Land and buildings for own use (Chapter 5.5.2) - - 149 149
The fair value decreased with € 1,460 million due to the transfer of real estate equity funds from investment property to investments.
The movements in investment property measured at fair value (recurring basis) that are categorised within level 3 are presented in Chapter 5.5.3 Investment property, 5.5.2 Property and equipment and 5.7.1.1 Recurring fair value measurement of financial assets and liabilities.
Significant inputs to the Level 3 values are the net initial yield and market rental value. These inputs are verified with the following market observable data: • Market rent per sq.m. for renewals and their respective re-letting rates; • Reviewed rent per sq.m.; • Investment transaction of comparable objects.
Land and buildings for own use 147 DCF total 8,956,234 mean 6.2% -5% - 8 15
Development investment property 56 n/a n/a n/a n/a n/a n/a n/a n/a n/a
Gross amounts of recognised financial liabilities set off in the statement
A related party is a person or entity that has significant influence over another entity, or has the ability to affect the financial and operating policies of the other party. Parties related to a.s.r. include NLFI and the Dutch State for the period until 13 September 2017, associates, joint ventures, members of the Executive Board, members of the Supervisory Board, close family members of any person referred to above, entities controlled or significantly influenced by any person referred to above and any other affiliated entity.
The remuneration of the a.s.r. Executive Board and Supervisory Board are described in Chapter 5.7.4 (Remuneration of the a.s.r. Executive Board and Supervisory Board).
Transactions in the income statement for the financial year Fee and commission income 15 - - 15
In addition to the dividend paid in 2017 of € 70 million (2016: € 170 million), the Ministry of Finance charged a.s.r. for incurred expenses in relation to NLFI amounting to € 1 million (2016: € 6 million) which includes expenses related to the IPO. These expenses are recognised in the consolidated income statement.
Intro d uctio n comes within the scope of the present remuneration policy, it was decided to act and implement the first step of the increase as of 1 January 2018. The increase will be effected in multiple steps over time, but no later than 1 January 2020. After full implementation the target salaries will still remain below the benchmark averages. The Supervisory Board continuously assesses and evaluates the remuneration policy for the Executive Board and will continue to do so in the coming period, with caution taking precedence over speed. This will include conducting extensive consultations with various stakeholders including shareholders, clients and staff. These consultations will take place in the course of 2018. The Supervisory Board will submit the remuneration policy for the Executive Board to the 2019 AGM for a shareholder vote.
Board member As a committee member Total 5.7.4.2 Remuneration of current and former Executive Board members The remuneration of the Executive Board members is in accordance with the 2017 remuneration policy.
2 The amount as a committee member also includes remuneration for services as Supervisory Board member of ASR Bank N.V. amounting to € 4,000 per annum per Supervisory Board member.
2 The increase is caused by the formentioned one-off payment in December 2017 equal to a monthly salary granted by the Supervisory Board.
This payment concerns 60% of the gross monthly salary of December 2017. The remaining 40% will be paid in 2020. It has been agreed with
Provisions are formed for such occurrences if, in management’s opinion and after consultation with its legal advisers, a.s.r. is likely to have to make payments and the payable amount can be estimated with sufficient reliability. The costs of the compensation scheme for unit-linked insurance contracts have been fully recognised in the financial statements based on management’s best knowledge of current facts, actions, claims, complaints and events. Provisions are recognised in the liabilities arising from insurance contracts and legal provisions (see Chapter 5.5.14).
a.s.r. is currently subject to two collective actions. In June 2016, Woekerpolis.nl initiated a collective action, requesting the district court Midden-Nederland to declare that a.s.r. has sold products in the market which are defective in various respects (e.g. on transparency regarding cost charges and other product characteristics, and included risks for which the insurer failed to warn, such as considerable stock depreciations, the inability to realise the projected final policy value, unrealistic capital projections due to difference in geometric versus arithmetic returns and on general terms and conditions regarding costs that Woekerpolis.nl considers unfair). Also, in March 2017, the Consumentenbond started a collective action against a.s.r.. This collective action is based on grounds similar to the collective procedure that was initiated by Woekerpolis.nl. The collective procedure of Consumentenbond is currently pending at the district court Midden-Nederland. In both collective procedures, a.s.r. has rejected all the claims. The timing and outcome of both collective actions is currently uncertain.
The total costs related to compensation for unit-linked insurance contracts as described above, have been fully recognised in the financial statements based on management’s best knowledge of current facts, actions, claims, complaints and events. Provisions are recognised in the liabilities arising from insurance contracts and legal provisions (see Chapter 5.5.14). Although the financial consequences of the legal developments could be substantial, a.s.r.’s exposures cannot be reliably estimated or quantified at this point. If one or more of these legal proceedings should succeed, there is a risk a ruling, although legally only binding for the parties that are involved in the procedure, could be applied to or be relevant for other unit-linked life insurance policies sold by a.s.r. Consequently, the financial consequences of any of the current and/or future legal proceedings brought upon a.s.r. can be substantial for a.s.r.’s life insurance business and may have a material adverse effect on a.s.r.’s financial position, business, reputation, revenues, results of operations, solvency, financial condition and prospects.
Intro d uctio n a.s.r. also had irrecovable facilities of € 383 million (2016: € 152 million) which mainly relate to mortgage offers issued.
Furthermore, a.s.r. issued several other guarantees for a total amount of € 10 million (2016: € 4 million).
Later than 3 months and no later than 1 year 3 4
Later than 1 year and no later than 5 years 7 9
Total commitments for non-cancellable operating leases as at 31 December 10 14
GNL is the group company of a number of entities, the main being Generali levensverzekering maatschappij N.V. (GNL life) and Generali schadeverzekering maatschappij N.V. (GNL non-life). GNL focuses on non-life and life insurance contracts in the Dutch market. Generali Nederland N.V. has been renamed ASR Utrecht N.V.
The preliminary excess purchase consideration amounting to € 22 million is not tax deductible. The impact on the a.s.r. Solvency II ratio is expected to decrease by 9%-points. To meet the a.s.r. solvency criteria, ASR Levensverzekering N.V. and ASR Schadeverzekering N.V. made capital injections to GNL life and GNL non-life respectively. GNL is expected to have a limited increase on the IFRS profit after tax and the operating result in 2018.
Van Kampen Groep Holding B.V.³ 100,00 100,00 Purmerend Distribution and Services
Administratie- en Adviesbureau voor Belegging en Krediet (A.B.K.) B.V.¹ 100,00 100,00 Amersfoort Holding and Other
The Executive Board will propose to the Annual General Meeting of Shareholders to distribute € 230 million in dividend on ordinary shares for 2017.
5.8.1 Risk management system including the Own Risk and Solvency Assessment Risk Management System
5.8.1.1 Enterprise Risk Management Framework The figure below is the risk management framework as applied by a.s.r. The framework is based on the Enterprise Risk Management (ERM) model by COSO1.
Risk strategy (incl. risk appetite) Risk strategy is defined to contain at least the following elements: • Strategic objectives that are pursued; • The risk appetite in pursuit of those strategic objectives.
a.s.r.’s risk strategy aims to ensure that decisions are made within the boundaries of the risk appetite, as stipulated annually by the Executive Board and the Supervisory Board.
3 ASR Nederland N.V. complies with current laws, regulations and ethical (and inherent internal) norms. ASR Nederland
6 ASR Nederland N.V. retains, in accordance with the S&P Capital model, a minimum rating of single A.
8 ASR Nederland N.V. has a maximum double leverage ratio of 135% with a soft limit of 115%.
10 ASR Nederland N.V. is capable of releasing liquidities worth up to EUR 1 billion over a 1-month period following stress and remains capable of meeting its collateral requirements in the event of a 3% interest increase.
11 ASR Nederland N.V. generates a robust and high-quality operational ROE, i.e. pursues an overall ROE > 10% and seeks an ROE > 8% for individual investment decisions.
Risk governance Risk governance can be seen as the way in which risks are managed, through a sound risk governance structure and clear tasks and responsibilities, including risk ownership. a.s.r. employs a risk governance framework that entails the tasks and responsibilities of the risk management organisation and the structure of the Risk committees.
Systems and data Systems and data support the risk management process and provide management information to the risk committees and other relevant bodies. Strategic decisions are based on the management information provided. a.s.r. finds it very important to have qualitatively adequate data and systems in place, in order to be able to report and steer correct figures and to apply risk-mitigating measures timely. To ensure this, a.s.r. has designed a policy for data quality in line with Solvency II. Tools, models and systems are implemented to support the risk management process by giving guidance to and insights into the key risk indicators, risk tolerance levels, boundaries and actions, and remediation plans to mitigate risks.
Risk policies and procedures Risk policies and procedures at least 1: • Define the risk categories and the methods to measure the risks; • Outline how each relevant category, risk area and any potential aggregation of risk is managed; • Describe the connection with the overall solvency needs assessment as identified in the Own Risk & Solvency
Within a.s.r. risk culture is an important element that emphasises the human side of risk management. The Executive Board has a distinguished role in expressing the appropriate norms and values (tone at the top). a.s.r. employs several measures to increase the risk awareness and, in doing so, the risk culture.
Cost Effectiveness The group aims to continuously focus on effectively managing its costs.
5.8.1.1.2 Risk governance a.s.r.’s risk governance can be described by: • Risk ownership; • the implemented three lines of defence model and associated (clear delimitation of) tasks and responsibilities of key function holders; and • the risk committee structure to ensure adequate strategic decision making.
Adequate capital buffers and financial power to facilitate future developments and continuously meeting our obligations towards policy holders, supervisors and rating agencies.
Ensuring the capital buffer is suffcient to maintain an ‘A’ rating at operating company level.
This will safeguard the efficiency of business operations and continuity of a.s.r. in the long term.
Ensuring that all interests of our stakeholders are taken into account in an integer and balanced way. Offering safety and reliability to customers is key to a.s.r. while maintaining a good reputation.
Group Risk Management Group Risk Management is responsible for the execution of the risk management function and the actuarial function. The department is led by the CRO. Group Risk Management consists of the following sub-departments: • Enterprise Risk Management; • Financial Risk Management (including Actuarial Function).
• Has the day-to-day responsibility for operations (sales, pricing, underwritig, claims handling, etc.) and is responsible for implementing risk frameworks and policies.
As second line of defence, Compliance encourages the organisation to comply with relevant rules and regulations, ethical standards and the internal standards derived from them (‘rules’) by providing advice and devising policy. Compliance supports the first line in the identification of compliance risks and assess the effectiveness of risk management on which Compliance reports to the relevant risk committees. In doing so, Compliance uses a compliance risk and monitoring framework. In line with risk management, Compliance also creates further awareness in order to promote a culture of integrity. Compliance coordinates contacts with regulators in order to maintain an effective relationship and keeps oversight of the current topics.
a.s.r. Risk Committee The a.s.r. Risk Committee (a.s.r. RC) is a sub-committee of the Executive Board and monitors a.s.r.’s overall risk profile on a quarterly basis. At least annually, the a.s.r. RC determines the risk appetite statements, limits and targets for a.s.r. This relates to the overall a.s.r. risk appetite and the subdivision of risk appetite by financial and non-financial risks. The risk appetite is then submitted to the a.s.r. Audit & Risk Committee, which advises the Supervisory Board on the approval of the risk appetite. The a.s.r. RC also monitors the progress made in managing risks included in the Risk Priorities of the Executive Board.
Financial Risk Committee The Financial Risk Committee (FRC) discusses and decides upon financial risk policies. The most relevant financial risk policies are approved by the a.s.r. RC. The FRC monitors and controls financial risks (market, insurance (life and non-life) and counterparty default risk). The FRC also monitors whether the risk profile stays within the risk limits. If the risk profile exceeds these limits, the FRC takes mitigating actions. The FRC reports to the a.s.r. Risk Committee. The Chairman of the FRC is the CFO.
Capital, Liquidity and Funding Committee The Capital, Liquidity and Funding Committee (CLFC) is a subcommittee of the FRC. As such, the CLFC prepares and assesses the technical analysis of capital, liquidity and funding positions, rating policy, rating model reporting, and treasury activities. The Chairman of the CLFC is the Director of Group Asset Management.
Central Investment Committee In addition to the risk committee structure, the Central Investment Committee (CIC) monitors tactical decisions and the execution of the investment policy. It takes investment decisions within the boundaries of the strategic asset allocation as agreed upon in the FRC. The CIC bears particular responsibility for investment decisions exceeding the mandate of the investment department. The CIC is chaired by the COO Life (member of the Executive Board).
5.8.1.1.3 Systems and data Tools, models and systems are implemented to support the risk management process by giving guidance and insight into the key risk indicators, risk tolerance levels, boundaries and actions and remediation plans to mitigate risks. The availability, adequacy and quality of data and IT systems is important in order to ensure that correct figures are reported and risk mitigating measures can be taken in time. It is important to establish under which conditions the management information that is submitted to the risk committees has been prepared and which quality safeguards were applied in the process of creating this information. This allows the risk committees to ascertain whether the information is sufficient to base further decisions upon.
The aim of the information security policy is to take measures to ensure that the requirements regarding availability, reliability and integer and confidential use of systems and data are met. • Information availability refers to the degree to which the information is at hand as soon as the organisation needs it, meaning, for instance, that the information should be retrievable on demand and that it can be consulted and used at the right time; • The integrity, i.e. reliability, of information is the degree to which it is up-to-date, complete and error-free; • ‘Confidential use’ refers to the degree to which the information is available to authorised persons only and the extent to which it is not available to unauthorised persons.
There are technical solutions for accomplishing this, by enforcing a layered approach (defence-in-depth) of technical measures to avoid unauthorised persons (i.e. hackers) to compromise a.s.r. corporate data and systems. In this perspective, one may think of methods of logical access management, intrusion detection techniques, in combination with firewalls are aimed at preventing hackers and other unauthorised persons from accessing information stored on a.s.r. systems. Nevertheless, confidential information can also have been committed to paper. In addition to technical measures there are physical measures part of the information security environment.
When user defined models (e.g. spreadsheets) are used for supporting the RM Framework, the ‘a.s.r. Standard for End user computing’- in addition of the general security policy - defines and describes best practices in order to guard the reliability and confidentiality of these tools and models. a.s.r. recognises the importance of sound data quality and information management systems. In 2017, a.s.r. took a number of actions to enhance the measurement and reporting on data quality for the purposes of financial reporting. In 2018 a.s.r. will take further steps on this.
5.8.1.1.5 Risk culture Risk awareness is a vital component of building a sound risk culture within a.s.r. that emphasises the human aspect in the management of risks. In addition to gaining sufficient knowledge, skills, capabilities and experience in risk management, it is essential that an organisation enables objective and transparent risk reporting in order to manage them more effectively.
It is very important that this risk awareness trickles down to all parts of the organisation, and therefore management actively encourages personnel to be aware of risks during their tasks and projects, in order to avoid risks or mitigate them when required. The execution of risk analyses is embedded in daily business in, for example, projects, product design and outsourcing.
Furthermore, a.s.r. believes it is important that a culture is created in which risks can be discussed openly and where risks are not merely perceived to be negative and highlight that risks can also present a.s.r. with opportunities. Risk Management (both centralised and decentralised) is positioned as such, that it can communicate and report on risks independently and transparently, which also contributes to creating a proper risk culture.
Measuring After risks have been identified, quantitative or qualitative assessments of these risks take place to estimate the likelihood and impact associated with them. Methods applicable to the assessment of risks are: • Sensitivity analysis; • Stress testing; • Scenario analysis; • Expert judgments (regarding likelihood and impact); and • Portfolio analysis.
Intro d uctio n management strategies. On the other hand, the risk management framework (including the risk management processes) is evaluated by the risk management function, in order to continuously improve the effectiveness of the risk management framework as a whole.
Strategic risk Strategic risk is the risk of a.s.r. or its business lines failing to achieve the objectives due to incorrect decisionmaking, incorrect implementation and/or an inadequate response to changes in the environment. Such changes may arise in the following areas: • Climate • Demographics • Competitive conditions • Technology • Macroeconomic conditions • Laws and regulations and ethical standards • Stakeholders • Group structure (for product lines only)
Risk-mitigating measures are used to reduce and contain the volatility of results or to decrease the possible negative impact on value as an alternative for the capital requirement. Proper pricing, underwriting, reinsurance, claims management, and diversification are the main risk mitigating actions for insurance risks. By offering a range of different insurance products, with various product benefits and contract lengths, and across life, disability and health and P&C insurance risk, a.s.r. reduces the likelihood that a single risk event will have a material impact on a.s.r.’s financial condition.
SCR sensitivities a.s.r. has assessed the impact of various sensitivities on the solvency ratio. The sensitivities as at 31 December 2016 and 2017, expressed as impact on the group solvency ratio (in percentage points) are as follows: Solvency II sensitivities - insurance risks
Type of risk (%-points) 31 December 2017 31 December 2016 31 December 2017 31 December 2016 31 December 2017 31 December 2016
The table above shows that the SCR sensitivities in 2017 are (almost) similar to the sensitivities of 2016. The impact on the ratio is the opposite if a reversed scenario is taken into account. These shocks had no impact on the 2017 and 2016 total equity, or on the profit for these years, because a.s.r. still passed the IFRS Liability Adequacy Test (LAT). While the sensitivities result in a decrease of the surplus in the Liability Adequacy Test, the outcome is still positive.
The SCR for life insurance risks is determined on the level of model points. A model point is a group of policies with equal characteristics. A model point is a subset of a homogeneous risk group. In case a netting between positive and negative risks within a model point can exist, special attention is given. In most cases, the model points are sufficiently homogeneous knowing that this netting is not material.
The required capital for a mass lapse event is reduced by the proceeds that are to be expected from a reinsurance arrangement (Mass Lapse Cover). This arrangement covers the risks of a mass lapse event of parts of the portfolio to the extent that the mass lapse is more than 22% and less than 40%. Especially in the case of funeral policies the netting of positive and negative risks within model points can be considerable for policies that can be surrendered (completely ending the policy, with payment of surrender value) in the case of the mass lapse. In most cases, the shock scenario for determining the SCR for mass lapse for funeral policies consists of an immediate shock of 40% with respect to the continuation of premium payment (mass ‘pup’scenario ). This is mostly in line with policy conditions. The mass pup treatment in the funeral portfolio for mass lapse risk reduces the netting of positive and negative risks to a level that is not material.
Life catastrophe risk Catastrophe risk arises from extreme events which are not captured in the other life insurance risks, such as pandemics. The capital requirement for this risk is calculated as a 1.5 per mille increase in mortality rates in the first projected year for (re)insurance obligations where the increase in mortality rates leads to an increase in technical provisions.
Employee benefits ASR Nederland N.V. has insured the post-employment benefit plans for a.s.r.’s employees with ASR Levensverzekering N.V., an insurance company within the group. Though the liability of this plan is classified as employee benefits on the balance sheet and determined according to IFRS principles, the required capitals for the life insurance risks are fully taken into account and based on Solvency II principles. The risk margin at a.s.r. group level equals the sum of risk margins of all underlying OTSO’s. No correction is made for the elimination of postemployment benefit plans for a.s.r.’s employees with ASR Levensverzekering N.V.
Other information Within a.s.r. Life the longevity risk is dominant and arises from group pension business and individual annuities. The longevity risk is partly offset by mortality risk that arises from the funeral portfolio and individual policies with mortality risk. The other main risks a.s.r. Life is exposed to are expense risk and lapse risk, though lapse risk is reduced due to the aforementioned Mass Lapse reinsurance arrangement.
5.8.2.1.1 Managing life insurance risk Life insurance risk is mitigated by pricing, underwriting policies and reinsurance.
• Health Catastrophe risk - This risk is applicable to the entire Health portfolio. The calculation is scenario-based.
Lapse risk Lapse risk is the risk of losses (or adverse changes in the best estimate of the liabilities) due to an unanticipated (higher or lower) rate of policy lapses, terminations, changes to paid-up status (cessation of premium payment) and surrenders. The effect of the lapse risk is equal to the highest result of a permanent 50% increase in lapse rates, a permanent 50% decrease in lapse rates or a mass lapse event (40% mass lapse). For the SLT Health portfolio, the mass lapse event is dominant.
NSLT lapse risk The basic and additional health insurance are compulsory insurance contracts for one year without intermediate possibility of termination and therefore lapse risk is negligible for the basic health insurance.
• Accident concentration scenario In this scenario, an accident takes place on site, with the most of our insured at the same location. The risk is that 10% of those present are killed, 1.5% are permanently disabled, 5% are disabled for ten years, 13.5% are disabled for 12 months and 30% need medical attention.
• Pandemic scenario In this scenario, there is a pandemic, which causes 1% of those affected to be hospitalised and 20% to see a local practitioner.
For the NSLT Health portfolio, the provision at year-end 2017 can be broken down as follows under Solvency II: NSLT Health portfolio - technical provisions per segment
For the non-life portfolio, the provision at year-end 2017 can be broken down as follows under Solvency II: Non-life portfolio - technical provisions per segment
An overview of the claim development at a.s.r. can be found in Chapter 5.5.14.2 of the annual report.
Benefit and claims handling costs Taking estimated future inflation into account, benefit and claims handling costs are managed based on regular reviews and related actions.
The level of retention in the various reinsurance contracts is aligned with the size and the risk profile of the underlying portfolios, taking account of the cost of reinsurance on the one hand, and the risk that is retained on the other. By determining the retention, the impact on the statement of financial position is taken into account as well. The difference in the retention of disability depends on the structure of the contract (basic coverage or indexed).
To limit risk concentration, reinsurance contracts are placed with various reinsurance companies. a.s.r. requires the counterparties to be rated at least single A. The reinsurance programme has remained largely the same as in previous years in terms of cover and limits. The most significant reinsured risk is windstorm. In 2016, a.s.r. purchased excess of loss reinsurance for accident year 2017 for windstorm in excess of € 30 million with a limit of € 390 million.
Market risk is the risk of potential losses due to adverse movements in financial market variables. Exposure to market risk is measured by the impact of movements in financial variables such as equity prices, interest rates and property prices. The various types of market risk which are discussed in this section, are: • Interest rate risk • Equity risk • Property risk • Currency risk • Spread risk • Concentration risk
A summary of sensitivities to market risks for the regulatory solvency, total equity and profit for the year is presented in the tables below: Market risk - required capital
The value of investment funds at year-end 2017 was € 3,250 million (2016 € 1,704 million). a.s.r. applies the lookthrough approach for investment funds to assess the market risk.
SCR sensitivities The sensitivities of the solvency ratio as at 31 December 2017, expressed as the impact on the group solvency ratio (in percentage points) are as presented in the table below. The total impact is split between the impact on the solvency ratio related to movement in the available capital and the required capital.
Interest rate risk – UFR Measured as the impact of a 1%-point lower UFR. For the valuation of liabilities, the extrapolation to the UFR of 3.2% after the last liquid point of 20 years remained unchanged. Interest rate risk
Property risk Measured as the impact of a 10% downward movement in the market value of real estate.
At the same time, it is assumed that the Volatility Adjustment will increase by 21 bps.
IFRS sensitivities The next table shows sensitivities of total equity and profit for the year, including insurance liabilities discounted with a fixed interest-rate, shadow accounting, investments valued at amortised cost (part of it), and postemployment benefits.
The IFRS sensitivities expressed as impact on total equity and profit of a.s.r. are as follows: IFRS sensitivities
Scenario 31 December 2017 31 December 2016 31 December 2017 31 December 2016
The sensitivity of total equity to foreign currency slightly decreased due to a lower exposure to foreign currencies.
The sensitivity of total equity to spread remained limited due to the mitigating effect of shadow accounting. The sensitivity increased due to a lower shadow accounting percentage for the productline ‘Pensioenen’.
SCR interest rate risk 428 423 a.s.r. has assessed various scenarios to determine the sensitivity to interest rate risk. The impact on the solvency ratio is calculated by determining the difference in the change in available and required capital.
An interest rate risk policy is in place for the group as well as for the registered insurance companies. All interest rate- sensitive balance sheet items are in scope, including the employee benefit obligations of the group. In principle, the sensitivity of the solvency ratio to interest rates is minimised. In addition, the exposure to interest rate risk or various term buckets is subject to maximum amounts.
5.8.3.2 Equity risk The equity risk depends on the total exposure to equities. In order to maintain a good understanding of the actual equity risk, a.s.r. applies the look-through approach for investment funds to assess the equity risk.
The required capital for equity risk is determined by calculating the impact on the available capital due to an immediate drop in share prices. Both assets and liabilities are taken into account. Stocks listed in regulated markets in countries in the EEA or OECD are shocked by 39% together with the symmetric adjustment of the equity capital charge (type I). Stocks in countries that are not members of the EEA or OECD, unlisted equities, alternative investments, or investment funds in which the look-through principle is not possible, are shocked by 49% together with the symmetric adjustment of the equity capital charge (type II).
a.s.r. applies the transitional measure for equity risk for shares in portfolio at 31 December 2015. The SCR equity shock was 22% at 31 December 2015 and linear increasing in 7 years to (i) 39% + equity dampener for type I shares and (ii) 49% + equity dampener for type II shares.
In 2017, the equity risk increased on the one hand due to a larger equity portfolio and a smaller risk mitigating effect of put options. On the other hand, as a result of the diminishing effect of the transitional measure due to (i) higher risk charges and (ii) less equities qualifying for the transitional measure.
Scenario (%-point) 31 December 2017 31 December 2016 31 December 2017 31 December 2016 31 December 2017 31 December 2016
The table below shows the exposure of the equity portfolio to sectors. The total value is including the equities in externally managed funds. In 2017 a.s.r. reduced the exposure to non-euro shares to limit the FX risk in the equity portfolio.
Composition equity portfolio 5.8.3.3 Property risk The property risk depends on the total exposure to real estate. In order to maintain a good understanding of the actual property risk, a.s.r. applies the look-through approach for investment funds to assess the property risk.
The property investments are diversified across the Netherlands. In 2017 a.s.r. reduced the exposure to offices and increased the exposure to the other categories.
Foreign bonds in externally managed funds have substantially decreased in the following currencies: USD and AUD.
Financial statements 2017 | 5.8 Risk management 242 5.8.3.5 Spread risk Spread risk arises from the sensitivity of the value of assets and liabilities to changes in the level of credit spreads on the relevant risk-free interest rates. a.s.r. has a policy of maintaining a well-diversified high-quality investment grade portfolio while avoiding large risk concentrations. Going forward, the volatility in spreads will continue to have possible short-term effects on the market value of the fixed income portfolio. In the long run, the credit spreads are expected to be realised and to contribute to the growth of the own funds. The required capital for spread risk is determined by calculating the impact on the available capital due to the volatility of credit spreads over the term structure of the risk-free rate.
The total exposure of assets in scope of spread risk is € 23,431 million (2016: € 24,592 million). The decrease of the portfolio is mainly due to (i) the sale of core government bonds and (ii) the increase of the yield curve. Besides the sale of core government bonds, a.s.r. also sold non-core government bonds and bought corporates and financials. These transactions lead to changes in the portfolio decomposition: • the relatively amount of government bonds decreased and the amount of corporates and financials increased; • the relatively amount of AAA and AA rated bonds decreased and the amount of A and BBB rated bonds increased;
In order to avoid concentrations in a single obligor, a.s.r. applies a limit on maximum exposure of € 700 million for issuers with a single A rating and higher and € 350 million for issuers with a BBB rating. The limits apply to the total investment portfolio, where government bonds are not included, which is consistent with Solvency II. Beside the limits on single obligors, a.s.r. applies also limits on the total level of the required capital for market risk concentrations.
Financial statements 2017 | 5.8 Risk management 244 5.8.4 Counterparty default risk
Counterparty default risk reflects possible losses due to unexpected default or deterioration in the credit standing of counterparties and debtors. Counterparty default risk affects several types of assets: • Mortgages • Savings-linked mortgage loans • Derivatives • Reinsurance • Receivables • Cash and deposits
Assets that are in scope of spread risk are, by definition, not in scope of counterparty default risk and vice versa. The Solvency II regime makes a distinction between two types of exposures: • Type 1: These counterparties generally have a rating (reinsurance, derivatives, current account balances, deposits with ceding companies and issued guarantee (letter of credit). The exposures are not diversified. • Type 2: These counterparties are normally unrated (receivables from intermediaries and policyholders, mortgages with private individuals or SMEs). The exposures are generally diversified.
5.8.4.1 Mortgages Mortgages are granted for the account and risk of third parties and for a.s.r.’s own account. The a.s.r. portfolio consists only of Dutch mortgages with a limited counterparty default risk. The fair value of a.s.r.’s mortgage portfolio was € 6,990 million at year-end 2017 (2016: € 6,754 million).
The default percentage (i.e. the percentage of mortgages which is in arrears for over three months) has decreased from 0.34% in December 2016 to 0.21% in December 2017. This drop is a consequence of the improved economic circumstances and of the organisation of preventive management, whereby the flow of short-term arrears to longer delays could be reduced.
Intro d uctio n 5.8.4.2 Savings-linked mortgage loans The counterparty default risk of the savings-linked mortgage loans (‘Spaarlossen’) depends on the counterparty. For 59% of the portfolio, the counterparties are Special Purpose Vehicles. The risk is limited due to the robust quality of the mortgages in the Special Purpose Vehicles in combination with the tranching. a.s.r. has a cessionretrocession agreement with the counterparty for 38% of the portfolio, for which the risk is limited. Effectively, a.s.r. receives the underlying mortgage loans as collateral, mitigating the counterparty default risk of the savings-linked mortgage loans.
Financial statements 2017 | 5.8 Risk management 246 5.8.4.6 Cash and cash equivalents The current accounts amounted € 2,523 million in 2017 (2016: € 1,799 million).
a.s.r. recognises different levels of liquidity management. Short-term liquidity, or daily cash management, covers the day-to-day cash requirements under normal business conditions and targets funding liquidity risk. Long-term liquidity management considers business conditions in which market liquidity risk materialises. Stress liquidity management looks at the ability to respond to a potential crisis situation as a result of a market event and an a.s.r.-specific event. Unexpected cash outflows could occur as result of lapses in the insurance portfolio, savings withdrawals or cash variation margin payments related to the ISDA/CSA agreements of derivatives. a.s.r. monitors its liquidity risk scenarios via different risk reporting and monitoring processes including daily cash management reports, cash flow forecasts and stress scenario liquidity reports.
The system of internal control includes the management of risks at different levels in the organisation, both operational and strategic. Internal control at an operational level centres around identifying and managing risks within the critical processes that pose a threat to the achievement of the business line’s objectives. The use of controls helps to mitigate or even completely eliminate identified risks. This increases the business line’s chances of achieving its objectives and demonstrates that it is in control. Business lines report on the effectiveness of their controls on a quarterly basis. The effectivity of controls is important input for the sign off that each business line provides on the financial figures.
Down (SRA) method to identify risks. The outcomes of the CRSA’s and SRA are jointly translated into risk scenarios and ‘risk priorities’, in which the most significant risks for a.s.r. are represented.
Measuring Through the ORSA process, the likelihood and impact of the identified risks are assessed, taking into account (the effectiveness of) risk mitigating measures and planned improvement actions. Information from other processes¹ is used to gain additional insights into the likelihood and impact. One single risk scenario takes multiple risks into account. In this manner, the risk scenarios provide (further) insights into risk interdependencies.
Managing As part of the CRSA processes, the effectiveness of risk mitigating measures and planned measures of improvement is assessed. This means risk management strategies are discussed, resulting in refined risk management strategies.
Monitoring and reporting The effectiveness of operational risk management is periodically monitored by the business risk manager at each business line or legal entity. For each key control in the risk-control framework a testing calendar is established, based on accounting standards. Each control is tested regularly and the outcomes of the effectiveness of the management of key risks are reported to the management board. Outcomes are also reported to the NFRC and a.s.r. RC.
Evaluating Periodically, yet at least annually, the risk-control frameworks and ORM policies are evaluated to see if revisions are necessary. The risk management function also challenges the business lines and legal entities regarding their riskcontrol frameworks.
ICT Through IT risk management, a.s.r. devotes attention to the efficiency, effectiveness and integrity of ICT, including End User Computing applications. The logical access control for key applications used in the financial reporting process remains a high priority in order to enhance the integrity of applications of data. The logical access control procedures also prevent fraud by improving segregation of duties and by conducting regular checks of actual access levels within the applications. Proper understanding of information, security and cyber risks is essential, reason for which actions are carried out to create awareness among employees and business lines.
a.s.r. considers something a crisis when one or more business lines are (in danger of being) disrupted in the operational management, due to a calamity, or when there is a reputational threat. In order to reduce the impact of the crisis, to stabilise the crisis, and to be able to react timely, efficiently and effectively, a.s.r. has assigned a crisis organisation.
Each business line has their own crisis team led by the director of the management team. The continuity of activities and the recovery systems supporting critical activities are regularly tested and crisis teams are trained annually. The objective of the training is to give the teams insights into how they function during emergencies and to help them perform their duties more effectively during such situations. The training also sets out to clarify the roles, duties and responsibilities of the crisis teams.
Recovery Planning a.s.r.’s Recovery Plan helps to be prepared and have the capacity to act in various forms of extreme financial stress. To this end, the Recovery Plan describes and quantifies the measures that can be applied to live through a crisis situation. These measures are tested in the scenario analysis, in which the effects of each recovery measure on a.s.r.’s financial position (solvency and liquidity) are quantified. The required preparations for implementing the measures, their implementation time and effectiveness, potential obstacles and operational effects are also assessed. The main purpose of the Recovery Plan is to increase the chances of successful early intervention in the event of a financial crisis situation and to further guarantee that the interest of policyholders and other stakeholders are protected.
Reasonable assurance and model validation a.s.r. aims to obtain reasonable assurance regarding the adequacy and accuracy of the outcomes of models that are used to provide best estimate values and solvency capital requirements. To this end, multiple instruments are applied, including model validation. Materiality is determined by means of an assessment of impact and complexity. Impact and complexity is expressed in terms of High (H), Medium (M), or Low (L).
E lig ib le o w n fu nd s to m ee t
Management Overall capital management is administered at group level. Capital generated by operating units and future capital releases will be allocated to profitable growth of new business or repatriated to shareholders, beyond the capital that is needed to sustain commercial capital levels at management’s targets. a.s.r. actively manages its inforce business, which is expected to result in substantial free capital generation over time. Additionally, business improvement and balance sheet restructuring should improve the capital generation capacity while advancing the risk profile of the company. The legal entities are capitalised separately, and excess capital over management’s targets are intended to be up-streamed to the holding company, in so far the local regulations and the internal risk appetite statement allow.
The SCR is reported on a quarterly basis and proxies are made on a monthly basis. The internal minimum solvency ratio for a.s.r. as formulated in the risk appetite statement is 120%. The lower limit solvency target is 140%. The management target for the solvency ratio is above 160%. The solvency ratio stood at 196% at 31 December 2017, which was comfortably higher than the internal requirement of 120% and the management target of 160%.
The Solvency II ratio stood at 196% (excluding a.s.r. Bank) as at 31 December 2017 (2016: 189%). The Solvency II ratio including a.s.r. Bank stood at 195% as at 31 December 2017 (2016: 188%).
Under Solvency II it is permitted to reduce the required capital with the mitigating tax effects resulting from a 1-in200 -year loss (Shock loss). There is a mitigating tax effect to the extent that the Shock loss (BSCR + Operational risk) is deductible for tax purposes and can be compensated with taxable profits. This positive tax effect can only be taken into account when sufficiently substantiated (‘more likely than not’). a.s.r. included a beneficial effect on its solvency ratio(s) due to the application of the LAC DT. The LAC DT benefit is € 745 million.
The group has formulated its dividend policy in line with its current strategy. The Company intends to pay an annual dividend that creates sustainable long-term value for its shareholders. The Company aims to operate at a solvency ratio, calculated according to the standard formula, above a management threshold level. This management threshold level is currently defined as above 160% of the Solvency Capital Requirement (‘SCR’). In general, it expects to not pay cash dividends if the group level solvency ratio (calculated according to the standard formula) falls below 140%. The Company currently intends to consider investing capital above the solvency ratio (calculated according to the standard formula) of 160% with the objective of creating value for its shareholders. If and when the Company operates at a certain level safely above the 160%, and the Company assesses that it cannot invest this capital in value creating opportunities for a prolonged period of time, the Company may decide to return (part of this) capital to shareholders. If the Company elects to return capital, it intends to do so in the form that is efficient for shareholders at that time. a.s.r. intends to pay € 229,7 million dividends over full year 2017. As from 2018, a.s.r. intends to pay an interim dividend.
5.10.3 Notes to the company financial statements 5.10.3.1 Accounting policies The company financial statements are prepared in accordance with Title 9, Book 2 of the Dutch Civil Code. The consolidated financial statements of a.s.r. for 2017 have been prepared in accordance with IFRS – including the International Accounting Standards (IAS) and Interpretations – as accepted within the European Union and with part 9 of the book of the Dutch Civil Code. In accordance with Section 362(8), Book 2 of the Dutch Civil Code, the ASR Nederland N.V. Executive Board has decided to apply the same accounting policies to the company financial statements as applied to the consolidated financial statements. This has been the practice since 2005.
The loans to group companies consist primarily of deposits with group companies of € 70 million (2016: € 77 million) with an average interest rate of 1.8% (2016: € 1.8%) repayable within one year, no loans with a maturity term within 3 years (2016: nil) and loans of € 18 million (2016: € 15 million) with a maturity term longer than 3 years and an average interest rate of 4.0% (2016: 4.3%). Interest income on loans to group companies amount to € 1 million (2016: € 1 million).
Other changes - -40 5.10.3.6 Deferred tax assets The deferred tax assets primarily consist of to employee benefits (including the asset resulting from the insurance contracts) which are administered by ASR Levensverzekering N.V. amounting to 119 million (2016: € 150 million) off set by the equalisation reserve of € 66 million (2016: € 53 million).
Change in reserves required by law - - - 63 -63 - - - -
Statutory reserves The statutory reserves relate to the revaluation of investments in group companies. The statutory reserves are maintained in relation to the (not yet received as dividend) share in the result (and other additions to equity) of group companies accounted for using the equity method since initial recognition reduced with the amount of dividend that a.s.r. is able to distribute without restrictions. The statutory reserves are not freely distributable. Refer to Chapter 5.9 for more information on the regulatory restrictions.
Other equity instruments The other equity instruments relate to four (2016: three) different hybrid Tier 1 and Tier 2 instruments classified as equity (see Chapter 5.5.12.5). Of the four different equity instruments that were issued, two instruments (issue date 2009) are guaranteed by ASR Levensverzekering N.V. The third instrument (issue date 2014), which features a perpetual non call 10 year restricted Tier 2 capital instrument, does not contain guarantees from operating entities. In 2017, a.s.r. issues the first continental European Solvency II-compliant and Euro denominated Restricted Tier 1 issue. The issue features a perpetual non-call 10 year restricted Tier 1 contingent convertible capital instrument (see Chapter 5.5.12.5) and does not contain guarantees from operating entities.
each as defined under national law, or in the articles of association of a.s.r.
Distributable items 3,089 2,318 5.10.3.10 Employee benefits Employee benefits can be broken down as follows (see Chapter 5.5.15 for further details): Employee benefits
An amount of € 11 million of the provisions is expected to fall due within one year (2016: € 21 million).
5.10.3.13 Debts to group companies The debts to group companies no longer exist since they have reached their maturity dates in 2017. The debt contained an interest-rate of 1.01% (2016: 1.05%).
The interest rate is 1-month Euribor + 0.60 % (2016: +0.65%).
5.10.3.16 Operating expenses The operating expenses of € 103 million (2016: € 86 million) consist of the part of the total operating expenses related to Holding – activities. Please refer to Chapter 5.6.8 for the total operating expenses of the group.
5.10.3.17 Interest expense The interest expense relates primarily to the interest on subordinated liabilities and interest on the employee benefits obligation, allocated to the Holding.
5.10.3.19 Related parties A related party is a person or entity that has significant influence over another entity, or has the ability to affect the financial and operating policies of the other party. Parties related to a.s.r. include NLFI and the Dutch State for the period until 13 September 2017, associates, joint ventures, members of the Executive Board, members of the Supervisory Board, close family members of any person referred to above, entities controlled or significantly influenced by any person referred to above and any other affiliated entity.
Lease commitments For the table with the breakdown of the commitments for non-cancellable operating leases, see Chapter 5.7.5.
Commitments to group companies ASR Nederland N.V. has committed to a capital increase of ASR Bank N.V. amounting to € 41 million for the period until 2019. The amount will be paid in tranches when required by ASR Bank N.V. depending on its required solvency. As a consequence of the growing business, capital tranches amounting to € 31 million have already been made until end of 2017 (until 2016: € 19 million).
Report on the audit of the financial statements 2017 included in the annual report
The consolidated financial statements comprise: • The consolidated statement of financial position as at 31 December 2017; • The following statements for 2017: the consolidated income statement, the consolidated statements of comprehensive income, changes in equity and cash flows; and • The notes comprising a summary of the significant accounting policies and other explanatory information.
The company financial statements comprise: • The company balance sheet as at 31 December 2017; • The company income statement for 2017; and • The notes comprising a summary of the accounting policies and other explanatory information.
Last year materiality was set at € 30 million which was based on approximately 5% of a three year average profit before tax, excluding one-offs/special items. For 2017 we changed the benchmark applied to Operating Result since Operating Result is now for a longer period disclosed, it is used by ASR Nederland N.V. to assess the operating results of the company including its segments and it presents also a more stable earnings-based measure of financial performance, compared to profit before tax.
We agreed with the supervisory board that misstatements in excess of € 1.6 million, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
Scope of the group audit ASR Nederland N.V. is at the head of a group of entities, including the principal subsidiaries as set out in note 5.7.7 of the annual accounts. The financial information of this group is included in the consolidated financial statements of ASR Nederland N.V.
Compared to our independent auditor’s report 2016, we made the following changes to our key audit matters (KAM): • We added a new KAM related to the subsequent events disclosure on the Generali NL (GNL) acquisition, since this is an significant subsequent event for which specific disclosure requirements apply.
• The unit-linked exposure was last year presented as part of the KAM ‘Valuation and adequacy of insurance contract liabilities’, this year we presented this matter in a separate KAM to reflect ASR Nederland N.V.’s specific developments as well as broader market developments in 2017.
Valuation and adequacy of insurance contract liabilities (including shadow accounting) due to the complexity and use of assumptions
The company has comprehensive procedures and internal controls in place to determine the shadow accounting.
Our audit approach We involved internal actuarial specialists in performing the audit procedures in this area. This includes assessing the appropriateness of assumptions used in the valuation of the individual life and pension contracts, non-life contracts and healthcare insurance contracts by reference to company and industry data and expectations of investment returns, future longevity and expense developments.
Furthermore key audit procedures included assessing ASR Nederland N.V.’s methodology for calculating the insurance liabilities, assessing the company’s approach to liability adequacy testing and an assessment of internal controls in this respect, including the analyses of the movements in insurance contracts liabilities and technical provisions adequacy surplus during the year. We assessed whether the movements are in line with the changes in assumptions adopted by ASR Nederland
Shadow accounting is complex, requires judgment regarding results that apply for shadow accounting and has a significant impact on the liabilities arising from insurance contracts. We tested the internal controls regarding the accounting of the (un)realized results on the fixed income investments, interest derivatives and inflation rate swaps, and relating shadow accounting adjustments. Furthermore we tested the application of shadow accounting by checking the reconciliations between (un)realized results on swaps and swaptions and the related shadow accounting adjustment in the Liabilities arising from insurance contracts.
We determined that the company applied shadow accounting (including the accounting for realized results) in accordance with their accounting policy and consistent with previous years.
Key observations Based on our procedures performed we consider the fair value of financial instruments to be within a reasonable range.
provides disclosures on its capital position in accordance with Solvency II.
As disclosed in the Capital management section all relevant regulations and guidance have been taken into account in the development of the ASR Nederland N.V. loss absorbing capacity of deferred taxes methodology. Further, in the calculation of the Solvency II ratio, ASR Nederland N.V. has not provided for a contingent liability in respect of the unit-linked issue in the Netherlands. ASR Nederland
Our audit approach As part of our audit procedures, we assessed the design and operating effectiveness of the internal controls over the solvency calculations, including ASR Nederland N.V.’s methodology, model and assumption approval processes and management review controls. Also, where relevant, comparison of judgements was made to current and emerging market practice and re-performance of calculations on a sample basis.
Key observations Based on our procedures performed, we consider the Solvency II information disclosed in note 5.9.2.
With regard to the pro-forma impact of the Generali Nederland N.V. acquisition on ASR Nederland
Our audit approach We performed audit procedures in this area, which included: • An assessment of ASR Nederland N.V.s governance, processes and internal controls with respect to unit-linked exposure.
Key observations We found management’s assessment that the financial consequences of the unit-linked exposure cannot be reliably measured and therefore no provision is recognized in the 31 December 2017 balance sheet, sufficiently substantiated.
Our procedures focused primarily on the risks relating to the valuation model, assumptions and judgements associated with the estimation of the fair value measurements. These included amongst others: • Gaining an understanding through enquiry and assessment of the valuation methodology adopted by ASR Nederland N.V. and comparing the approach with accepted industry practice; • Assessing the appropriateness of key assumptions; • Confirming consistency of assumptions with other areas of the financial statements; • Recalculating the consideration and excess purchase amount.
Key observations Based on or procedures performed we determined that management applied a reasonable approach in determining the initial PPA of GNL’s assets acquired and liabilities assumed.
We note that given the recent closing, the initial accounting for GNL is ongoing and as such the opening balance sheet as presented in note 5.7.6 is provisional. We assessed this disclosure meets the requirements of IFRS 3. In accordance with IFRS 3 the final opening balance sheet will be drawn up within 12 months of the closing date.
ASR Nederland N.V. continues to invest in its IT infrastructure and processes to meet clients’ needs and business requirements.
In addition to the financial statements and our auditor’s report thereon, the annual report contains other information that consists of: • Management report; • Other information pursuant to Part 9 of Book 2 of the Dutch Civil Code; • Report of Stichting Continuïteit ASR Nederland.
We have read the other information. Based on our knowledge and understanding obtained through our audit of the financial statements or otherwise, we have considered whether the other information contains material misstatements. By performing these procedures, we comply with the requirements of Part 9 of Book 2 of the Dutch Civil Code and the Dutch Standard 720. The scope of the procedures performed is less than the scope of those performed in our audit of the financial statements.
Management is responsible for the preparation of the other information, including the management report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information pursuant to Part 9 of Book 2 of the Dutch Civil Code.
ASR Real Estate, ASR Mortgages and ASR Pensions; we issued an assurance report with regard to ASR Vermogensbeheer GIPS verification, and we issued assurance reports on the cost price models for financial products prepared by a.s.r.’s insurance subsidiaries; • We issued reports of factual findings on statements prepared by a.s.r. to meet contractual obligations with its customers.
Our audit has been performed with a high, but not absolute, level of assurance, which means we may not have detected all material errors and fraud.
From the matters communicated with the supervisory board, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.
Articles 35, 36 and 37 of the Articles of Association: Distributions – General
35.3 Subject to Article 19.10, the Executive Board may adopt, and amend from time to time, a dividend and reservation policy for the Company. Amendments to such a policy shall be discussed in the General Meeting.
35.5 Distributions on ordinary shares shall be made in proportion to the aggregate nominal value of those ordinary shares. Distributions on preferred shares (or to former holders of preferred shares) shall be paid in proportion to the amounts paid up (or formerly paid up) on those preferred shares.
35.6 The parties entitled to a distribution shall be the relevant shareholders, usufructuaries and pledgees, as the case may be, at a date to be determined by the Executive Board for that purpose. This date shall not be earlier than the date on which the distribution was announced.
35.8 A distribution shall be payable no later than thirty days after the date on which that distribution was declared, unless the Executive Board sets a different date. In the case of a distribution in cash, that distribution shall be payable in such currency as determined by the Executive Board.
Article 36 36.1 All reserves maintained by the Company shall be attached exclusively to the ordinary shares. The Company shall not attach any reserve to the preferred shares. 36.2 Subject to Article 31.1, the General Meeting is authorised to resolve to make distributions from the
37.2 To the extent that the distributions described in Article 37.1 paragraphs a. through c. (or any part thereof) cannot be paid out of the profits shown in the financial statements, the deficit shall be paid out of the Company’s reserves, subject to Articles 35.1 and 35.2.
a.s.r. has granted a call option to the Foundation under an agreement dated 27 May 2016; this agreement outlines the conditions under which the call option can be exercised. The call option is a continuous and repeatedly exercisable right, pursuant to which the Foundation is entitled to subscribe for preference shares, up to the lower of (a) the total number of shares that form a.s.r.’s issued capital at the time when the call option is exercised, less the number of preference shares already held by the Foundation at that time (if any) and less one, or (b) the maximum number of preference shares that may be issued under the authorised share capital as shown by the Articles of Association of a.s.r. at the time when the call option is exercised. The Foundation has the right to exercise the call option at any time, either fully or in part. The exercise price for preference shares issuable under the call option is equal to 25% of the nominal amount of those preference shares.
Other information | 7.1 Report of Stichting Continuïteit ASR Nederland 274
Process Relevant topics and boundaries for this report were selected on the basis of a materiality analysis involving both internal and external stakeholders. The process is described in Chapter 2.4 (Our stakeholders and material issues). The information in the Management report is based on reports from the business lines and the results of questionnaires and interviews. For the preparation of the annual report, a Working Group, a Steering Group and a Review Group have been set up to guide the process and review the contents of the texts. The following disciplines are represented in the Working Group: Group Accounting, Reporting & Control, Group Balance Sheet Management, Investor Relations, Corporate Communications, Human Resources, Group Risk Management and the Company Secretary. The Annual Report Steering Group agrees on the different tasks, roles and responsibilities relating to the preparation of the annual report. The Steering Group represents the CEO, Director Group Accounting, Reporting & Control and Director Corporate Communications. Before work started on gathering information and writing the annual report, the Steering Group and the Working Group decided on the structure and key messages of the report. The Working Group then translated these guidelines into drafts, which were subsequently reviewed by a committee of members from the Working Group, Steering Group and Review Group. During the reporting process, the Review Group delivered feedback on the draft annual report. The Review Group is represented by directors. The draft texts of the annual report are discussed in the respective meetings of the Executive Board, the Supervisory Board and the Audit & Risk Committee. Disclosure of the annual report is subject to the approval of the Executive Board and the Supervisory Board.
Standards The consolidated financial statements of a.s.r. have been prepared in accordance with International Financial Reporting Standards (IFRS). The separate financial statements have been prepared on the same basis as those used for the consolidated financial statements. The consolidated financial statements are presented in euros (€). Unless stated otherwise, all amounts in the tables in these financial statements are in millions of euros.
This report has been prepared in accordance with the GRI Standards: Core option. The GRI table, including additional information not included in the annual report itself, can be found in the annexes. In addition, the Integrated Reporting Framework of the IIRC (International Integrated Reporting Council) has been used to further integrate the financial and non-financial information into the Management report.
Audit and assurance of the auditor The consolidated financial statements have been audited by our external auditor, Ernst & Young Accountants LLP (EY). EY’s audit opinion can be found on page 261.
In addition to the financial results, EY also reviewed the sustainability information in this annual report with ‘a limited level of assurance’ as per the GRI Sustainability Reporting Standards and the Guidance Note on Sustainability Reporting of the Dutch Accounting Standards Board. EY’s assurance report can be found on page 87. The Executive Board and senior executives are involved in seeking external assurance for the organisation’s sustainability information.
Asbestos-safe Some buildings in the rural property portfolio may still contain asbestos. Targets are set in order to make the rural property portfolio fully asbestos-safe. Results of rural portfolio asbestos-safe, includes the number of rehabilitated properties plus the number of properties sold compared to the portfolio of 2015.
Back books Back books consist of policies that are no longer sold but are still on the books as premium-paying policies with limited or no growth prospects.
Carbon footprint An organisation’s carbon footprint is determined by converting its consumption of natural gas, electricity and fossil fuels into carbon emissions. The carbon footprint gives the organisation an idea of the greenhouse gas emissions caused by its operations and products. The direct footprint of a.s.r. head office consists of waste, fuel, heat, electricity, cooling, commuter travel and business travel. 87% of all lease cars are allocated to the head office. a.s.r.’s carbon footprint is determined annually by an external agency using Carbon Manager based on Green deal carbon emission factors. Note: 1 kg of CO2- equivalents is a unit of account for comparing the contribution of greenhouse gases to the greenhouse effect. The calculation is based on the principles of the Greenhouse Gas Protocol. Most of the emission factors are from www.CO2-emissiefactoren.nl and are specific to Sita waste (CE Delft).
In 2017, a new more accurate calculation method was used. In order to be able to compare results with previous year, the results for 2016 have been recalculated on the basis of the new calculation method and adjusted emission factors for 2017 for waste and mobility.
Global Real Estate Survey Benchmark (GRESB) The Global Real Estate Survey Benchmark (GRESB) is a benchmark that looks at the sustainability performance of more than 700 institutional investment funds worldwide.
Gross written premiums Total revenues (earned or otherwise) expected to be received for insurance contracts over the life of the contract, including reinsurance premiums.
Impact investments Investments made in companies, countries and/or funds with the intention of having a beneficial impact on society and the environment while achieving an acceptable financial return. For a.s.r. Impact Investing goes a step further than the integration of ESG criteria by targeting to make a positive contribution to solving the challenges facing our planet and society.
Internal employee An employee on an employment contract of definite or indefinite duration with a.s.r. or one of its subsidiaries.
Joint venture A contractual arrangement under which two or more parties undertake an economic activity that is subject to joint control.
Lease car fuel consumption Fuel consumption is expressed in liter (petrol, diesel, electricity and GHC). This is converted into joule.
Principles for Responsible Investments (PRI) The United Nations Principles for Responsible Investments are a framework for institutional investors. The principles, which were launched in April 2006, pertain to the integration of environmental, social and governance aspects into investment policies. For more information, see unpri.org.
Shadow accounting Shadow accounting allows a recognised but unrealised gain or loss on an asset to be transferred to insurance liabilities.
Trees for all Trees for All is a foundation and recognised charity with CBF quality mark. The contribution of a.s.r. for CO2 compensation and planting trees invests Trees for all in the construction of new forest and the protection of existing forest. These projects generate extra income for the local population and contribute to the restoration of nature and the environment. Compensation takes place in Bolivia via Gold Standard certificates.
Volunteering Volunteer activities undertaken by a.s.r. employees, partly during work hours (eight hours per day) and partly during their own free time, to contribute to community initiatives/social projects that are developed or supported by a.s.r. as part of its financial literacy drive.
AFM Netherlands Authority for the Financial Markets AGM Annual General Meeting AIFM Alternative Investment Fund Managers ALM Asset Liability Management ANBI Public Service Organisations a.s.r. reim a.s.r. real estate investment management AVB ASR Vermogensbeheer B.V.
IAS International Accounting Standards IASB International Accounting Standards Board IBNR Incurred But Not Reported ICSR International Corporate Social Responsibility IDD Insurance distribution directive IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards IFSR Insurer Financial Strength Rating (Standard & Poor’s) IIRC International Integrated Reporting Council IORP Institution of Occupational Retirement Provision IPO Initial Public Offering ISDA International Swaps and Derivatives Association KBC Customer Interest Central Dashboard KPI Key Performance Indicator KNVB Cost Efficiency, Usefulness, Safety and Comprehensibility LAC DT Loss Absorbing Capacity Deferred Tax LAT Liability Adequacy Test LEF Life and Finance foundation LRC Leidse Rijn Centrum LTGA Long-Term Guarantee Assessment M&A Merger and Acquisitions MiFID2 Markets in Financial Instruments Directive 2 MYA3 Multi-Year Energy Efficiency Agreement 3 NFR Non-financial risk NFRC Non-Financial Risk Committee nFTK New Financial Assessment Framework NLFI NL financial investments NPS Net Promoter Score NSCC National Cyber Security Center NOP Non-accumulating policies OIS Overnight Index Swap ORSA Own Risk and Solvency Assessment OTC Over The Counter OTSO Supervised insurance entity PARP Product Approval and Review Process P&C Property and Casualty QIS Quantitative Impact Studies (Solvency II) RAS Risk Appetite Statements RMF Risk Management Function RPA Robotic Process Automation ROE Return on Equity RT1 Restricted Tier 1 bond SA Separate account SAA Strategic Asset Allocation SaaS Software as a Service SCR Solvency Capital Requirement SDGs Sustainable Development Goals SFCR Solvency and Financial Condition Report SME Small and Medium-sized Enterprises SRA Strategic Risk Analysis SRI Socially Responsible Investment SRP Socially Responsible Procurement and Business Practices TVOG Time Value of Financial Options and Guarantees UBI Usage-based Insurance UCITS Undertakings for Collective Investment in Transferable Securities UFR Ultimate Forward Rate UN GC United Nations Global Compact UN PRI United Nations Principles for Responsible Investments USD United States Dollar VBDO Dutch Association of Investors for Sustainable Development
Trade unions • Regular meetings (more frequent consultation in case of CBA talks) Quarterly
102-3 Location of headquarters Ch. 1.1 At a glance (p. 6-7)
Annex E Additional employee information 102-9 Supply chain Ch. 1.1 At a glance (p. 6-7)
102-12 External initiatives asrnl.com/sustainable-business/codes-and-guidelines 102-13 Membership of associations asrnl.com/sustainable-business/codes-and-guidelines 102-14 Statement from senior decisionmaker
102-15 Key impacts, risks, and opportunities Ch. 2.3 Key trends (p. 22-29)
GRI Standard Disclosure Location of disclosure, url(s) and/or information 102-16 Values, principles, standards, and norms of behaviour
102-40 List of stakeholder groups Ch. 2.4 Our stakeholders and material issues (p. 29-33)
Annex A Notes to the reader 102-46 Defining report content and topic boundaries
• Customer satisfaction and service offering: since 2017 this is no longer measured. This has been replaced by the Denison scan which measures wider aspects than mere ‘satisfaction’.
• Equal pay for men and women: this is not managed by the organisation and is not a material theme for 2017.
The material themes that have been given a different name and/or content in 2017: • Vitality: This was ‘Health and safe working environment. Vitality is a broader concept and involves more than merely health and safety.
It also pertains to the mental condition and development and movement of staff within the organisation (education and training).
• Climate change: The theme solely covers the risks and opportunities of climate change relating to products and services and does not affect the investment activities or operational activities.
102-50 Reporting period 1 January to 31 December 2017 102-51 Date of most recent report 29 maart 2017 102-52 Reporting cycle Annual 102-53 Contact point for questions regarding the report
Transparent product and service descriptions 417-2 Marketing and Labelling Incidents of non-compliance concerning product and service information and labelling.
Integrity 418-1 Customer Privacy 2016 Substantiated complaints concerning breach of customer privacy and loss of customer data a. Significant fines and non-monetary sanctions for non-compliance with legislation and/or regulations in the social and economic area in terms of: I. complaints received from outside parties and substantiated by the organisation; Root cause of complaint: privacy violation or data leak by external parties. Category: Justified and unjustified.
b. Total number of identified leaks, thefts, or losses of customer data.
Sustainable employment 404-2 Training and Education Programmes for upgrading employee skills and transition assistance programmes.
404-3 Training and Education Percentage of employees receiving regular performance and career development reviews.
Ch. 3.1.3 - suppliers. The SRP annex has been applicable to all new suppliers (100%) from mid-2017.
Reference table Decree on the disclosure of non-financial information and information on diversity
Annexes | EU Directive: disclosure of non-financial information and diversity information 294
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