asset protection. Individual-life will focus on 300 to 600 selected intermediaries that will be assigned a personal liaison at ASR Nederland. Unit-linked insurance contracts with embedded commission are no longer being offered.
Areas of focus in 2011 will be the further rationalization of operating expenses, the commercial conversions of the semi-collective portfolio, the phasing-out of legacy systems and the settlement of compensations in accordance with the StAR agreement drafted by the Dutch Labour Foundation. In addition products and systems will be geared to the new requirements arising from the provisions of the Dutch Financial Supervision Act and Solvency II. Customer service concepts will be improved, especially with regard to the top-50 pension consultants in the Netherlands.
To strengthen its position in the market, ASR Nederland needs to win back the trust of its customers. This aim can be achieved with improved product offering and better systems, but also by improving customer contacts and processes. Because customers no longer wish to pay high fees, efficiency will have to improve. Gilbert Mattu and Fiona van ’t Hullenaar dedicate themselves every day to making ASR Nederland an efficient and customer-focused organization. The two of them are working on a new world of insurance within ASR Nederland.
This presents an immense challenge, because as the number of clients in these portfolios drops, it becomes more difficult to keep the system on a financial even keel. We therefore need to find a solution to deliver at least the same level of service at lower costs,’ says Gilbert Mattu. In 2010, the first steps were taken in a trial to outsource administrative processes to a partner in India. The experiences are proving better than anticipated.
Reducing cost structure In 2010, important steps were taken also to structurally reduce the costs of Individual-life. ‘The number of legal entities was reduced to one, and we now work from two sites rather than four. Falcon Leven has now been fully integrated, and the Life colleagues of De Amersfoortse will move to Utrecht in early April 2011. To make the way we work within the organization itself more efficient and to raise the quality of service, a lot of effort was put into Operational Excellence.’
The Business Support department plays an important role in the changes to the organization. ‘We are the go-getters of the organization,’ explains Fiona van ’t Hullenaar. ‘We are able to oversee the entire chain, because we are positioned throughout the organization. We are the internal provider of many crucial services. The organization sets the goals, we select the resources.’ Among the achievements that Business Support supplied in 2010 was the merging into a single department all procedures within ASR Nederland that supported intermediaries with record-keeping and cash management. The integration of the records database into a single system is a major challenge. ‘It’s a mesh of systems that need to be transitioned to a single standard process and system.
‘ The first next generation products have already been brought to market’
Improved communication with customers It is ultimately the customers who should benefit most from this, and Fiona van ’t Hullenaar believes that there is evidence that this is already the case. ‘By making the message in our correspondence clear and easier to understand, contact with customers runs more smoothly. By increasing telephone availability, people don’t have to wait as long before they speak to someone. Additionally, customers now have more ways of getting in touch with us’. The effect is clear, as was borne out by a customer satisfaction survey score of 8.1 (previously 7.3) at the Customer Contact Centre, which is very high in the industry.
In Individual-life improvement is necessary. In particular with the processing of unit-linked investment contracts, a giant leap still needs to be made in compensation options. This does not diminish the important steps that Individual- life has already taken on the path to what Gilbert Mattu calls the ‘new world’. In the first quarter, it was decided to reduce the complexity of the product range. Later, it was also decided to lower the number of existing systems to just one system in the future. Experience was then gained in outsourcing some activities, and the Business Process Outsourcing (BPO) study offered some new insights.
Clear coherence between activities ‘The new platform allows us to take new products to market faster and more efficiently. We were able to take this step by including cost reduction, which represents a significant contribution towards lowering our cost-premium ratio. The master plan for change that we have created highlights the coherence between different elements. Everything is falling into place, and that makes it all a lot clearer’, observes Gilbert Mattu.
Gilbert Mattu, Director of Individual-life and Fiona van ’t Hullenaar, Director of Business Support on efficiency
Occupational disability business The occupational disability insurance market showed a slight drop of 0.4% in 2010. New entrants into the market and established players alike offered low premiums to win or increase market share. This did not go without implications for pricing and margins. The occupational disability insurance market has now become cut-throat. In the Netherlands the economic crisis caused an increasing number of business terminations and bankruptcies, as well as rising unemployment. The related limited wage increases also had a negative effect on growth in the occupational disability insurance market.
Health insurance business The health insurance market showed a 4% customer mobility rate in 2010. Of these customers, 40% switched over via an intermediary and 43% did so online. The market share of online insurers grew by more than 20%. The four main players have now each introduced their own online label. The Dutch Cabinet change lead to a number of plans being postponed, including the introduction of Directly Observed Treatment (DOT) and the implementation by healthcare insurers of the Dutch Exceptional Medical Expenses Act. In order to reduce deficits in the state health insurance fund, which originated because the costs of healthcare were underestimated, the government has lowered its contribution to insurers. This has forced health insurers to introduce drastic increases in basic insurance premiums for 2011.
Occupational disability business In the occupational disability business, ASR Nederland continued to work hard in 2010 at restoring consumer confidence. Performance surveys show that developments are positive in this area. According to the IG&H performance survey, ASR Nederland is one of the top-4 players in this market with the De Amersfoortse and ASR Verzekeringen labels. To promote transparency, a project was initiated that is designed to write 80% of all correspondence in easy-to-understand language. The percentage achieved was 95%. The occupational disability business also placed considerable focus on developing and introducing new and unique services in 2010. A number of innovative preventative services were launched, for instance, including a module for identifying occupation-related symptoms and complaints. Further cost reductions were also brought about successfully.
Other Non-life business In 2010 the Other Non-life business did a lot of research into customer requirements and started to implement the outcome of the research studies. A specific customer value programme was set up for such aspects as premium
At Europeesche Verzekeringen, revenue was up on last year in spite of pressure on the travel market. New production lagged due to a lack of vacation bookings (fewer travel and cancellation contracts sold). In the second half of the year, Europeesche Verzekeringen motor insurance portfolio was scaled down further, which is in keeping with the revised strategy of focusing on leisure insurance.
• Effect of the cost savings programme is reflected in a lower cost ratio; from 13.7% to 12.0% (-1.7%p)
Occupational disability business The market is expected to grow by 2% per year on average until 2015. For the time being, ASR Nederland expects a slight reduction of the market in 2011. The occupational disability insurance market is saturated and will continue to be price-driven in 2011. The occupational disability product line will introduce new fees in 2011 for Individual, both where the existing portfolio and new production are concerned. In addition, further initiatives will be undertaken in the areas of prevention and reintegration in dialogue with occupational health and safety boards and reintegration services. If the economy recovers, ASR Nederland does not expect volumes in the occupational disability insurance market to pick up until after 2012.
Nederland too will prepare thoroughly for this new system. This introduction and the switch to treatment-related pricing in hospitals will raise the importance of sound contracted care. ASR Nederland is also awaiting a Cabinet decision involving the future of the AWBZ (Exceptional Medical Expenses Act). Implementation of changes will be the responsibility of health insurers.
• Profit for the year increased by an improved combined ratio and higher investment results
• Net result for the year at € 63 million negative (2009: € 75 million negative)
• New mortgage business up 26%, rising to € 1,558 million (2009: € 1,236 million)
The Banking product line develops mortgages, savingslinked and unit-linked products that are administrated by ASR Hypotheken and ASR Bank.
In this segment, Ditzo operates as a distributor of insurance contracts via the direct online channel. It offers a broad range of non-complex and transparent non-life products, such as motor, home owners, home contents, travel, legal assistance and liability insurance, as well as road-side assistance. Ditzo’s underwriting income is recognized within the Non-life segment.
Banking business The effects of the financial crisis were still noticeable in the banking business in 2010. In the market for regular savings deposits, top interest rates fell from 3% early in 2010 to 2.6% at the end of the year. This affected the interest rate on the ASR Bank savings account, which stood at 2.2% at year-end 2010. The mortgage market also experienced the aftermath of the financial crisis, which manifested itself in a stagnating housing market and more stringent acceptance criteria. The mortgage market continued to show a surge in tax driven bank savings products. 70% of newly issued mortgages are now tax driven bank savings products. In addition, the Cabinet released employee savings, which led to a massive withdrawal of these deposits. Nevertheless, the Dutch population managed to increase their savings on average in 2010. The same went for investment volumes, which grew thanks to a rise in equity prices.
ASR Vastgoed Ontwikkeling ASR Vastgoed Ontwikkeling also felt the implications of the financial crisis in the property development sector. Although the housing market was hit particularly hard, retail and inner-city developments were also slow in coming off the ground.
ASR Vastgoed Ontwikkeling Prompted by the economic downturn, ASR Vastgoed Ontwikkeling took drastic measures in 2010 to improve its cost structure and implement a different strategic focus. The division quit its active involvement in developing offices and returned to its regional focus on the Randstad (conurbation consisting of Amsterdam, Rotterdam, The Hague and Utrecht). At the same time, the division boosted its financial position by selling a number of developments late in 2010. Homes and shopping centres were completed across the urbanized western part of the Netherlands, as well as the Scheveningen Nautical Centre, offering retail space and hotel condos. Several of ASR Vastgoed Ontwikkeling’s developments were nominated in 2010 for the FGH Property Award (for Mahler 4, Zuidas Amsterdam) and the Annual NRW Retail Space Award (for the Hoge Schie and Vleuterweide shopping centres).
ASR Vastgoed Ontwikkeling sold 723 homes in 2010. Overall, the property developer completed nearly 90.000 m2 in properties in 2010. Earnings improved strongly at ASR Vastgoed Ontwikkeling in 2010. After a loss for 2009, a modest profit was posted for 2010.
The net result for the year in the Other segment improved by 16%, to € 63 million negative. Last year, the net result included the non-recurring income from the conversion of the hybrid financial instruments (TOPrS). On the other hand, in the year under review, these finance costs were charged against the distributable net result for the year rather than continuing to affect earnings. The increase in income of the Other segment was due, on balance, to a strong improvement in earnings at ASR Vastgoed Ontwikkeling. This was largely cancelled out by investments in the new banking operations.
Banking business With regard to the banking business, ASR Nederland expects demand for capital accumulation products and mortgages to recover slowly in the long term. Increasingly, different distribution channels will be used. ASR Bank will capitalize on these developments by offering new insurance and tax driven bank savings products that meet today’s requirements of transparency, non-complexity and pricing. By extension, ASR Nederland’s banking business endeavours to introduce tax driven bank saving products and an online savings account in 2011.
Integrated risk management, integrity and security are key concepts in policies that aim to ensure that ASR Nederland meets the modern-day risk conditions. Jits Berns and Jack Julicher, both members of the ASR Nederland Finance & Risk Management Team, are responsible for maintaining and strengthening the financial robustness and the integrity of ASR Nederland. ‘Modern integrated risk management in the new financial world is essential in winning back the trust of customers, both now and in the future.’
The risk assessment methods common until recently, such as benchmarks, economic capital and stress tests, were broadened in 2010 with the addition of a new financial and risk framework based on Solvency II, which is designed for risks relevant to insurers. This framework will be introduced in ASR Nederland and its divisions in 2011.
Guaranteeing robustness The operational risk management that has now taken shape aims to secure the financial robustness of ASR Nederland. But customer confidence is most important. Berns goes on: ‘We want to show that we are a sound, transparent business that operates with integrity. This also includes a strong emphasis on efficiency, ASR Nederland’s third strategic pillar.’
Jits Berns Director of Integrity & Operational Risk Management of ASR Nederland
‘ Society is no longer willing to accept that incidents happen’
The divisions themselves always have primary responsibility for risks and their management. Berns goes on: ‘We set out a number of themes for them, such as disaster continuity issues and in-control statements and the Control Risk Self Assessment, in which management describes the risks faced. In terms of efficiency, we closely examine what is going on in the business, making sure there is no wastage. We want to make sure that the “back door of the business” is kept shut as tightly as possible.’
Optimization reports Berns and Julicher emphasize that, in recent years, ASR Nederland has done a lot to optimize its systems and reporting lines. Julicher says: ‘ASR Nederland is currently able to supply a monthly overview with the capital requirement from the perspective of the rating agencies. Necessary capital is calculated based on Solvency II regulations and the aforementioned ECAP-norm. According to Berns and Julicher, ASR Nederland should be ready for Solvency II ahead of the deadline of 1 January 2013.
Oversight of insurers has changed drastically over the past few years. In addition to traditional oversight in accordance with Solvency I requirements, revised standards, including Solvency II, are being drafted in the pursuit of better solvency ratios. Solvency II demands a different approach to managing required capital. Now that the Solvency II programme has been launched, ASR Nederland has taken significant steps towards aligning its processes to Solvency II.
Both models will be fleshed out in 2011 based on regulatory developments.
The Treasury department is responsible for capital management, within the Financial Markets department. This includes the responsibility for the Capital, Liquidity and Funding Committee. This set-up creates independence and ensures a segregation of duties.
Factoring in the revaluation of property, equity rose from € 2,975 million to € 3,493 million. Disregarding the revaluation of property, equity was up from € 1,955 million to € 2,451 million in 2010. The increase in equity was attributable to the addition of the yearly profit to the reserves (€ 317 million) and a further rise in the revaluation of portfolio investments (€ 289 million). This was offset in part by interest paid on the Tier 1 equity instruments issued in 2009 (€ 39 million negative ) and the purchase of shares in the group property management company, which was charged against equity (€ 72 million negative). These shares were acquired from Amlin, formerly known as Fortis Corporate Insurance.
Interest rate sensitivity is higher at the end of the year than at the start, despite measures taken. ASR Nederland still considers the level of interest rate sensitivity at 31 December 2010 acceptable. However in 2011, ASR Nederland took additional measures to lower interest rate sensitivity further.
In meeting its funding needs, ASR Nederland can choose between secured financing (use of collateral) and un- secured financing. ASR Nederland already makes use of securities lending, which is a form of secured financing. The options for secured financing were broadened in 2010 by adding repo finance. This type of secured financing adequately supplements the current securities lending activities and offers additional flexibility in respect of terms to maturity and counterparties. As such, this financing instrument helps ASR Nederland to put together a broad spectrum of funding options.
The funding position and the available scope of the financing programmes were more than sufficient at year-end 2010 to protect the cash position in the time to come. Virtually all financing facilities are freely available. With this in mind, ASR Nederland does not see any immediate cause to secure more financing facilities.
Total (undiversified) -86%p -66%p solvency 2010 (in billions of euros )
It has been proposed to add the full profit to equity and not to distribute any dividend.
Ratings On 28 October 2010, Standard & Poor’s confirmed the ‘A’ rating of ASR Levensverzekering N.V. and ASR Schadeverzekering N.V. with a negative outlook. On 16 December 2010, Fitch Ratings lowered the IFS rating of ASR Levensverzekering N.V. and ASR Schadeverzekering N.V. from ‘A’ to ‘A-’ with a stable outlook. Fitch Ratings awarded ASR Nederland N.V. a rating of BBB with the same outlook.
ASR Nederland uses the Enterprise Risk Management (ERM) model to manage risks. This integrated approach is meant to contribute to ASR Nederland’s responsible risk management strategy, with the aim of being and remaining a reliable and robust insurer. ERM allows ASR Nederland to gain a full understanding of its risk profile. This helps the company to further improve its business performance and to optimally leverage its potential value for its stakeholders.
The notes to the financial statements give a detailed description of the risk management system and of risk developments in 2010. See page 109 of this annual report.
ASR Nederland’s IRM framework is based on the Enterprise Risk Management (ERM) Model of the Committee of Sponsoring Organisations of the Treadway Commission (COSO) and is made up of four elements. 1. Risk Management Strategy 2. Risk Management Policy 3. Risk Management Governance 4. Risk Management Systems and Data
In 2010, ASR Nederland further elaborated on its vision of the risk management structure. This has resulted in the implementation of IRM. The vision is aimed at creating an integrated approach to managing risks in the day-to-day operations and in ASR Nederland’s strategic plans. Risk Management offers support by defining risk strategies, formulating risk policy and setting risk limits.
In 2010, ASR Nederland opted to split the risk management organization into a section that concentrates specifically on financial risks (market risk, counterparty risk and underwriting risk) and a section that focuses on non-financial risks. This two-way split is in keeping with the risk committee structure. Risk Strategy & Policy is responsible for managing the correlations between the different risks.
Another key development within risk management was the development of an Economic Capital (ECAP) Model. This model helps ASR Nederland gain insight into available and required capital based on own parameters that are in keeping with ASR Nederland’s risk profile. This gives ASR Nederland a good understanding of risks incurred, allowing the company to improve its focus on risk and return.
In 2010, the debt positions of Greece, Ireland, Italy, Portugal and Spain came under pressure, resulting in unrest in the financial markets. This resulted in rating downgrades for some of these countries. Because of these developments, ASR Nederland greatly reduced its corporate bond exposure in these countries from € 606 million at year-end 2009 to € 164 million.
ASR Nederland periodically performs sensitivity analyses to determine the effect of different market risk scenarios on solvency. If all scenarios were to materialize simultaneously, this would lead to a cumulative effect of 86% (2009: 66%) on the solvency ratio.
The year 2010 was also characterized by low interest rates. ASR Nederland manages the interest rate risk by matching fixed-income assets with the profile of the liabilities. ASR Nederland actively purchased swaps and swaptions for that purpose in 2010. The impact of interest rate fluctuations on DNB solvency has increased on 2009 due to lower interest rates. The interest rate sensitivity dropped in the first few months of 2011 because of developments in bond yields. ASR Nederland also decided to take additional measures to renew the terms of fixed-income investments.
As an insurer, ASR Nederland incurs underwriting and other risks. To manage the underwriting risk, ASR Nederland performs periodic tests of the adequacy of the underwriting reserves that are formed to be able to meet its obligations. The underwriting provisions were adequate at year-end 2010.
ASR Nederland has a diversified life insurance portfolio because it maintains a term life insurance portfolio as well as a life insurance portfolio (e.g. pension contracts). Owing to this diversity in the portfolio, the recently amended mortality tables (and resulting higher life expectancy) as published by the Dutch Association of Insurers and the Actuarial Association have only limited impact on ASR Nederland’s solvency position.
ASR Nederland placed increased focus on non-financial risks in 2010. The following developments are worth mentioning: Systems and data are becoming an increasingly critical factor in ASR Nederland’s operations. Information security is an essential aspect in this regard. As ASR Nederland increased its focus on information security in 2010, staff access to systems is now better controlled.
ASR Nederland has developed an internal control structure to safeguard the efficiency and effectiveness of processes. The structure entails identifying critical processes, pin- pointing risks and designing controls to mitigate those risks. The internal control structure will be further fleshed out in 2011.
In addition to the annual Control Risk Self Assessment (CRSA), by which process the management of all divisions identify the principal risks that are relevant to them, ASR Nederland also performed an Own Risk Solvency Assessment (ORSA) for the first time in 2010. This is a risk assessment in preparation of Solvency II. Within the context of this risk assessment, scenarios were developed whose impact on the required and available capital was worked out. This is an initial step in drafting the report that will be submitted to the Dutch Central Bank (DNB) in 2011.
Solvency II is the new regulatory framework for European insurers, which is expected to take effect on 1 January 2013.
The outlines of the new solvency requirements under Solvency II are becoming increasingly clear. A new European Quantitative Impact Study (QIS5) was performed for Pillar 1 in 2010; ASR Nederland took part in this study. Based on the QIS5 study, ASR Nederland has now taken the first steps towards developing a robust and embedded process to calculate the solvency capital requirements.
At ASR Nederland, 2011 will be the year of implementing the requirements of Pillars 2 and 3. The further development of the ORSA process will be one of the priorities in this regard.
ASR Nederland operates in dynamic times, where social standards for financial services providers have been re-evaluated. Shifting ideas about oversight of financial institutions lead to changes in risk perception. Sound and effective risk management is becoming increasingly important in this process. In order to keep the right focus in this dynamic world, ASR Nederland has defined the following priorities for 2011: • The rapid changes in the financial landscape have brought home the increasing importance of responding to the changing wishes and requirements of customers. That is why customer confidence is ASR Nederland’s top priority for 2011.
• Compliance with amended and new laws and regulations, including the requirements of the Dutch Financial Supervision Act, Solvency II, IFRS and pension laws, is a priority item on ASR Nederland’s agenda.
ASR Nederland N.V. is a two-tier company. It is subject to the so-called ‘partial two-tier regime’ because the State, in its capacity as a legal person under public law, provides the entire issued capital for its own account (Section 155a, Book 2 of the Netherlands Civil Code). As a result, the rules for appointing and removing supervisory directors are different from those at companies not subject to the partial two-tier regime. In addition, specific executive decisions mentioned in the law are subject to Supervisory Board approval.
The members of the Executive Board are: Jos Baeten (CEO) Hans van der Knaap (COO) Roeland van Vledder (CCO) Roel Wijmenga (CFO)
The members of the Supervisory Board are: Kick van der Pol (Chairman) Annet Aris Cor van den Bos Margot Scheltema
The current Articles of Association and rules of procedure for the Executive Board and the Supervisory Board have been posted on the corporate website: www.asrnederland.nl.
The AGM appoints the members of the Supervisory Board on the recommendation of the Supervisory Board. Both the AGM and the Works Council have the right to nominate supervisory directors. The Supervisory Board duly notifies the AGM and the Works Council when and why they have the right to nominate a supervisory director, and of the profile required of the nominee.
If the nomination is subject to an enhanced right of recommendation as stipulated in Article 17(7) of the Articles of Association, the Supervisory Board notifies the AGM and the Works Council of this enhanced right as well.
By virtue of the enhanced right of recommendation, one-third of the members of the Supervisory Board is appointed after nomination by the Works Council, unless the Supervisory Board raises objections because it considers the recommended person unsuitable for the job of super- visory director or because the Supervisory Board will not be properly balanced if the Works Council’s candidate is appointed. The enhanced right of recommendation is applied to the appointment of one of the members of the Supervisory Board.
The Dutch Corporate Governance Code does not apply to ASR Nederland N.V. because its shares or the depositary receipts for its shares have not been admitted as an official listing on a stock exchange or similar system. The Code does not apply to the current listing of the bonds on Euronext Amsterdam. Although ASR Nederland N.V. is under no obligation to do so, it endeavours to comply with the Code where possible. As a result, the provisions of the Code were respected when preparing the new Articles of Association and rules of procedure.
The following agreements apply to the variable remuneration component: • The annual evaluation of the performance-related targets (the variable remuneration) takes place on the basis of three components, where ⅓ is dependent on individual performance, ⅓ on ASR Nederland’s financial performance and ⅓ on customer, broker and employee satisfaction; • ⅓ of the variable remuneration is paid out annually; ⅔ is deferred for three years; • The variable remuneration for meeting targets is 60% of the fixed salary, with a maximum of 80% for outstanding performance; • If no profit is made by ASR Nederland, the short-term variable remuneration will not be payable.
An additional threshold also applies for the payment of the variable remuneration: if less than 75% of a particular target has been achieved, the element of the variable remuneration relating to that target will not be payable.
The severance package for directors is a maximum of one year’s fixed salary. For current members of the Executive Board (who have voluntarily waived their existing rights) it also applies that in the event of a change of control, their contracts of employment will remain in force for a minimum of one year. The Supervisory Board has ‘clawback powers’ and can apply a reasonableness and fairness test in establishing the variable remuneration.
On the path to privatization Another important theme in the meetings of the Supervisory Board is the progress that ASR Nederland is making on the path to privatization and the disposal of shares by the Dutch State. Margot Scheltema: ‘The recurring question is, to what extent are we ready for it? We need to assess this based on the solution to a number of difficult issues. We are working hard to simplify and integrate our systems. Take the ICT systems, for instance.
They are a burden from the past that weighs down on the entire organization. The aim is to have systems based on uniform databases, that are more readily verifiable, and from which customer data can easily be retrieved and printed. That’s where we need to be.’
Term of service: 7 December 2010 - 7 December 2014 4.1 Members of the Supervisory Board
Until 2009, Margot Scheltema served as the CFO of Shell Nederland B.V., prior to which she had held several international management positions at Shell since 1986. She is a supervisory director of Triodos Bank NV and Schiphol Group, a member of the Supervisory Board of the Rijksmuseum and Energie Centrum Nederland (ECN), a member of the Financial Reporting Committee of the Netherlands Authority for the Financial Markets (AFM), and an external member of the Audit Committee of ABP, a pension fund.
In its meetings with the Executive Board, the Supervisory Board was informed of developments in earnings, key figures and the general conduct of business at ASR Nederland. Prominent recurring issues for the Supervisory Board were solvency, compliance, customer interests, risk management and strategic options.
ASR Nederland uses the Operational Excellence and Customer Value programmes to work on improving customer focus and gaining a more urgent understanding of what drives and motivates customers. The supervisory directors are pleased with these steps to focus on customers. The Supervisory Board feels that customerdriven organizations should always ask themselves how activities and decisions affect the interests of their customers. The Supervisory Board has concluded that this question is increasingly being addressed in reports and meetings, but is still not self-evident.
The financial statements for 2010 were discussed with KPMG, the independent external auditor. The Executive Board submitted the Executive Board Report and the financial statements for 2010 to the Supervisory Board. The Supervisory Board went on to approve the financial statements in its meeting of 26 April 2011. The financial statements were audited by KPMG, who issued an unqualified auditor’s report on the statements (see page 188). The Supervisory Board established that the external auditor was independent from ASR Nederland. The Supervisory Board submitted the financial statements for adoption to the AGM. The Supervisory Board also reviewed the financial statements and proposed to discharge the members of the Executive Board and the Supervisory Board in respect of their management and supervision respectively. For details on profit appropriation, which was approved by the Supervisory Board, see page 191.
Using a questionnaire, the Chairman of the Supervisory Board met with every supervisory director separately to discuss their performance. The outcome of these interviews served as the basis for a meeting of the Supervisory Board during which the Supervisory Board talked about its composition and performance. Because of the semblance of a potential conflict of interest, Kick van der Pol was not present when an item relating to property was discussed. In 2009 Cor van den Bos indicated that as chairman of the Supervisory Board of CED, there could be conflicts of interest if issues related to CED were discussed by the ASR Nederland Supervisory Board. In 2010, this was not the case. There were no reports of potential conflicts of interest involving the other supervisory directors. The Supervisory Board has been able to devote itself to its duties fully independently.
Meeting date KicK van der Pol annet aris (froM 7 deceMber)
cor van den bos Margot schelteMa 15 March X X X
The Audit Committee also addressed other issues, such the audit plans for 2010 and 2011 of both the internal Audit department and the independent external auditor, approving them in the process. The Audit Committee also approved the compliance plan for 2011. Other topics for discussion included the independent external auditor reports, and quarterly audit and compliance reports. Besides these seven meetings, the Chairman of the Audit Committee consulted twice with the independent external auditor.
A varying delegation of the Supervisory Board attended two regular consultative meetings with the Works Council. The supervisory directors found the meetings to be constructive and would express their appreciation of the receptiveness of all Works Council members, as well as their efforts and commitment.
Executive Board Jos Baeten Hans van der Knaap Roeland van Vledder Roel Wijmenga 5 Executive Board Responsibility Statement
Consolidated income statement 89 Consolidated statement of comprehensive income 90 Consolidated statement of changes in equity 91 Consolidated statement of cash flows 92 1 General information 94 2 Accounting policies 94 3 Risk management 109 4 Capital and liquidity management 128 5 Segment information 130
Company financial statements 179 41 Company balance sheet 179 42 Company income statement 180 43 Notes to the company financial statements 180
Events after the reporting date 189 List of principal group entities and associates 190 Other equity interests 191 Provisions of the Articles of Association Regarding profit appropriation 191 Profit appropriation 191 Glossary 192 List of acronyms 194 2010 Consolidated financial statements ASR Nederland N.V. All amounts quoted in the tables contained in these financial statements are in millions of euros, unless otherwise indicated.
Fee and commission income 28 127 89 share of profit/(loss) of associates and joint ventures 4 15
Profit before tax 421 330 income tax expense 36 -103 -70
Attributable to: - Holders of other equity instruments 53 18 - tax on coupon of other equity instruments -14 -5
Profit attributable to holders of equity instruments 317 255 attributable to non-controlling interests 1 5
Shadow accounting allows a recognized but unrealized gain or loss on an asset to be transferred to insurance liabilities (see chapter 2.29).
Total comprehensive income attributable to holders of equity instruments 606 974 attributable to non-controlling interests 1 5
In the first half of 2010 ASR Nederland acquired a non-controlling interest at its fair value of € 72 million.
Other reserves of € 202 million (2009: € 255 million) primarily consist of retained earnings.
Profit carried over from previous financial year - - - - -640 -640 640 - - - -
Repayment on Trust Capital Securities - - - - - - - - - -50 -50
Issue of other equity instruments - - - - - - - - 521 - 521
Profit carried over from previous financial year - - - - 255 255 -255 - - - -
Coupon on other equity instruments - - - - -53 -53 - -53 - - -53
Net increase/decrease in amounts due from and to customers 155 239
Net increase/decrease in liabilities arising from insurance contracts on behalf of policyholders 666 1,560
Although new or amended standards become effective on the date specified by IFRS, they may allow companies to adopt them early. The following changes in the EU-endorsed IFRS standards and IFRIC interpretations have been effective since 1 January 2010. Unless stated otherwise, these changes have no material effect on the financial statements of ASR Nederland. • IFRS 3 (revised), Business Combinations and related revisions to IAS 27, Consolidated and Separate Financial Statements. ASR Nederland decided to early adopt this standard in the financial statements for 2009.
ASR Nederland has adopted IAS 24, Related Party Disclosures (revised 2009). The changes introduced by the revised standard relate mainly to the related party disclosure requirements for government-related entities, and the definition of a related party. ASR Nederland is a government-related entity as defined in IAS 24 and exempt from some of the detailed disclosure requirements in IAS 24.This standard was revised as it is difficult for government-related entities to identify all related party relationships and the previous standard might have resulted in a significant amount of information needing to be disclosed for transactions that were not impacted by a related party relationship.
In addition, the following new standards, amendments to existing standards and interpretations are mandatory for accounting periods beginning on or after 1 January 2010 but are not currently relevant to ASR Nederland: • IFRIC 12, Service Concession Arrangements; • IFRIC 16, Hedges of a Net Investment in a Foreign Operation; • IAS 39 (amended), Financial Instruments: Recognition and
Reporting Standards; • IFRIC 17, Distributions of Non-cash Assets to Owners; • IFRIC 18, Transfers of Assets from Customers; • IFRS 2 (amended) Share-based Payment –
– Classification of Rights Issues; this amendment to IAS 32 addresses the accounting treatment of rights issues (rights, options or warrants) that are denominated in a currency other than the functional currency of the issuer. ASR Nederland has not currently issued any rights or similar derivatives.
• IFRS 1 (amended), First-time Adoption of International Financial Reporting Standards – Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters; • IFRIC 14 IAS 19 (amended), The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction – Prepayments of a Minimum Funding Requirement; • IFRIC 19, Extinguishing Financial Liabilities with Equity Instruments.
In addition to presentation changes in the balance sheet and the income statement the segment information has been changed. The changes are as follows: • Entities that were previously allocated to the Life and Non-life segments that do not accept insurance risks have been re- allocated to the segment Other
• Eliminations applied in the reconciliation of the segment information with the consolidated balance sheet and the consolidated income statement are disclosed separately from the segment Other.
A subsidiary’s assets, liabilities and contingent liabilities are measured at fair value on the acquisition date and are subsequently accounted for in accordance with the ASR Nederland accounting policies, which are consistent with IFRS.
Joint ventures Joint ventures are accounted for using the equity method of accounting. They are recognized from the date that ASR Nederland first obtains joint control until the moment that this control ceases.
Intragroup transactions Intragroup balances and transactions between consolidated group companies are eliminated. Gains and losses on transactions between ASR Nederland and associates and joint ventures are eliminated to the extent of ASR Nederland’s interest in these entities.
2.5 Estimates and assumptions The preparation of the financial statements requires ASR Nederland to make estimates and assumptions that have an effect on the reported amounts in the financial statements.
Critical accounting estimates and assumptions relate to: • the recoverable amount of impaired assets; • the fair value of unlisted financial instruments; • the estimated useful life and residual value of property, plant and equipment, investment property, and intangible assets; • the measurement of capitalized deferred acquisition costs; • the measurement of liabilities arising from insurance contracts; • actuarial assumptions used for measuring employee benefit obligations; • when forming provisions, the required estimate of existing obligations arising from past events.
2.6 Foreign currency translation The consolidated financial statements are presented in euros (€ ), which is the functional currency of ASR Nederland and all its group entities.
Foreign exchange differences arising from monetary financial assets available for sale related to amortized cost are recognized in profit or loss for the period. Any residual translation differences relating to fair value changes are recorded in equity.
Translation differences on non-monetary balance sheet items measured at fair value, with fair value changes through profit or loss, are recognized in the income statement. For non-monetary balance sheet items measured at fair value, with fair value changes recognized within equity, exchange rate differences are recorded in equity.
(see chapter 2.29); • group contracts with segregated pools with return on investment guarantees.
2.9 Offsetting of financial assets and liabilities Financial assets and liabilities are offset and the net amount is reported in the balance sheet only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. The net carrying amounts of financial assets are recognized after deduction of any impairment losses.
2.11 Securities lending ASR Nederland participates in security lending transactions under which collateral is received in the form of securities or cash. Cash received is recognized on the balance sheet and a corresponding liability is recognized as liabilities arising from securities lending. Securities lent remain on the balance sheet. Securities received as collateral are not recognized in the balance sheet.
ASR Nederland as the lessee ASR Nederland primarily enters into operating leases for property and operating assets. Payments under such contracts are recognized in the income statement. When an operating lease is terminated before the end of the lease term, any payments due to the lessor in the form of penalties are charged to the income statement in the period in which the agreement is terminated. Any payments received from the lessor in connection with operating lease transactions are deducted from the lease instalments in the period to which they relate.
The statement of cash flows recognizes interest received and paid, and dividends received within cash flows from operating activities. Cash flows from purchasing and selling investments and investment property are included in cash flows from ope- rating activities on a net basis. Dividends paid are recognized within cash flows from financing activities.
Goodwill has an indefinite useful life and is not amortized. ASR Nederland performs an annual impairment test, or more frequently if events or circumstances so warrant, to ascertain whether goodwill has been subject to impairment. As part of this, the carrying amount of the cash-generating unit to which the goodwill has been allocated is compared with its recoverable amount. The recoverable amount is the higher of a cashgenerating unit’s fair value less costs to sell and value in use. The value in use of a cash-generating unit is the present value of the future cash flows expected to be derived from it. If the recoverable amount is lower than its carrying amount, the difference is directly charged to the income statement as an impairment loss.
In the event of an impairment, ASR Nederland first reduces the carrying amount of the goodwill allocated to the cash-generating unit. After that, the carrying amount of the other assets included in the unit is reduced pro rata to the carrying amount of all the assets in the unit.
Value Of Business Acquired (VOBA) The value of business acquired (VOBA) represents the difference between the fair value and the carrying amount of insurance portfolios that have been acquired, either directly from another insurer or through the acquisition of a subsidiary. VOBA is recognized as an intangible asset with a finite useful life and amortized over the term of the current insurance contracts at acquisition date, in conjunction with the corresponding obligations. With regard to VOBA allowance is made for the outcome of the annual compulsory liability adequacy test for insurance contracts (see chapter 2.29). Should VOBA’s carrying amount exceed the difference between the carrying amount of the liabilities arising from insurance contracts and the liabilities identified as part of the liability adequacy test, VOBA is impaired to a level where the values are equal.
The value of the capitalized deferred acquisition costs is assessed at each reporting date to ascertain whether there is evidence of impairment. As part of this process, allowance is made for the outcome of the mandatory annual liability adequacy test for liabilities arising from insurance contracts. If the carrying amount of the capitalized deferred acquisition costs exceeds the difference between the carrying amount of the liabilities arising from insurance contracts and the liabilities identified as part of the liability adequacy test, the capitalized deferred acquisition costs are further impaired to a level where the values are equal.
2.16 Property, plant and equipment Property held for own use, buildings under construction and operating assets are recognized at cost, less accumulated depreciation (except for land, which is not depreciated) and/or any accumulated impairment losses. Cost corresponds with the cash paid or the fair value of the consideration given to acquire the asset.
Buildings are depreciated using the straight-line method based on their expected useful life and taking account of the residual value. The useful life of buildings is assessed for every individual component (component approach) and is assessed every year. Property is classified into the following components: land, shell, outer layer, systems, fittings and fixtures (both rough finish and detailed finish).
For the maximum useful life of the components, see the table in chapter 2.17. Operating assets are depreciated over their useful lives, which are determined individually (usually between three and five years).
Investment property is recognized at cost less accumulated depreciation and impairment losses, if any. Buildings are de- preciated using the straight-line method based on their expected useful life and taking account of the residual value. Land is not depreciated. The residual value and the estimated useful life are determined separately for every main component (component approach) and is assessed at every balance sheet date.
If there is change in the designation of property, it can lead to: • reclassification from property, plant and equipment to investment property: at the end of the period of owneroccupation or at inception of an operating lease with a third party; or
Property under development for future use as investment property is recognized as investment property. Valuation is at cost, including any directly attributable expenditure, less any impairment losses.
Losses are accounted for until the carrying amount of the invest- ment has reached zero. Further losses are recognized only to the extent that ASR Nederland has incurred legal or constructive obligations concerning these associates.
Joint ventures Joint ventures are contractual arrangements whereby ASR Nederland 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.
These interests are recognized using the equity method of accounting as applied to associates. The interests are recognized in the financial statements from the date on which ASR Nederland first obtains joint control until the date that this joint control ceases.
ASR Nederland determines the classification of the financial assets at initial recognition. The classification depends on the purpose for which the investments were acquired.
Re c. Financial assets available for sale are financial assets that are not accounted for as financial assets at fair value through profit and loss, or as loans and receivables. At initial recognition, financial assets available for sale are measured at fair value (including transaction costs). They are subsequently measured at fair value, including any unrealized fair value changes in equity, taking into account any deferred tax liabilities. Financial assets available for sale include equities (ordinary and preference shares), bonds, other fixed-income securities, unit trusts, variableincome securities and interests in investment pools.
Fair value of financial instruments Where possible, ASR Nederland determines the fair value of a financial instrument on the basis of quoted prices in an active market. In the absence of an active market for the financial instrument, the fair value is determined using valuation techniques. Although valuation techniques are based on observable data where possible, results are affected by the applied assumptions, such as discount rates and estimates of future cash flows. In the unlikely event that the fair value of a financial instrument cannot be measured, it is carried at cost.
Assets in this category primarily consist of equity and bonds listed on a stock market.
2. Fair value on the basis of observable market data Determining the fair value at Level 2 is based on valuation techniques that use observable market inputs. These inputs include: • quoted prices in active markets for identical assets or liabilities; and • inputs other than quoted prices, such as interest rate and yield curves, current risk surcharges for different sectorspecific risk factors and other market data.
3. Fair value not based on observable market data At Level 3, the fair value of the assets and liabilities is determined in full or in part using a valuation technique based on unobservable market inputs. In these situations, there are marginally active or inactive markets for the assets or the liabilities. The financial assets and liabilities in this category are assessed individually. They are measured on the basis of management’s best estimates. These estimates are based on own sources and generally available information. The basic principle of fair value measurement remains to determine a fair, arm’s length price. This category includes, for instance, private equity investments.
If, at a later stage, the fair value of the financial assets available for sale should increase and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through the income statement. Impairment losses on equities are not reversed, and any increases in fair value are recorded in equity.
Receivables from banks Receivables from banks concern business loans, deposits and the savings portion of mortgages insured by ASR Nederland.
Impairment of loans and receivables At each balance sheet date, ASR Nederland assesses whether objective evidence of impairment exists of the financial assets classified as loans and receivables.
An individually assessed asset is considered impaired if objective evidence exists that ASR Nederland will be unable to collect all the amounts due by the counterparty in accordance with the contractual terms and conditions. The amount of the impairment loss is equal to the difference between the asset’s carrying amount and its recoverable amount. The recoverable amount equals the present value of estimated future cash flows, including amounts realized from guarantees and sureties furnished, discounted at the financial asset’s original effective interest rate.
2.22 Derivatives and hedge accounting ASR Nederland uses derivatives for hedging interest rate and exchange rate risks, and for hedging future transactions.
At initial recognition, derivates are stated at fair value at the inception of the contract. Subsequent changes in fair value are taken to the income statement and recognized within ‘fair value gains and losses’. The fair value is based on quoted market prices or, if these are not available, on valuation techniques, such as discounted cash flow models or option pricing models. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative.
Financial assets or liabilities may contain embedded derivatives. These embedded derivatives are separated from the host contract and recognized separately if the hybrid (combined) contract is not measured at fair value within changes in fair value recognized through profit or loss, and if the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract. The separate embedded derivatives are measured at fair value through profit or loss.
Firm commitments are hedged using fair value hedges, except where foreign currency risk is concerned, for which cash flow hedges are used. ASR Nederland currently only applies cash flow hedge accounting.
At each reporting date, ASR Nederland assesses whether objective evidence of impairment exists. If a reinsurance asset is impaired, its carrying amount is reduced to its recoverable amount.
2.26 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.
Reserve for exchange rate differences This reserve comprises exchange rate differences arising from financial assets available for sale.
Liabilities arising from life insurance contracts Future obligations in respect of policy benefits for life insurance contracts are calculated based on a net premium method (the present value of future obligations less the present value of future net premiums) using the same principles as for calculating the premium at inception of the insurance contract. A provision for future administrative expenses is recognized for contracts whose future premium payment period is shorter than the future maturity of the insurance contract, or for which no more premiums are paid. A provision is formed for the longevity risk associated with all group life insurance contracts.
The realized gains or losses are amortized based on the remaining maturity period of the disposed financial assets.
Loss obligations in respect of occupational disability are discounted. The recognized provisions are sufficient to cover the cost of claims and claims handling fees. ASR Nederland discounts obligations for losses only for claims with determinable and fixed payment terms.
Life insurance contracts with a discretionary participation features (DPF) Under DPF life insurance contracts, policyholders are assigned, in addition to their entitlement to a guaranteed element, an entitlement to a potentially significant additional benefits whose amount or timing is contractually at the discretion of ASR Nederland. These additional benefits are based on the performance of a specified pool of investment contracts, specific investments held by ASR Nederland or on the issuer’s net income.
Shadow accounting ASR Nederland applies shadow accounting in compliance with IFRS 4 to insurance contracts with participation features. Shadow accounting is also applied to non-participating contracts if and to the extent that the current interest rate is lower than the interest rate that was used in the pricing principles at inception of the insurance contract.
The related adjustment to the insurance liability is recognized in other comprehensive income if, and only if, the unrealized gains or losses are recognized in other comprehensive income.
Based on the LAT, the life insurance portfolios have been classified into homogeneous risk groups. This classification is based on the following characteristics: • individual versus group contracts; • traditional life insurance contracts with an interest guarantee versus unit-linked contracts; • unit linked contracts without guarantees versus unit linked contracts with guarantees; • participation or non-participation features: • mortality risk versus longevity risk; and • the existence of a surrender value floor.
In unit-linked contracts, the best estimate equals the fund value of the contract less the net present value of future margins on mortality and expense. Where unit-linked contracts with a guaranteed minimum benefit on expiration are concerned, the best estimate is reduced by a CFOG, i.e. the value of that guarantee in accordance with the Black-Scholes model.
The diversification benefits between different homogeneous risk groups are distributed proportionally over these risk groups.
Liability Adequacy Test non-life Where the non-life business is concerned, the LAT is performed for every risk group using statistical analyses. Any identified losses are used as a basis for estimating future claims arising from an insurance contract from the portfolio on the balance sheet date. This is the best estimate. An appropriate risk margin is added, which is a function of the claims volatility in the specific risk group. For every risk group, the total of best estimate and risk margin is compared to the technical provision recorded in the balance sheet. If there is a deficiency, the insurance liabilities are increased to adequate levels.
The LAT for the disability portfolio is comparable to the LAT for the life portfolio. The LAT for the disability portfolio is performed for all (six) defined risk groups.
DNB LAT ASR Nederland has identified the DNB LAT as the trigger for increasing insurance liabilities in case of a deficiency. A margin in the DNB LAT is regarded as part of the solvency margin in accordance with the DNB definition.
In addition, ASR Nederland has defined a LAT for the purpose of calculating buffer capital. This LAT corresponds with the DNB LAT, but does not take into account a surrender value floor. As a result, the buffer capital is at least equal to or higher than the DNB solvency.
Liabilities arising from insurance contracts for the account and risk of policyholders mainly concern unit-linked contracts. An investment unit is a share in an investment fund that ASR Nederland acquires on behalf of the policyholders using net premiums paid by the policyholders. The gain upon maturity of the contract is equal to the current value of the investment units of that fund. The current value of an investment unit (unit value) reflects the fair value of the financial assets contained within ASR Nederland’s invest-ment funds divided by the number of units.
This provision equals the present value (based on an interest rate of 4%) of the agreed amounts of compensation (upon maturity), with expenses incurred in prior periods fully provided for. In addition, estimates of additional expenses, such as overheads for administering the compensation scheme, compensation for hardship and surrender, are also taken into account.
Pension obligations are calculated using the projected unit credit method. Inherent to this method is the application of actuarial assumptions for discount rates, future salary increases and bonuses, mortality rates and consumer price indices. The assumptions are reviewed and updated annually, based on available market data.
ASR Levensverzekering N.V., an insurance company and a group entity, is the administrator of the post-employment benefit plans. As this company holds the investments that are meant to cover the employee benefit obligation, they do not qualify as plan assets in the consolidated financial statements. Pastservice costs are recognized directly in the income statement, unless the changes to the post-employment benefit plan are conditional on the employees remaining in service for a specified period of time (the vesting period).
Other long-term employee benefits Plans that offer benefits for long-service leave, but do not qualify as a post employment benefit plan, such as jubilee benefits, are measured at present value using the projected unit credit method.
Life insurance premiums Life insurance premiums related to life insurance contracts are recognized as income when receivable 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. In accordance with this matching, the acquisition costs are capitalized, deferred and then amortized. For a detailed explanation of the capitalized deferred acquisition costs, see chapter 2.15.
With respect to financial assets available for sale, realized gains or losses are comprised of the proceeds from the sale or disposal of an asset or liability less the amortized cost of the asset or liability sold, impairment losses previously recognized and hedge accounting adjustments.
2.44 Operating expenses This item relates to expenses associated with ASR Nederland’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.
The essence of the insurance business is that risk is transferred from policyholders to the insurer in return for premiums. ASR Nederland accepts only those risks that allow it to remain a reliable and solid insurance company, both now and in the future. ASR Nederland seeks to establish the right balance between risk and return. Risk management helps to achieve this goal.
3.1 Key risk developments in 2010 The key developments related to risk management within ASR Nederland were: General • ASR Nederland further developed its Enterprise Risk
Risk governance • The risk function instituted departments that are responsible for financial risks (Risk Management) and non-financial risks (Integrity & Operational Risk).
Counterparty default risk • The reduction in exposure in Portugal, Ireland, Italy, Greece and Spain also reduced the counterparty default risk.
Strategic risk • In 2010, ASR Nederland started to implement the Own Risk
Operational risk • In 2010, ASR Nederland started a project to improve the control of key (business) processes by identifying and documenting principal risks and controls within these processes.
Systems and data Risk management is supported by different IT systems and available data.
• Third line – responsible for the independent control of the effectiveness of the ERM framework. The third line is executed by the internal audit department. This department is respon- sible for performing audits of the effectiveness and adequacy of the ERM framework and the operating effectiveness of the internal control system. The department also reviews the transparency of ASR Nederland’s risk governance and its compliance with ASR Nederland’s requirements.
These risk policies define ASR Nederland’s risk preferences and set out risk management standards for the group’s operations. Risk Strategy & Policy develops guidelines for the further imple- mentation of ASR Nederland’s ERM approach. This department works in close dialogue with the other risk departments.
Risk Management Risk Management is responsible for managing financial risks. The department consists of the following sub-departments: • Risk Strategy & Policy • Insurance Risk & Value Management (IR&VM) • Asset & Liability Management (ALM)
Asset & Liability Management ALM is responsible for the development and execution of ALM policies and supports the implementation of these policies by the business. The department is also responsible for the methodology and the development of models used in calculating market value and market risk. ALM reports market value and market risk both at group and business level.
ALM tests the reported market value and market risk based on ASR Nederland’s risk limits and risk budget. ALM also assists product lines in product development.
Integrity & Operational Risk Integrity & Operational Risk Management is responsible for managing non-financial risks. Integrity & Operational Risk has three sub-departments: • Operational Risk & Management Control (OR&MC) • Compliance • Anti-fraud
Operational Risk & Management Control OR&MC is responsible for improving awareness of operational risk, information security and business continuity. OR&MC does this by setting policies, assisting business lines with the implementation of these policies, and monitoring the quality of the implementation. OR&MC also submits quality reports to the Non-Financial Risk Committee.
Compliance The compliance function (Compliance) is an independent and centralized function within ASR Nederland. Its main objective is to support the Executive Board in managing compliance risks for ASR Nederland and its subsidiaries. Through its compliance function, ASR Nederland aims to stimulate integrity among the members of the Executive Board, its managers and its
Capital, Liquidity & Funding Committee employees. This helps to maintain ASR Nederland’s good reputation and reliability.
• Fraud investigation and repression: measures to investigate unfair practices or fraud correctly, discreetly and with due care.
3.3.2 Risk committee structure The risk committee structure was established at the end of 2009 and was further developed and integrated into the ASR Nederland organization in 2010. The risk committees manage the risks and returns that impact the achievement of ASR Nederland’s strategic objectives.
ASR Nederland Risk Committee The ASR Nederland Risk Committee monitors ASR Nederland’s overall risk profile. The ASR Nederland Risk Committee decides annually on ASR Nederland’s risk preferences and risk limits. The ASR Nederland Risk Committee also monitors the progress made in managing risks included on the list of the ‘Executive Board risk priorities’. The ASR Nederland Executive Board fully participates in the ASR Nederland Risk Committee. The Chairman of the Committee is ASR Nederland CEO. The involvement of the Board ensures that risk awareness and risk decision taking is embedded at the appropriate level. In addition to the Executive Board, represen-tatives of all key departments participate in the Committee.
Financial Risk Committee The Financial Risk Committee (FRC) has a mandate from the Executive Board to decide on financial risk policies. The FRC manages and controls financial risks. The FRC determines financial risk limits at group level. The FRC monitors whether the risk profile remains within the risk limits. If the risk profile exceeds these limits, the FRC takes mitigating actions. The FRC reports to the ASR Nederland Risk Committee.
The Chairman of the FRC is ASR Nederland’s CFO and representatives of various key financial departments are members of the Committee, including ASR Nederland’s COO (NFRC liaison). The FRC is further supported by the Capital, Liquidity and Funding Committee (CLFC), one of its subcommittees.
Capital, Liquidity & Funding Committee The CLFC prepares and assesses the technical analysis of capital, liquidity and funding positions, rating policy and rating model reporting, and treasury activities. The Chairman of the CLFC is the Director of Financial Markets; other members of this sub- committee are key representatives of various financial and risk departments.
Business Risk Committee The business lines manage and control their risk profile via the Business Risk Committee (BRC). The BRC monitors that the risk profile remains within the risk preferences defined by the product line. The BRC reports to the FRC and the NFRC. The Chairman of the BRC is the director of the product line and the BRC has key officers as its members.
Counterparty default risk Counterparty default risk reflects possible losses due to unexpected default or deterioration in the credit rating of counterparties and debtors. the counterparty default risk is also relevant to reinsurance contracts.
strategic risk strategic risk is the risk that AsR nederland will not reach its targets because of invalid decision-making, wrong implementation of decisions and/or failure to respond adequately to market developments.
Sensitivities of regulatory capital to market risk: 3.5.1 Interest rate risk Interest rate risk is the risk that the value of assets, liabilities or financial instruments will change because of fluctuations in interest rates, Many insurance products are exposed to interest rate risk; the value of the products is closely related to the applicable interest rate curve. The interest rate risk of insurance products depends on the term to maturity, interest rate guarantees and profit-sharing features. Life insurance contracts are particularly sensitive to interest rate risk (see chapter 3.7.1). For the purposes of DNB solvency and buffer capital, the ECB AAA government bond curve is used for discounting insurance liabilities.
ASR Nederland manages its interest rate risk by aligning fixed-income investments to the profile of the liabilities. Among other instruments, swaptions and interest rate swaps are used for hedging the specific interest rate risk caused by interest rate guarantees and profit-sharing features in life insurance products. The interest rate risk is quantified on a monthly basis by means of duration and scenario analyses. Duration is a measure for interest rate sensitivity, which gauges how much the fair value changes at a small parallel shift in the interest rate curve. As shown in the table below, the duration of the liabilities exceeds the duration of the assets; as a result, the fair value of equity decreases as interest rates drop.
Sensitivity of regulatory solvency to interest rate changes: The decrease in the interest rate curve had a stronger impact on the sensitivity of the liabilities than on the sensitivity of the assets. This was attributable to the specific characteristics of the life liabilities, and to long maturities and interest rate guarantees in particular. Moreover, the duration of the assets was increased by the purchase of long term swaps and swaptions.
The equities are diversified across the Netherlands (including participating interests) and other European countries. A limited number of equities consist of Pacific, private equity and hedge funds.
Duration of liabilities 10.5 8.8 interest rates -1% interest rates +1%
The sensitivity of the regulatory solvency ratio to changes in equity prices is monitored on a monthly basis. Option contracts and the tax exemption of the participating interests and lower volatility of hedge funds are taken into account when calculating sensitivities. Compared to 2009 the sensitivities increased due to an increase in exposure to equities.
The sensitivity of the regulatory solvency to changes in property value is monitored on a monthly basis.
The policy is primarily to hedge currency risks. However, from a tactical perspective, currency exposures are permitted within a specific risk budget.
Foreign currency exposure in millions of euros: 2010 AUD BRL TRY USD ZAR
exposure percentage exposure percentage 3.5.5 Spread risk Spread risk arises from the sensitivity of the value of assets and liabilities to changes in the level of credit spreads on the relevant risk-free interest rates. Spread risk relates to several types of assets: • fixed-income investments; • deposits; • savings-linked mortgage loans; • loans to intermediaries.
Fixed-income investments Managing the spread risk on fixed-income investments is based on the credit ratings of these instruments as supplied by rating agencies. A limited number of investments do not have an external rating. These investments are generally awarded an internal rating. The internal rating is based on similar rating classifications as the external one.
Limits are in place for the maximum exposure per rating category. In addition, spread risk is managed based on a portfolio-wide risk gauge for assessing rating and duration.
exposure percentage exposure percentage 2010 Government Financial institution corporates structured instruments exposure percentaGe exposure percentaGe exposure percentaGe exposure percentaGe lower than BBB
At year-end 2010, the outstanding amount of loans to intermediaries was € 152 million (2009: € 169 million); accumulated impairment losses amounted to € 35 million (2009: € 39 million). The loans are generally secured by collateralizing an insurance portfolio. In total 14% (2009: 21% ) of the loans were in arrears.
Outstanding loans to intermediaries: 3.5.6 Concentration risk In order to avoid concentrations in a single obligor, ASR Nederland has set limits on maximum exposure. In setting these limits, the rating of the counterparty and the type of assets are taken into account. The limits apply to the total investment portfolio. The CLFC monitors concentration risk on a quarterly basis.
3.6 Counterparty default risk Counterparty default risk reflects possible losses due to unex- pected default or deterioration in the credit standing of counter- parties and debtors. Counterparty default risk affects several types of assets: • mortgages; • derivatives; • reinsurance; • receivables; • cash and cash equivalents.
Mortgages: loan to value: ASR Nederland’s mortgage portfolio is generally secured by collateralizing the linked life insurance contracts. ASR Nederland does not in general grant interest-only mortgages.
3.6.2 Derivatives The credit risk attaching to the market value of derivative contracts between ASR Nederland and a counterparty is normally hedged using a Credit Support Annex (CSA), one of the four parts of an International Swaps and Derivatives Association (ISDA) contract. In line with market conventions, a CSA defines the terms or rules under which collateral, such as cash and government bonds, is posted or transferred between the parties to mitigate credit risk.
3.6.3 Reinsurance When entering into reinsurance contracts for fire and catastrophe, ASR Nederland requires the counterparty to have at least an ‘A-’ rating. With respect to long-tail business and other sectors, an ‘A’ rating applies as a minimum.
The figure below shows the exposure to reinsurers per rating. The total exposure on reinsurers at year-end 2010 was € 427 million (2009: € 545 million).
3.6.4 Receivables ASR Nederland’s receivables amount to € 973 million in total.
amount percentage amount percentage mortgage with nHg mortgage < 75% value under foreclosure (indexed)
The risk exposure is mitigated by diversification across a comprehensive range of insurance products. Insurance risk is divided into life and non-life risk. The life portfolio is a welldiversified portfolio consisting of both products with mortality risk and longevity risk. The non-life portfolio is represented across the property and casualty, occupational disability and health care sectors. The overall insurance portfolio has a moderate risk profile.
The variability of risk is also improved by careful selection and acceptance criteria, as well as underwriting guidelines and reinsurance arrangements. The risks are periodically assessed for each of the insurance segments. If and where required, corrective actions are initiated to adjust the risk profile in line with guidelines agreed at group level.
Inaccuracies in the techniques applied, assumptions made and data used for the statistical analyses are inevitable. ASR Nederland is always exposed to the risk that claims may exceed that available insurance provisions formed to meet the obli- gations under the insurance contracts. To avoid the risk of ASR Nederland being unable to meet its obligations towards policy- holders and others, ASR Nederland holds additional solvency.
Reinsurance and other risk-mitigating measures are used to reduce and contain the volatility of the results or to spread the negative impact on the value as an alternative for the capital requirement.
Every insurance business in ASR Nederland recognizes insurance liabilities for future claims arising from contracts and assigns assets to cover these insurance liabilities. The insurance liabilities for life and occupational disability risk are based on the principle of premium calculation, taking into account, among other things, market-specific assumptions and assumptions based on social issues. The insurance liabilities for the remaining non-life risk are based on historical claims settlements of the ASR Nederland portfolio. No insurance liabilities are formed for equalization and catastrophes.
Life insurance risk A life insurance product provides an entitlement to a benefit at the time of death of the insured and/or a benefit at a predetermined moment/interval if the insured is alive at that time. The uncertainties related to a life insurance contract have to do with the moment of death of the insured (mortality, longevity and catastrophe risk), the lapse rate (the chance that a contract lapses and, if so, when), and the future development of expenses associated with the contract. A specific feature of life insurance contracts is that they usually last for many years. This feature increases the uncertainties with respect to life contracts. The risk that investment income is not sufficient to cover increases in liabilities due to intrest is regarded as market risk (see chapter 3.5).
• Catastrophe risk: Catastrophe risk is the risk of losses due to extraordinary events: a large-scale one-off loss due to a single event causing high claims, such as a pandemic. • Lapse risk: Lapse risk is the risk of losses due to policyholders exercising their rights, if any, to surrender their contracts.
Pricing is based on profit capacity calculations. In these calcu- lations, the best estimate assumptions of mortality rates, surrenders, expenses and interest rates are also taken into account.
Mortality risk Mortality risk can be broken down into volatility and trend uncertainty for the best estimate assumptions. • Volatility: random fluctuations in annual mortality rates in relation to the modelled trend. • Trend uncertainty: structural decrease in the insured’s life expectancy.
The mortality risk is limited due to the manner in which the mortality tables are constantly updated. Reinsurance arrangements have been put in place to cover the volatility risk of large losses that might arise from single events, in case of a large insured amount.
Longevity risk For contracts that guarantee benefits during the lifetime of a policyholder, longevity risk is mainly a trend risk. In pension and annuity portfolios, the longevity risk is constantly monitored.
Catastrophe risk Reinsurance arrangements have been set up to mitigate the effects of catastrophes on the results.
Lapse risk If a policyholder has the right to surrender, an amount is paid to the policyholder (the surrender value) and the contract is cancelled. A contract can also be terminated if the policyholder decides to cease to pay any further premiums. The contract is then converted into a paid-up contract with reduced insured amounts.
Expense risk ASR Nederland constantly analyzes developments in expenses. Product features always ensure that there is no risk on commission fees. Expense risk is therefore restricted to administrative expenses. Projections are made of future administrative expenses and the expected future income from contracts to cover expenses. ASR Nederland continually monitors and reduces administrative expenses, in which process losses on expenses are expected to be limited.
Prices are reviewed retrospectively by determining the value of new contracts by reference to the annually agreed best estimate experience (second order) parameters.
Adequacy of insurance liabilities The adequacy of the technical insurance liabilities is tested at least every quarter and evaluated every month (and more frequently, if required). Any necessary increases in the liabilities are recognized immediately through profit or loss. The ASR Nederland testing policy for the liabilities and processes complies with IFRS requirements and DNB guidelines (see chapter 2.29).
Without profit-sharing 3,475 298 3,773 contractual profit-sharing (and interest marging participation) 7,242 5,456 12,698 discreationary profit-sharing 1,880 - 1,880
• Illness: Illness cover includes continued salary payments for the first two years of the individual’s incapacity for work.
• Other liability: The insurer provides third-party liability insurance for both private individuals and businesses.
Total gross premium income from non-life insurance activities in 2010 amounted to € 2,310 million (2009: € 2,346 million). In 2010, € 213 million (2009: € 225 million) was paid in reinsurance premium, i.e. 9.29% (2009: 9.59%) of gross premium income.
Reinsurance When deemed necessary, ASR Nederland’s insurance businesses agree on reinsurance contracts for non-life portfolios to minimize insurance risks. Reinsurance can be taken out for each separate contract (per risk) or for the entire portfolio (per event). The latter applies if the risk with respect to individual policyholders is actually within the accepted limits, with an unacceptable risk of a possible accumulation of claims (disaster risks) due to human actions or a natural disaster. In the Netherlands, extreme weather conditions form the largest disaster risk. This applies to storms in particular.
The level of retention in the different reinsurance contracts is aligned to the size and the risk profile of the underlying portfolios. This includes taking account of the cost of the reinsurance on the one hand and of the risk that is retained on the other.
Provision for unearned premium income Generally, the provision for unearned premium income is calcu- lated based on the premium for own account, proportionate to the unexpired portion of the premium payments before deduc- tion of the corresponding provision. A separate provision is formed for insurance contracts with increasing risk over the duration of the contract where premiums not related to the age of the policyholder are concerned. Changes in the provision for unearned premiums are recognized through profit or loss, which means that the income is recognized during the same risk period.
Provision for payouts still due The provision for payable claims/benefits consists of the estimated amount of the reported but not settled claims plus an amount for claims not yet reported or incurred during or before the financial year, using historical information. This implicitly includes a provision for payable external claims handling costs.
The level of provisions is calculated for each homogenous product group at a reliability degree of at least 95%. ASR Nederland also holds additional solvency capital in excess of the level of the liabilities.
The provision for occupational disability insurance equals the present value of the expected benefits, taking into account the contract terms and conditions, and qualifying periods, as well as chances of recovery and death.
The results of ASR Nederland’s basic health insurance (‘Basisverzekering’) include an estimate related to the expected settlement because of equalization (‘verevenings methodiek’). The estimate is made by internal actuaries per years based on the latest updated health information for the Netherlands. The final settlement is recognized three years after the end of the financial year.
Every department at ASR Nederland (product lines and corporate support) incurs strategic and operational risk.
Strategic and operational risk management In 2010, ASR Nederland focused on the following issues so as to manage and control strategic and operational risks: • CRSA (yearly process); • Operational loss registration (continual process); • Crisis training (yearly process); • Information security; • Management in Control.
Operational losses Every department can suffer operating losses. ASR Nederland has a process in place for reporting losses in excess of € 5,000 and evaluating the sources of these losses (incident management). Losses exceeding € 50,000 are reported to the NFRC
Business continuity management and contingency planning Any critical processes/activities are identified, including the resources needed to establish similar activities at a remote location. Recovery of systems supporting critical activities is regularly tested. To deal with any type of catastrophe, crisis teams have been established. All crisis teams (per location) were trained in 2010. This course consisted of a theory module (half-day) and a practical module (full day). The goal is to give the teams insight into how they function and help them do their job in case of an emergency. The course also served to clarify the roles, duties and responsibilities of the members of the crisis teams.
The logical access control procedure helps ASR Nederland to enhance the integrity of an application, preventing fraud by improving segregation of duties and by conducting regular checks of actual access levels within the applications.
Internal control To further improve the efficiency and the effectiveness of the organization, ASR Nederland controls the key processes in the organization. In 2010, ASR Nederland started a project to increase transparency of key processes and the risks inherent to these processes, and the required controls for managing these risks were documented. The project has led to enhanced the overall internal control structure.
3.9 Hedge accounting ASR Nederland has entered into a limited number of cash flow hedges to hedge some of its interest rate risk. These hedge transactions hedge risk on separate contracts. Under IFRS, derivatives are measured at fair value in the balance sheet and any changes in the fair value are accounted for in the income statement. In the event that changes in fair value of hedged risks are not recognized through income statement, an accounting mismatch occurs, making the results more volatile. In these cases, hedge accounting is applied to mitigate accounting mismatching and volatility.
Nederland focused on in 2010 were related to Pillar 2 activities, such as developing an ORSA. In addition, ASR Nederland’s risk management function has been designed to comply with the Solvency II requirements. This means that ASR Nederland uses an integrated approach to identify, measure, monitor, report and control all the risks it is exposed to on an individual and aggregate level, including any interdependencies (e.g. risk dashboard). In 2011, ASR Nederland will continue its efforts to implement Solvency II to ensure compliance with Solvency II as required.
The table below shows a reconciliation between equity, regulatory solvency and buffer capital: With the consent of DNB, the margin on the insurance liabilities (DNB LAT margin) has been taken into account when determining regulatory solvency. The test margin excludes with effect from 2010 the paid up floor. For a description of the adequacy test, see chapter 2.29.
4.2 Rating On 28 October 2010, Standard & Poor’s confirmed the ‘A’ rating of ASR Levensverzekering N.V. and ASR Schadeverzekering N.V. with a negative outlook. This rating was issued on 20 May 2009. On 16 December 2010, Fitch Ratings reclassified the IFS rating of ASR Levensverzekering N.V. and ASR Schadeverzekering N.V. from ‘A’ with a negative outlook to ‘A-’ with a stable outlook.
aSR levensverzekering n.V. iFSR a negative 20 May 2009 iFS a- Stable 16 december 2010 aSR levensverzekering n.V. ccR a negative 20 May 2009 long term idR BBB+ Stable 16 december 2010 aSR Schadeverzekering n.V. iFSR a negative 20 May 2009 iFS a- Stable 16 december 2010 aSR Schadeverzekering n.V. ccR a negative 20 May 2009 long term idR BBB+ Stable 16 december 2010 aSR nederland n.V. long term idR BBB Stable 16 december 2010
In addition, Fitch Ratings has given a rating to ASR Nederland N.V. of ‘BBB’ with the same outlook.
4.3 Dividend ASR Nederland pays annually a stable dividend to the shareholder if the capital management objectives are met. The dividend is based on a pay out of 40-45% of the net profit after distribution to Hybrid Tier 1 instruments.
4.4 Liquidity management At all times ASR Nederland needs to be able to meet its obligations towards policyholders and other creditors at all times. Unexpected cash outflows could occur as result of a lapse in the insurance portfolio, withdrawals of savings, or payments related to the CSA of derivatives.
Unexpected cash outflows can be covered by cash and cash equivalents (€ 489 million), liquid government bonds (€ 7,953 million) and other bonds and shares.
The following table shows the contractual cash flows of assets and liabilities (excluding investments on behalf of policyholders and insurance contracts on behalf of policyholders). For liabilities arising from insurance contracts, expected lapse and mortality risk are taken into account. Equity and property risk are not included.
The ASR Nederland segment reports show the financial performance of each segment. The purpose of these reports is to allocate all items in the balance sheet and income statement to the segments that hold full management responsibility for them.
reinsurance premiums -66 -225 - - -291 Net insurance premiums 2,626 2,121 - -124 4,623 fair value gains and losses -74 18 - - -56 result on investments on behalf of policyholders 1,437 - - - 1,437 share of profit/(loss) of associates and joint ventures 10 11 -6 - 15 insurance claims and benefits recovered from reinsurers 44 151 - - 195 Net insurance claims and benefits -4,260 -1,515 - 130 -5,645
Profit attributable to holders of equity instruments 248 82 -70 -5 255 5.4 Technical result The technical result includes insurance premiums, allocated investment income less insurance costs (claims), distribution costs and operating expenses. Income from investments includes rentals, interest income, dividends and revaluations. Realized gains and losses relate to financial assets classified as available for sale and investment property, as well as gains and losses on financial assets recognized at fair value through profit or loss.
Investment income less investment expenses is allocated to the life and non-life products on the basis of the investment portfolio that covers the insurance contracts for the product in question.
Proceeds (loss) from sales of investments -16 -13 non-technical result 156 145
expenses technical result fire and other property damage 337 311 -199 -94 -40 -15
Intangible assets can be broken down as follows: Notes to the balance sheet
Total intangible assets 323 371 2010 GOODwill VOBA SOftwAre tOtAl 2009 GOODwill VOBA SOftwAre tOtAl
In 2010, goodwill decreased by € 23 million as a result of impairments related to ASR Bank N.V and ASR Vastgoed Vermogensbeheer. For the purposes of impairment testing, goodwill is allocated to the cash-generating units of the relevant operating segment.
Amortization schedule for Value of Business Acquired (VOBA) VOBA mainly relates to the acquisition of Stad Rotterdam. At year-end 2010, the average remaining amortization period of VOBA was 16 years.
Property, plant and equipment can be broken down as follows: Depreciation of property, plant and equipment is recorded in operating and personnel expenses.
As a result of the revision of IAS 40, investment property under development has been reclassified from property, plant and equipment to investment property as of 1 January 2009.
LanD anD buiLDings for own use investment property unDer construction equipment totaL
Cost price as at 31 December 2009 242 - 137 379 accumulated depreciation as at 1 January 2009 -88 - -110 -198
Accumulated depreciation as at 31 December 2009 -105 - -123 -228
Investment property is leased to third parties and is primarily diversified over the rural, residential, office and retail sectors in the Netherlands.
Some participating interests in which ASR Nederland has an interest of less than 20% qualify as associates, because ASR Nederland has significant influence.
2010 ToTal asseTs ToTal liabiliTies ToTal income ToTal gain or loss 2009 ToTal asseTs ToTal liabiliTies ToTal income ToTal gain or loss
At fair value through profit or loss (chapter 11.2) 171 304
At fair value through profit or loss (chapter 11.2) 9,491 8,808
Impairment of investments available for sale The following table is a breakdown of impairments of investments available for sale: A further breakdown of the investments at fair value through profit and loss and investments on behalf of policyholders is included in the fair value hierarchy tables (see chapters 11.5. and 11.6 respectively).
ASR Nederland lends equities and bonds in exchange for a fee, with collateral obtained as security. At the end of 2010, the value of the loaned securities was € 7,754 million (2009: € 6,136 million) with the collateral furnished as security representing a value of € 8,908 million (2009: € 7,616 million ).
Changes in investments available for sale 2010 2009 revaluation through profit or loss 29 -105 revaluation recognized in equity 699 1,462 exchange rate differences 40 23 other changes 80 108
The increase in impairments on loans and receivables in 2009 related mainly to intermediary loans. The fair value of the loans and receivables as at 31 December 2010 was € 6,604 million (2009: € 6,276 million). 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 that includes an additional spread based on the risk profile of the counterparty.
Included in Due from banks is an amount of € 1,908 million (2009: € 1,797 million) related to saving-linked mortgage loans.
31 December 2009 Positive fair value Negative fair value NotioNal amouNt
11.5 Fair value hierarchy – Investments and derivatives The breakdown of the derivatives and financial assets at fair value in accordance with the level of fair value hierarchy, as explained in chapter 2.19, is as follows: Fa ir v a lu e b a se D
Corporate bonds classified as Level 2 are unlisted fixed-interest preference shares. The financial assets classified as Level 3 comprises private equity investments.
The fair value of private equity investments is determined using valuation techniques based on estimates of future cash flows, net asset values and other information. This information is not based on observable market data, but is supplied by private equity partners.
Fair value oF Financial assets on the basis oF level 3 valuation technique in v es tm en t s at
F a ir v a lu e t h r o u g h p r o Fi t o r l o ss in v es tm en t s at
F a ir v a lu e t h r o u g h p r o Fi t o r l o ss in v es tm en t s a va il a b le
Fo r s a le changes in value of investments, realized/unrealized gains and losses: - recognized in profit or loss 11 -3 1 11 reclassification of investments from/to level 3 valuation technique - - - -4 total revaluations of investments, held at year-end, recognized in the income statement 11 -6 n/a n/a 11.6 Fair value hierarchy – Investments on behalf of policyholders The breakdown of the investments on behalf of policyholders in accordance with the level of fair value hierarchy, as explained in chapter 2.19, is as follows: Fa ir v a lu e b a se D
Changes reCognized in oCi other 31 deC. 2010 financial assets held for trading -8 -49 - - -57 debt certificates and subordinated liabilities - - - - -
Changes reCognized in oCi other 31 deC. 2009 financial assets held for trading -38 30 - - -8 debt certificates and subordinated liabilities - - - - -
UnUtilized tax losses total unutilized tax losses as at 31 december 2010 880 deferred tax assets calculated for unutilized tax losses as at 31 december 2010 220 total unutilized tax losses as at 31 december 2009 1,386 deferred tax assets calculated for unutilized tax losses as at 31 december 2009 353
ASR Nederland expects to fully utilize these tax losses, which can be utilized up to 2017.
16.3 Other equity instruments ASR Nederland has issued hybrid Tier 1 instruments that are classified as equity instruments. These issues were part of a financial restructuring in June 2009.
The Tier 1 instruments do not have a finite life, but can be redeemed by ASR Nederland on any coupon due date with effect from: If the hybrid Tier 1 instrument at 10% fixed interest is not redeemed on 26 October 2019, the interest rate will be changed to 3-month Euribor plus 9.705%, with a quarterly coupon date with effect from 26 January 2020.
The following amounts were distributed to holders of equity instruments in 2010 (x € 1,000): Position as at 31 December 2010 2009 couPon Date
Hybrid tier 1 instrument variable interest (3-month euribor + 2.3%) 84 84 Per quarter with effect from 26 october 2009
Hybrid tier 1 instrument 10% fixed interest 382 382 annually with effect from 26 october 2010
Hybrid tier 1 instrument 7.25% fixed interest 37 37 annually with effect from 30 september 2010
Subordinated debt can be broken down as follows: The repayments of the private loans by ASR Nederland of € 20 million are due on 20 March 2012. The average interest rate on the subordinated loans is 6.6% (2009: 6.6%).
In the event of bankruptcy or suspension of payments, other subordinated debt ranks after ordinary liabilities, but comes before debts to holders of the equity instruments.
The fair value of the subordinated loans as at 31 December 2010 was € 20 million (2009: € 22 million).
18 Insurance liabilities 18.1 Liabilities arising from insurance contracts ASR Nederland’s insurance contracts with retained exposure can be broken down as follows: Private loans 20 20
Changes in liabilities arising from life insurance contracts can be broken down as follows: At year-end 2010, the liabilities included a guarantee provision for a carrying amount of € 107 million (2009: € 107 million).
Profit-sharing, bonuses and discounts granted in the financial year -2 -3
Provision for unearned premiums as at 31 December 536 518 15 21
Provision for claims changes in provision for claims 1,523 1,657 -217 151
Provision for claims as at 31 December 2,999 3,017 410 519
Non-life insurance contracts as at 31 December 3,535 3,535 425 540
The provision for claims comprises: Claims development table, non-life The table below is a ten-year summary of movements in cumulative benefits in connection with the non-life portfolio for the period from 2001 to 2010.
The post-employment benefit plan for ASR Nederland’s employees has been administrated by ASR Levensverzekeringen N.V. since 2008. Assets managed by group companies have not been included in the above figures. At year-end 2010, the fair value of these assets amounted to € 1,623 million (2009: € 1,569 million).
The table below shows movements in the defined benefit obligation: The following table shows the changes in unrecognized past service cost: The following table provides an overview of changes in total unrecognized actuarial (gains) losses on assets and liabilities: Experience adjustments are actuarial gains and losses that have arisen due to differences between actuarial assumptions. The following table provides information about experience adjustments with respect to qualifying plan assets (back to 2006) and the defined benefit obligation.
Unrecognized past service cost as at 31 December 18 21 - -
Unrecognized actuarial gains (losses) at 1 January -93 154 17 18 actuarial (gains) losses on defined benefit obligation -95 -206 2 1 amortization of unrecognized actuarial (gains) losses on defined benefit obligation - - -3 -2
as % of qualifying investments as at 31 December’ - - - -6.5% -1.7% - - - - experienced adjustments to defined benefit obligation, loss (gain) -13 4 -31 60 -11 -1 -1 - -4 -4 as a % of liabilities as at 31 December -0.7% 0.2% -1.8% 3.7% -0.7% -2.9% -2.3% 1.1% -21.5% -17.2%
The principal actuarial assumptions at year end were as follows: The portfolio of global investments (non-qualifying assets) held by ASR Levensverzekering N.V. to cover the employee benefit expense can be broken down as follows: As a financier of the post-employment benefit plans, ASR Nederland has drawn up general guidelines for asset allocation based on criteria such as geographical location and ratings. To ensure that the investment strategy remains in line with the structure of pension obligation, ASR Nederland regularly performs Asset Liability Management (ALM) studies. Assets are allocated based on these guidelines and on the outcomes of these studies.
Service cost and other costs of post-employment benefits have been broken down in the table below: Under IFRS, assets managed by insurance companies that form part of the group do not count as qualifying assets. Therefore, investment income from these assets has not been included in the above figures. Actual investment returns for 2010 amounted to € 66 million (2009: € 64 million). These returns have been recognized in investment income (chapter 27).
Pension Plans other Post-emPloyment benefits expected return on plan assets - - - future salary increases (including price inflation) 2.0% 2.4% - future pension increases (including price inflation) 1.9% 2.2% - future mortgage interest (in connection with grantable discounts) - - 4.5% 4.8%
Pension Plans other Post-emPloyment benefits amortization of unrecognized past service costs 3 3 - -
As an employer, ASR Nederland is expected to pay the following contributions towards the post-employment benefits in the coming financial year: 19.2 Other long-term employee benefits Other long-term employee benefits consist of the employer’s share of liabilities arising from long-service benefits. The table below shows the changes in these liabilities: The underlying assumptions are as follows: 20 Provisions
As at year-end 2010, borrowings were comprised of: As at year-end 2010, the fair value of borrowings was € 99 million (2009: € 127 million). The average interest rate payable on other borrowings was 4.0% (2009: 2.9%).
AMRO that was taken up in several tranches at year-end 2010. The funds drawn have maturities of less than one year and come with an interest rate of 1.366%.
Other liabilities can be broken down as follows: Total due to banks 76 889
The table below shows the composition of gross insurance premiums: Non-recurring and regular insurance premiums can be broken down as follows: Life insurance contracts retained exposure 1,447 1,466
The table below provides an overview of total gross earned non-life insurance premiums. For further details on the individual business lines, see the segment information (see chapter 5.5).
Reinsurance premiums can be summarized as follows: 27 Investment income 27.1 Total investment income The table below shows a breakdown of investment income per category: The table below breaks down interest income per category: Premiums non-life 2010 2009
The results of hedging contain the changes to the fair value attributable to the hedged risk. In most cases, this concerns the interest rate risk of hedged assets and liabilities, and the change in the fair value of hedging instruments.
For the purposes of hedging interest rate risk on the portfolio (macro hedging), the initial difference between the fair value and the carrying amount of the hedged item is amortized on allocation of the hedging relationship over the remaining term of the hedged item.
Financial assets at fair value through profit or loss 15 26
Fee and commission income consists of the following components: Fair value gains and losses per category can be broken down as follows:
Changes in liabilities arising from insurance contracts on behalf of policyholders -665 -1,561 amortization of VoBa (Chapter 6) -18 -16
The table below is a summary of impairments: Due to the credit and financial crises, impairments have been applied to equities, corporate bonds and collateralized debt obligations.
Reversal of impairments on bonds as a result of disposal 157 109
The income tax expense can be broken down as follows: Interest on employee benefits -106 -94
The table below shows a reconciliation of the expected income tax expense with the actual income tax expense. The expected income tax expense was determined by linking up profit before tax to the tax rate in the Netherlands. In 2010, this rate was 25.5% (2009: 25.5%). The enacted tax rate for 2011 will be 25%.
A related party is a person or entity that has significant influence over another entity, or has the ability to affect the financial and operating policies of the other party. Parties related to ASR Nederland include the Dutch government, associates, joint ventures, members of the Executive Board, members of the Supervisory Board and their immediate family members. These parties further include entities over which these persons or entities exercise control or substantial influence, and other affiliated entities.
ASR Nederland regularly enters into transactions with related parties during the conduct of its business. These transactions mainly involve loans, deposits, commissions and reinsurance contracts, and are conducted on terms equivalent to those that prevail in arm’s length transactions.
Other assets concern loans including a provision for impairment of € 6,5 million (2009: € 11 million).
Mortgage loans to the Executive Board can be broken down as follows: Amounts in euros x 1,000 AverAge interest % settlement
Amounts for 2010 in euros x 1,000 sh o r tt
At io n executive directors 1 This includes pension and VPL. 2 The total determined remuneration of the Executive Board, including the short- and long-term variable remuneration according to the remuneration policy, amounts to € 3,734. One-third of the variable remuneration concerns the short-term variable remuneration. This part, € 217 in total, will not be disbursed. * Term of service as executive director ended on 01 March 2010. ** Term of service at ASR Nederland ended on 01 September 2010. The termination benefit is determined in accordance with the Dutch Corporate Goverance Code (article II.2.8) and contractual obligations.
According to the remuneration policy, the variable remuneration of the Executive Board is related to customer satisfaction, ASR Nederland’s financial performance and the executive director’s individual performance. Each of these three factors form one- third of the variable remuneration. In other words, 40% to 60% of the variable remuneration is related to non-financial criteria.
Amounts for 2009 in euros x 1,000 sh o r tt
er m em p lo ye e b en ef it s p o st -e m p lo ym
Securities leasing ASR Nederland is involved in a number of legal proceedings involving securities leasing products (‘Groeivermogen’) that have been brought against several ASR Nederland operating companies by individuals or consumer organizations. The claims are based on one or more of the following alleged breaches: • violation of the duty of care; • lack of a second signature required for hire purchase agreements; • lack of a sales licence for the products in question as required under the Dutch Financial Supervision Act.
The current assessment of the legal risks stemming from securities leasing does not prompt ASR Nederland to create a material provision.
Later than 3 months and no later than 1 year 4 5
42 Company income statement 43 Notes to the company financial statements
Investments in group companies are carried at net asset value, in accordance with the accounting policies used in ASR Nederland’s consolidated financial statements. The share of profit of group companies is reported in conformity with the accounting policies used in ASR Nederland’s consolidated financial statements.
ASR Nederland N.V. has availed itself of the option offered by Section 402, Book 2 of the Netherlands Civil Code to prepare an abridged income statement.
Comparative figures The comparative figures for the year 2009 have been restated to match the current year presentation. In 2010, some of the company’s assets and liabilities were reallocated to subsidiaries, affecting the carrying amounts of subsidiaries, receivables and liabilities for 2009. These presentation changes have no impact on total equity and profit for the year.
Total intangible assets - 11 chanGes in GooDwill 2010 2009 cost price as at 1 January 11 -
Cost price as at 31 December 11 11 impairments as at 1 January - -
Profit carried over from previous financial year - - - -640 640 - - -
Coupon on other equity instruments - - - -1 - -1 - -1
Issue of other equity instruments - - - - - - 521 521
Coupon on other equity instruments - - - -53 - -53 - -53
Income tax relating to coupon on other equity instruments - - - 14 - 14 - 14
Share capital can be broken down as follows: Other equity instruments In June 2009, ASR Nederland restructured a number of Trust Capital Securities with a principal amount of € 650 million. This restructuring has resulted in the issue of four different hybrid Tier 1 instruments that are classified as equity (chapter 16.3).
10. Employee benefits Employee benefits can be broken down as follows: See chapter 19 for more notes on employee benefits.
11. Provisions The table below shows movements in provisions: The provisions were formed for: • tax and legal issues; • staff redundancies; • retained disability risk.
13. Joint and several liability Since 3 October 2008, the company and its subsidiaries have been part of the tax entity ASR Nederland for corporation tax purposes. Until 2 October 2008, the company and its subsidiaries were part of the Fortis Utrecht N.V. tax entity for corporation tax purposes. All companies within the tax entity are joint and several liable for the corporate tax debt.
Up to 31 December 2008, ASR Nederland was a member of a VAT tax group of ASR Nederland companies and other former Fortis group companies that had their registered offices in the Netherlands. Since 1 January 2009, there has been a new VAT group of ASR Nederland companies. By law, the individual members of the tax group are jointly and severally liable for one another’s VAT debts.
Auditor’s fees Auditor’s fees are paid to auditors by the company, its group companies and other consolidated companies. The fees paid for the years 2010 and 2009 can be broken down as follows: • fees for audit engagements: these include fees paid for the audit of the consolidated and company financial statements, quarterly reports and other reports; • fees for non-audit services: these include fees for support and advisory services provided during acquisitions.
Executive Board Jos Baeten Hans van der Knaap Roeland van Vledder Roel Wijmenga examining and auditing the financial statements under the articles of association and other group company audits under the articles of association 2,317 2,231 tax advisory services 74 51 other non-audit services 1,672 2,273
Report on the financial statements We have audited the accompanying financial statements 2010 of ASR Nederland N.V., Utrecht. The financial statements include the consolidated financial statements and the company financial statements. The consolidated financial statements comprise the consolidated balance sheet statement of financial position as at 31 December 2010, the consolidated income statement the consolidated statements of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes, comprising a sum- mary of the significant accounting policies and other explanatory information. The company financial statements comprise the company balance sheet as at 31 December2010, the company profit and loss accountincome statement for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information.
Opinion with respect to the company financial statements In our opinion, the company financial statements give a true and fair view of the financial position of ASR Nederland N.V. as at 31 December 2010 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.
List of principal group companies and associates 1 These are companies for which a statement of joint and several liability under Section 403, Book 2 of the Netherlands Civil Code has been issued. 2 Registered insurance companies.
2. Annually the annual general meeting of shareholder deter- mines either on the recommendation of the management board and with the approval of the supervisory board or on its own initiative, which part of the profit will be retained or distributed.
4. The annual general meeting of shareholders may either on the recommendation of the management board and with the approval of the supervisory board or on its own initiative pay an interim dividend distribution subject to the conditions set out under paragraph 1 above as evidenced by an interim statement of assets and liabilities as referred to in Section 105 paragraph 4, Book 2 of the Civil Code.
6. When calculating the profit, the shares held by the Company on which pursuant to paragraph 5 no distribution to the Company is made shall be disregarded.
The Executive Board will propose to the Annual General Meeting of Shareholders not to distribute any dividend for 2010.
ASR Nederland’s labels include ASR Verzekeringen, De Amersfoortse, Ardanta, Ditzo, Europeesche Verzekeringen and ASR Vastgoed. Products and services are offered using a distribution model that gives customers a choice of buying insurance contracts from intermediaries or via direct channels, e.g. online, as needed.
Associate An entity over which ASR Nederland has significant influence and that is neither a subsidiary nor an interest in a joint venture.
Impairment The amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. The asset’s carrying amount is reduced to its fair value and recognized in profit or loss.
Insurance contracts A contract under which one party (ASR Nederland) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder.
Securities lending This refers to the lending of securities by one party to another, which agrees to deliver back the securities on a specified future date. The borrower usually provides the lender with collateral. Securities lending allows the owner of the securities to generate extra income.