The investments at fair value through profit or loss increased in 2018 by € 626 million primarily due to additional investments in the mortgage equity funds and a.s.r. real estate funds.
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 190
All investments at fair value through profit or loss are designated as such by a.s.r. upon initial recognition. For more detailed information about the fair value valuation of the investments, please see chapter 7.7.1.
Based on their contractual maturity, an amount of € 21,774 million (2017: € 20,090 million) of fixed income investments, mortgage equity funds and other investments is expected to be recovered after twelve months after reporting date. For all assets without a contractual maturity date, it is assumed that they will be expected to be recovered after twelve months after the reporting date.
Transfer between investments on behalf of policyholders and investments -5 32
Changes in investments on behalf of policyholders at fair value through profit or loss
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 193
Total due from credit institutions consist for € 2,861 million (2017: € 2,811 million) of savings-linked mortgage loans.
Derivatives consist primarily of derivatives used to hedge interest rate movements. Changes in the fair value of derivatives at fair value through profit or loss are recorded in ‘fair value gains and losses’ (see chapter 7.6.4).
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 194
In addition to the use of swaps and options a.s.r. further mitigates interest rate risk by using forward starting swaps, included in interest rate contracts swaps.
The fair value of interest-rate contracts is calculated by first determining the cash flows of the floating leg based on the Euribor-curve corresponding the interest reset period (3 months, 6 months or 12 months) of the swap. Then the net present value of the floating and fixed leg is determined by discounting the cash flows with the Overnight Indexed Swap (OIS) curve.
The fair value of the interest-rate contracts using the above valuation method form the basis for the amount of collateral that is exchanged between a.s.r. and its counterparties in accordance with the underlying contracts. For more information please see chapter 7.8 on risk management.
Of the derivatives € 2,443 million (2017: € 2,453 million) and € 365 million (2017: € 393 million) are non-current derivative assets and liabilities respectively.
Deferred taxes are formed for differences between the carrying amount of assets and liabilities and their tax base at the enacted tax rate, taking into account tax-exempt components. The enacted and current tax rate of 25.0% (2017: 25.0%) is applied when calculating deferred tax.
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 195
For the calculation of the net deferred tax position at year end 2018, a rate reduction of the corporate tax has been taken into account. This reduction will be effective in 2020 (22.5%) and 2021 and thereafter (20.5%). The revised tax rate has been used for deferred taxes which are expected to be recovered in 2020 and, 2021 and later. Due to this rate reductions the deferred tax assets decreased at year end 2018.
Prepaid costs and other non-financial assets include prepaid commissions non-life insurance.
An amount of € 30 million (2017: € 85 million) of the other assets is expected to be recovered less than or equal to twelve months after reporting date.
Interest expenses on cash collateral is standardised in the ISDA/CSA’s and based on EONIA.
Preference shares - Authorised capital; par value of € 0.16 350 56 350 56
7.5.12.5 Other equity instruments In 2018, a.s.r. neither issued nor redeemed any other equity instruments. In 2017, a.s.r. launched and priced a € 300 million perpetual non-call 10 year restricted Tier 1 contingent convertible capital instrument.
a.s.r. launched and priced a € 300 million perpetual non-call 10 year restricted Tier 1 contingent convertible capital instrument on 12 October 2017, priced with a fixed-rate coupon of 4.625% (resettable after 10 years).
The (interest) reimbursement on the restricted Tier 1 contingent convertible capital instrument was explicitly made tax deductible until 1 January 2019 in Article 29a of the Dutch Income Tax Act (Wet Vpb). Now that this article has been abolished, the question is whether the (interest) reimbursement can still be deducted for tax purposes on the basis of the existing legislation and regulations for hybrid financing instruments. This may not be the case. However, case law regarding the tax deductibility of hybrid financing instruments is still developing. a.s.r. will take a position on this at a later stage.
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 199 7.5.12.6 Non-controlling interests
Basic earnings per ordinary share from continuing operations (in euros) 4.59 6.01
Basic earnings per ordinary share from discontinued operations (in euros) -0.26 0.02
Diluted earnings per share at year-end 2018 2017 - Net profit from continuing operations 647 869 - Effect of Restricted Tier 1 capital instrument 10 -
Adjusted net profit (loss) attributable to holders of ordinary shares for calculating the diluted earnings per ordinary share 620 872
Life insurance contracts excluding own pension contracts 28,217 26,478 174 180
Non life insure contracts as at 31 December 5,027 4,579 415 366
Total life insurance contracts at 31 December 28,217 26,478 174 180
The other changes in life insurance contracts (€ -283 million) mainly concern the reassessment of insurance contracts to insurance contracts on behalf of policyholders resulting from new product features provided in 2018 to clients.
The changes in composition of the group reflect the acquisition of Generali Nederland (see chapter 7.4.5).
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 204 7.5.14.3 Liabilities arising from insurance contracts on behalf of policyholders
At year-end 2018, the liabilities included a guarantee provision for a carrying amount of € 44 million (2017: € 30 million) and a provision related to unit-linked insurance contracts and pension contracts for a carrying amount of € 45 million (2017: € 47 million). These provisions relate to compensation for the cost of these contracts.
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 205
An amount of € 3,044 million (2017: € 3,212 million) of the employee benefits is expected to be settled more than twelve months after reporting date.
The post-employment benefit plans for ASR Nederland N.V. employees is primarily based on the following conditions: • The accrual rate for old age pensions 1.875% (2017: 1.89%); • Retirement age 68 years (2017: 68 years); • Maximum pensionable salary capped at € 105,075 (2017: € 103,317); • Future inflation indexation is conditional; • Minimum franchise has changed.
Generali Nederland employees Former employees of Generali Netherlands N.V. are still covered by Generali Nederland post-employment benefit plan. This plan is based on an average-salary pension with conditional indexation.
The liability as per 31 December 2018 is € 185 million.
Other group companies employees The other group companies which have been acquired have defined contribution and defined benefit plans. The defined benefit plans consist primarily of indexed average salary pension plans taking into account a franchise. The liability as per 31 December is € 0.1 million (2017: € 1.2 million).
Employees account for 25% (2017: 26%) of the defined benefit obligation, 41% (2017: 41%) of the defined benefit obligation relates to former employees currently receiving pension benefits, 29% (2017: 28%) of the defined benefit obligation relates to deferred pensioners and 5% (2017: 5%) of the defined benefit obligation relates to other members.
As per 31 December 2018 the duration of the defined benefit obligation was 18 years (2017: 18 years).
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 207
In the calculation of the defined benefit obligation the: • Discount rate is based on an internal curve for high quality corporate bonds; • Most recent mortality table 'AG Prognosetafel 2018' is used, in combination with the latest 'CVS Sterftestatistiek
Pensioenen 2008-2017' for experience factors; • The period of indexation is based on the expected duration of the separate account to fund the future inflation indexation.
In 2018, the discount rate methodology changed. a.s.r. developed an internal curve for high quality corporate bonds for determination of the discount rate. The discount rate is based on the return (zero coupon rate) of high-quality corporate bonds (AA rating) and the cash flow pattern of the pension obligation. All other methods used for determining the post-employment benefit defined obligation and assumptions are consistent with those applied in 2017. The impact of this changed methodology on the pension obligation is a decrease of € 112 million.
The sensitivity of the above actuarial assumptions to feasible possible changes at the reporting date to one of the relevant actuarial assumptions whilst other assumption remain constant, would have affected the defined benefit obligation by the amounts shown below: Sensitivity of actuarial assumptions
Plan assets The pensions related to other group companies are administered and guaranteed by a number of insurance companies outside of the group. As such the plan assets recognised relate to the insurance contracts and amount to € 1 million (2017: € 10 million).
The non-qualifying assets, which are managed by a group company, are not presented as part of the net defined benefit obligation. At year-end 2018, the fair value of these assets amounted to € 2,505 million (2017: € 2,546 million), which includes the separate account to fund future inflation indexation amounting to € 306 million (31 December 2017: € 335 million). As mentioned above, the swaps and swaptions have not been allocated directly to the post-employment benefit obligations; neither are they included as part of the fair value of the non-qualifying assets managed by the group company.
Under IFRS, assets managed by insurance companies that form part of the group do not qualify as qualifying assets. Investment income from these assets has therefore not been included in the above figures but is recognised as investment income separately. Actual investment returns for 2018 amounted to € 83 million (2017: € 61 million), which includes the investment income on the separate account to fund future inflation indexation amounting to € 5 million (2017: € 6 million). These returns have been recognised in investment income (see chapter 7.6.2).
The separate account to fund future inflation indexation is utilised to fund the future inflation indexation for the employees and former employees included in the ASR Nederland N.V. post-employment benefit plans. As such this has been included in the assumption used in calculating the defined benefit obligation.
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 209 7.5.15.2 Post-employment benefits other than pensions The other post-employment benefits plans consist of personnel arrangements for financial products (such as mortgages and health insurance), which remain in place after retirement.
In the calculation of the defined benefit obligation the: • Discount rate is based on an internal curve for high quality corporate bonds; • Most recent mortality table 'AG Prognosetafel 2018' is used, in combination with the latest
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 210 7.5.15.3 Other long-term employee benefits Other long-term employee benefits consist of the employer’s share of liabilities arising from long-service benefits.
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 211 7.5.17 Borrowings
As at year-end 2018, borrowings comprised loans having the following terms to maturity: Borrowings comprised loans
Maturity - Falling due between 1 and 5 years 4 9
At year-end 2018, the fair value of borrowings was € 39 million (2017: € 39 million). For information regarding the fair value, see chapter 7.7.1.2. The average interest rate payable on borrowings was 2.26% (2017: 1.83%).
a.s.r. has extended its unsecured revolving facility with ABN AMRO of € 350 million for another year. These borrowings are used for investment purposes (property, group pension contracts), for balance sheet management, and for short-term cash flow management. At the end of 2018 a.s.r. had used € 30 million of this facility.
Financial statements 2018 | 7.5 Notes to the consolidated balance sheet 212 7.5.20 Other liabilities
Non-financial liabilities - Short-term employee benefits 21 16 - Other non-financial liabilities 449 336
The other non-financial liabilities of € 449 million (2017: € 336 million) consist amongst others of payables, accruals related to investments and construction depots for rural housing mortgages.
Financial statements 2018 | 7.6 Notes to the consolidated income statement 213 7.6 Notes to the consolidated income statement 7.6.1 Gross insurance premiums
Financial statements 2018 | 7.6 Notes to the consolidated income statement 215
The effective interest method has been applied to an amount of € 794 million of the interest income from financial assets not classified at fair value through profit or loss (2017: € 836 million). Interest income includes € 7 million (2017: € 9 million) in interest received on impaired fixed-income securities.
The decrease in realised gains on investments available for sale primarily related to sale of preferred stock and government bonds in 2017.
Reversal of impairments on fixed-interest securities as a result of disposal amounts to € 3 million (2017: € 3 million). The related expenses are included under ‘Other expenses’, please see note 7.6.11.
Gains and losses on investment property and property for own use 46 65
Financial assets at fair value through profit or loss 143 65
Additions to insurance liabilities due to shadow accounting (chapter 7.5.14) -311 445
Financial statements 2018 | 7.6 Notes to the consolidated income statement 216 7.6.5 Fee and commission income
Changes in liabilities arising from insurance contracts on behalf of policyholders 253 119
The increase in total operating expenses is primarily a result of the acquired activities of Generali Nederland. Excluding the acquisition, the operating expenses are reduced as a result of the completion of projects, efficiency improvements and rationalisation of IT- processes owing to migrations of portfolios to a single a.s.r. platform.
The operating expenses of a.s.r. bank are excluded from the operating expenses as a result of the classification as ‘held for sale’ (see chapter 7.4.6).
The total workforce consists of the number of internal and external FTEs. The number of internal FTE increased to 3,683 FTE (2017: 3,493 FTE) and the number of external FTE increased to 631 FTE (2017: 624) mostly as a result of the acquisition of Generali Nederland.
Financial statements 2018 | 7.6 Notes to the consolidated income statement 218 7.6.9 Impairments
Total changes in impairments of investments available for sale -33 24 7.6.10 Interest expense
Reconciliation of expected income tax expense with the actual income tax expense
Breakdown of financial assets and liabilities measured at fair value (recurring basis)
Cash and cash equivalents are classified as level 1 when not subject to restrictions.
Level 3: Fair value not based on observable market data 22 - - 22
Transfer between investments on behalf of policyholders and investment property 4 -9
Transfer of real estate equity funds from investment property - 1,432
Total revaluations of investments, held at year-end, recognised in the income statement 142 125
The main non-observable market input for the private equity investments is the net asset value as published by the investee. An increase or decrease in the net asset value of equities classified as level 3 will have a direct proportional impact on the fair value of the investment. The table below discloses the sensitivities to non-observable market inputs for the property portfolio, including real estate equity funds.
The main non-observable market input for the real estate equity funds third parties is the net asset value as published by the investee. An increase or decrease in the net asset value of equities classified as level 3 will have a direct proportional impact on the fair value of the investment.
Financial statements 2018 | 7.7 Other notes 224 7.7.1.2 Financial assets and liabilities not measured at fair value The breakdown of the fair values of financial assets and liabilities not measured at fair value, and for which the fair value is disclosed in accordance with the level of fair value hierarchy, as explained in accounting policy B, is as follows: Breakdown of financial assets and liabilities not measured at fair value
Financial statements 2018 | 7.7 Other notes 225 7.7.1.3 Property (including land and buildings for own use) The breakdown of the investment property, real estate equity funds and land and buildings for own use in accordance with the fair value hierarchy, as explained in accounting policy B, is as follows: Breakdown of the fair value of the investment property and land and buildings for own use
Land and buildings for own use (chapter 7.5.2) - - 147 147
The property portfolio is classified as a level 3 ‘not measured on the basis of market observable market data’. Nonobservable market inputs are used in the valuation methods, in addition to the observable market inputs. The fair value measurement is based on valuations by independent professional appraisers. These valuations have been performed for the entire portfolio of investment property and buildings for own use. Independent professional appraisers use reference transactions of comparable properties, in combination with the DCF and income capitalisation method, to determine the fair value of the property. The reference transactions of comparable objects are generally based on observable data consisting of the land register ‘Kadaster’ and the rural land price monitor as published by the Dutch Government ‘Grondprijsmonitor’ in an active property market.
The property has a relatively fixed return. The property portfolio is well diversified and consists of residential, retail, offices and rural property, throughout the Netherlands. The retail portfolio focusses on high street locations with relative low vacancy rates. The following table shows a breakdown of the fair value and vacancy rates of the portfolio of investment property, including real estate equity funds where a.s.r. has significant influence. Investment property on behalf of policyholders primarily consist of retail property.
The movements in investment property measured at fair value (recurring basis) that are categorised within level 3 are presented in chapter 7.5.3 Investment property and 7.5.2 Property and equipment.
Land and buildings for own use 146 DCF total 9,086,254 mean 6.2% -5% - 8 15
Financial statements 2018 | 7.7 Other notes 229 7.7.2 Offsetting of financial assets and liabilities
Gross amounts of recognised financial assets set off in the statements of financial position
For the purpose of this assessment, principal is defined as the fair value of the financial asset on initial recognition. However, the principal may change over time – e.g. if there are repayments of principal.
Interest is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks (e.g. liquidity risk) and costs (e.g. administrative costs), as well as a profit margin that is consistent with a basic lending arrangement. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are SPPI.
In assessing whether the contractual cash flows are solely payments of principal and interest, a.s.r. considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.
3 The fair value movement of financial assets recognised as at 31 December 2018, that were either purchased during 2018 or were already recognised as at 31 December 2017. This does not include the fair value movement of the financial assets derecognised in 2018.
Total financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest 38,677
For more detailed information about the credit risks of a.s.r., please see chapter 7.8.3 and chapter 7.8.4.
1 The gross carrying amounts are measured applying IAS 39 (in the case of financial assets measured at amortised cost, before adjusting for any impairment allowances).
2 The gross carrying amounts are measured applying IAS 39 (in the case of financial assets measured at amortised cost, before adjusting for any impairment allowances).
Financial statements 2018 | 7.7 Other notes 232 7.7.4 Related party transactions
Financial statements 2018 | 7.7 Other notes 233 7.7.5 Remuneration of Supervisory Board and Executive Board
Board member As a committee member Total 1 The amount received as a committee member of the Selection and Appointment Committee (€ 2,500 per annum) and the Remuneration
2 The amount received as a committee member of the Selection and Appointment Committee (€ 2,500 per annum) and the Remuneration
Financial statements 2018 | 7.7 Other notes 234 7.7.5.2 Remuneration of current and former Executive Board members The remuneration of the Executive Board members is in accordance with the 2018 remuneration policy.
In accordance with the remuneration law 'Wet aansprakelijkheidsbeperking DNB en AFM en bonusverbod staatsgesteunde ondernemingen', issued by the Dutch government, no variable remuneration has been disbursed to the Executive Board members for the period as from the 2011 a.s.r. financial year until 2016 a.s.r. financial year. In 2017 the increase in short-term variable employee benefits is caused by the one-off variable payment in December. In 2017 the fixed employee benefits of board members only increased with the annual CAO-index. In 2018 the fixed employee benefits of board members increased as a result of the first step towards the target salaries.
Long-term variable remuneration Total 1 The fixed employee salary of the two ordinary board members is similar and amounts to € 498,000 in 2018. Variations arise as a result of the fiscal treatment of lease cars depending on the price and private use of the car and personnel interest rate discount related to mortgages.
The fixed employee salary for the CEO amount to € 642,000 and for the CFO amount to € 505,000 in 2018.
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 7.5.14).
As for other claims and legal proceedings, against a.s.r. known to management (and for which, in accordance with the defined principles, no provision has been formed), management believes, after having sought expert advice, that these claims have no chance of success, or that a.s.r. can successfully mount a defense against them, or that the outcome of the proceedings is unlikely to result in a significant loss for a.s.r. For further information related to the Unit-Linked Products (beleggingsverzekeringen), please see chapter 7.7.6.2.
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 7.5.14). 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.
Investment obligations and guarantees for a total amount of € 41 million (2017: € 166 million) have been issued, for real estate development projects and the acquisition of property. Those guarantees were issued by principals for the execution of projects for the benefit of clients.
a.s.r. also had irrecovable facilities of € 327 million (2017: € 383 million) which mainly relate to mortgage offers issued. Furthermore, a.s.r. issued several other guarantees for a total amount of € 10 million (2017: € 10 million).
Later than 3 months and no later than 1 year 4 4
Later than 1 year and no later than 5 years 10 10
Total commitments for non-cancellable operating leases at 31 December 17 17
Later than 1 year and no later than 5 years 127 134
The investments properties in the different markets retail, residential, offices and rural are leased to third parties, consisting of various lease terms in a range between shorter than one year and undetermined period with competitive rents mostly indexed to consumer prices.
On 20 March 2019, ASR Bank N.V. (a.s.r. bank) and Achmea Bank N.V. (Achmea Bank) agreed that Achmea Bank will acquire the savings and mortgage portfolios of a.s.r. bank in an asset / liability transaction. The transaction is in line with the updated strategy of ASR Nederland N.V. as announced at its Capital Markets Day in October 2018.
The transaction is subject to the approval of De Nederlandsche Bank, the Dutch Consumer & Market Authority and completion of the advice procedure with the works council of the entities involved. Achmea Bank and a.s.r. bank expect to conclude the transaction in the second half of 2019. The valuation of a.s.r. bank as included in the 2018 Balance sheet and income statement reflect the provisional effects of this transaction.
O p e ra tin g e n viro n m e n t
Financial statements 2018 | 7.7 Other notes 238 7.7.8 List of principal group companies and associates
ASR Vastgoed Vermogensbeheer B.V.¹,³ 100,00 100,00 Utrecht Banking & Asset Management
2 Registered insurance companies 3 Other Wft registered companies 4 Joint Venture
Risk management is an integral part of a.s.r.’s daily business operations. a.s.r. applies an integrated approach to managing risks ensuring that strategic objectives are met. Value is created by striking the right balance between risk and return and capital, whilst ensuring that obligations to stakeholders are met. The Risk Management Function (RMF) supports and advises a.s.r. in identifying, measuring and managing risks, and ensures that adequate and immediate action is taken in the event of developments in the risk profile.
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 (see chapter 7.8.1.1.1 Risk management strategy and risk appetite).
Risk governance Risk governance can be seen as the way in which risks are managed, through a sound risk governance structure and clear tasks and responsibilities, including risk ownership. a.s.r. employs a risk governance framework that entails the tasks and responsibilities of the risk management organisation and the structure of the Risk committees (see chapter 7.8.1.1.2 Risk governance).
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 (see chapter 7.8.1.1.3 Systems and data).
Assessment (ORSA), the regulatory capital requirements and the risk tolerances; • Provide specific risk tolerances and limits within all relevant risk categories in line with the risk appetite statements; • Describe the frequency and content of regular stress tests and the circumstances that would warrant ad-hoc stress tests.
The classification of risks within a.s.r. is performed in line with, but is not limited to, the Solvency II risks. Each risk category consists of a policy that explicates how risks are identified, measured and controlled within a.s.r. (see chapter 7.8.1.1.4 Risk policies and procedures).
Risk culture An effective risk culture is one that enables and rewards individuals and groups for taking risks in an informed manner. It is a term describing the values, beliefs, knowledge, attitudes and understanding about risk. All the elements of the RM framework combined make an effective risk culture.
Risk management process The risk management process contains all activities within the RM processes to structurally 1) identify risks; 2) measure risks; 3) manage risks; 4) monitor and report on risks; and 5) evaluate the risk profile and risk management framework. At a.s.r., the risk management process is used to implement the risk strategy in the steps mentioned. These five steps allow for the risks within the company to be managed effectively (see chapter 7.8.1.1.6 Risk Management process).
Financial statements 2018 | 7.8 Risk management 241 7.8.1.1.1 Risk management strategy and risk appetite 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 N.V. meets the (reasonable) expectations of stakeholders and offers solid and reliable products which are cost-efficient, useful, safe and comprehensible to customers, intermediaries and
ASR’s internal organisation. Conducting honest business ensures that ASR’s reputation is protected.
5 ASR Nederland N.V. remains within the bandwidth of periodically reassessed market risk budgets. FR
6 ASR Nederland N.V. has at least a single A rating and hereto it adheres to the AA level criteria under the
Double leverage ratio = Total value of associates / (equity attributable to shareholders + hybrids and subordinated liabilities).
10 ASR Nederland N.V. is capable of releasing liquidities worth up to € 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.
ROE > 10% and seeks an ROE > 8% for individual investment decisions.
7.8.1.1.2 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.
Risk ownership The Executive Board has the final responsibility for risk exposures and management within the organisation. Part of the responsibilities have been delegated to persons that manage the divisions where the actual risk-taking takes place. Risk owners are accountable for one or more risk exposures that are inextricably linked to the department or product line they are responsible for. Through the risk committee structure, risk owners provide accountability for the risk exposures.
Positioning of key functions Within the risk governance, the key functions (compliance, risk, actuarial and audit) are organised in accordance with Solvency II regulation and play an important role as countervailing power of management in the decision-making process. The four key functions are independently positioned within a.s.r. In all the risk committees one or more key functions participate. None of the functions has voting rights in the committees, in order to remain fully independent as countervailing power. All functions have direct communication lines with the Executive Board and can escalate to the chairman of the Audit & Risk Committee of the Supervisory Board. Furthermore, the key functions have regular meetings with the supervisors of the Dutch Central Bank and/or The Dutch Authority for the Financial Markets (AFM).
Financial Risk Management Financial Risk Management (FRM) is responsible for the second line financial risk management and supports both the Actuarial Function and Risk Management Function. An important task of FRM is to be the countervailing power to the Executive Board and management in managing financial risks for a.s.r. and its subsidiaries. FRM assesses the accuracy and reliability of the market risk, counterparty risk, insurance risk and liquidity risk, risk margin and best estimate liability. Other responsibilities are model validation and policies on valuation and risk. FRM is also responsible for the actuarial function. As part of the actuarial function, FRM reviews the technical provisions, monitors methodologies, assumptions and models used in these calculations, and assesses the adequacy and quality of data used in the calculations. Furthermore, the Actuarial Function expresses an opinion on the underwriting policy and determines if risks related to the profitability of new products are sufficiently addressed in the product development process. The actuarial function also expresses an opinion on the adequacy of reinsurance arrangements.
Risk committee structure a.s.r. has established a structure of risk committees (model 2018) with the objective to monitor the risk profile for a.s.r. group, its legal entities and its business lines in order to ensure that it remains within the risk appetite and the underlying risk tolerances and risk limits. When triggers are hit or likely to be hit, risk committees make decisions regarding measures to be taken, being risk-mitigating measures or measures regarding governance, such as the frequency of their meetings. For each of the risk committees a statute is drawn up in which the tasks, composition and responsibilities of the committee are defined.
a.s.r. Risk Committee The a.s.r. Risk Committee (a.s.r. RC) 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.
Non-Financial Risk Committee The Non-Financial Risk Committee (NFRC) discusses, advises and decides upon non-financial risk policies. The most relevant risk policies are approved by the a.s.r. RC. The NFRC monitors that non-financial risks are managed adequately and monitors that the risk profile stays within the agreed risk limits. If the risk profile exceeds the limits, the NFRC takes mitigating actions. The NFRC reports to the a.s.r. RC. The NFRC is chaired by the COO Non-Life (member of the Executive Board).
7.8.1.1.3 Systems and data GRC tooling is 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 information involved tends to be sensitive. To prevent unauthorised persons from accessing it, it is disseminated using a secure channel or protected files. a.s.r.’s information security policy contains guidelines in this respect.
a.s.r.’s information security policy is based on ISO 27002 ‘Code of practice for information security management’. This Code describes best practices for the implementation of information security.
7.8.1.1.5 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.
The Executive Board clearly recognises the importance of risk management and is therefore represented in all of the major group level risk committees. Risk Management is involved in the strategic decision-making process, where the company’s risk appetite is always considered. The awareness of risks during decision-making is continually addressed when making business decisions, for example by discussing and reviewing risk scenarios and the positive and/or negative impact of risks before finalizing decisions. 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.
7.8.1.1.6 Risk management process The risk management process typically comprises of five important steps: 1) identifying; 2) measuring; 3) managing; 4) monitoring and reporting; and 5) evaluating . a.s.r. has defined a procedure for performing risk analyses and standards for specific assessments. The five different steps are explained in this chapter.
Evaluating The evaluation step is twofold. On the one hand, evaluation means risk exposures are evaluated against risk appetite tolerance levels and limits, taking (the effectiveness of) existing mitigation measures into account. The outcome of the evaluation could lead to a decision regarding further mitigating measures or changes in risk 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. .
Financial statements 2018 | 7.8 Risk management 248 7.8.1.2 a.s.r.’s risk categories a.s.r. is exposed to a variety of risks. There are six main risk categories that a.s.r. recognises, as described below.
Liquidity risk Liquidity risk is the risk that a.s.r. is not able to meet its financial obligations to policyholders and other creditors when they become due and payable, at a reasonable cost and in a timely manner.
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.
Expense risk A calculation is made of the effect on own funds of a permanent increase in costs used for determining the best estimate. The scenario analysis contains an increase in the costs of 10% and an increase in the cost inflation of 1%-point per year. This scenario also includes a similar shock in the investment costs. Both the internally and externally managed investment costs are involved in this scenario.
For the life portfolio, the provision at year-end can be broken down as follows under Solvency II: Life portfolio - technical provisions per segment
The technical provisions and the risk margin have increased due to the acquisition of Generali Nederland (resp. 3.1 bln and 0.2 bln). This increase was mitigated by the outflow of the individual life portfolio and (to a lesser extend) the traditional pensions portfolio.
Reinsurance Reinsurance and other 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 to the capital requirement. Reinsurance arrangements have been set up to mitigate the effects of catastrophes on earnings. The level of retention in different reinsurance contracts is aligned with the size and the risk profile of the underlying portfolios. This includes taking account of the cost of reinsurance on the one hand, and the risk that is retained on the other.
• NSLT Health portfolio (Similar to Non-life Techniques), which can be divided into - Income Protection (Sickness, and Individual and Group Accident) - Medical Expenses (Basis and Aanvullend)
Expense risk A calculation is made of the effect of a permanent increase in costs, which is used for determining the best estimate. The scenario analysis contains an increase in the costs of 10% and an increase in the cost inflation of 1%-point per year.
Income Protection This component is calculated for policies for which an increase in mortality rates or morbidity rates or disability rates leads to an increase in the best estimate. There are three scenarios, which are calculated for all SLT Health and portfolios.
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.
The SCR for the Health Non-SLT risk differs from the sum of the amounts reported in the OTSO QRTs. This difference is caused due to a diversification benefit on group level. For the SLT Health portfolio, the provision at year-end 2018 can be broken down as follows under Solvency II.
For the NSLT Health portfolio, the provision at year-end 2018 can be broken down as follows under Solvency II.
Technical provision 475 445 7.8.2.2.2 Non-Life insurance risk Non-life Insurance risk can be broken down into: • Premium and reserve risk; • Non-life catastrophe risk; • Lapse risk.
Below table summarises the required capital for abovementioned non-life insurance risks based on the standard model.
Disability risk Disability risk is controlled by means of regular evaluation of historical claims patterns, expected future developments and price adjustments. Disability risk is mitigated by a.s.r. through underwriting criteria and a proactive reintegration policy. a.s.r. also mitigates its disability risk through suitable reinsurance.
There is also a concentration of risk in group disability schemes. Group disability contracts are underwritten within the scope of disability cover for employees in the Netherlands (WIA).
The level of retention in the various reinsurance contracts is aligned with the size and the risk profile of the underlying portfolios, taking into account of the cost of reinsurance on the one hand, and the risk that is retained on the other.
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 program has remained largely the same as in previous years in terms of cover and limits. The most significant reinsured risk is windstorm. In 2017, a.s.r. purchased excess of loss reinsurance for accident year 2018 for windstorm in excess of € 35 million with a limit of € 535 million.
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 to (i) 39% + equity dampener for type I shares and (ii) 49% + equity dampener for type II shares. The equity dampener has a value between -10% and 10%. In the event of increasing equity prices, the equity dampener will have a dampening effect.
UFR of 3.2% after the last liquid point of 20 years remained unchanged. Interest rate risk (incl. UFR
Scenario IFRS Equity IFRS Profit IFRS Equity IFRS Profit IFRS Equity IFRS Profit
The sensitivity of total equity to spread remained limited due to the mitigating effect of shadow accounting.
The sensitivity of profit includes the impact of both derivatives and bonds.
The used shocks vary by maturity and the absolute shocks are higher for shorter maturities (descending: 75% to 20% and ascending: -70% to -20%): • The yield curve up shock contains a minimum shock of 100bps; • The yield curve in after the downward shock is limited to zero (no negative interest rates); • The yield curves of all currencies are shocked simultaneously.
S tra te g y Lo n g te rm va lu e cre a tio n B
Composition of equity portfolio The fair value of equities and similar investments at year-end 2018 was € 2,191 million (2017: € 2,524 million). The decrease in 2018 is a result of the drop of share prices.
The equities are diversified across the Netherlands (including participating interests), other European countries and the United States. A limited part of the portfolio consists of investments in emerging markets and alternatives. A portfolio of put options with an value of € 26 million is in place to mitigate the equity risk.
In 2018 the real estate investments increased due to both transactions and increases in property prices. As a result the required capital for property risk increased.
Composition of property portfolio The property risk depends on the total exposure to property, which includes both property investments and property held for own use. The fair value of property was € 4,111 million at year-end 2018 (2017: € 3,524 million). The increase in 2018 was a result of both transactions and increases in property prices.
The property investments are diversified across the Netherlands. In 2018 a.s.r. reduced the exposure to offices and increased the exposure to the other categories.
Composition property portfolio 7.8.3.4 Currency risk Currency risk measures the impact of losses related to changes in currency exchange rates. The table below provides an overview of all currencies with exposure on liabilities and the currencies with the largest exposures. a.s.r. has currency risk to insurance products in American dollars (USD), Australian dollars (AUD) and South African Rands (ZAR). The policy of a.s.r. is in principle to hedge the currency risk excluding investments in equities and investments that are externally managed. However, certain currency exposures are permitted from a tactical perspective within a specific risk budget. The required capital for currency risk is determined by calculating the impact on the available capital due to a change in exchange rates. Both assets and liabilities are taken into account and a look-through approach is applied for investment funds. For each currency the maximum loss due to an upward and a downward shock of 25% is determined except for a small number of currencies where lower shocks are applied (Danish crown; Bulgarian lev).
Composition currency portfolio 7.8.3.5 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 required capital for spread risk is equal to the sum of the capital requirements for bonds, structured products and credit derivatives. The capital requirement depends on (i) the market value, (ii) the modified duration and (iii) the credit quality category.
The SCR spread risk on balance decreased in 2018. On the one hand SCR spread risk increased due to a larger fixed income portfolio, mainly due to the acquisition of Generali Nederland. On the other hand SCR spread risk decreased due to the shortening duration of the credit portfolio.
The sensitivity to spread risk is measured as the impact of an increase of spread on loans and corporate bonds of 75 bps. The volatility adjustment is based on a reference portfolio. An increase of 75 bps of the spreads on loans and corporate bonds within the reference portfolio leads to an increase of the VA with 20 bps in 2018 (2017: 21 bps).The impact of the required capital on the solvency ratio increased due to the fact that in this scenario interest rate up becomes dominant in the determination of interest rate risk, resulting in a lower SCR requirement.
The increase in 2018 is caused by changes in the credit quality step of Secured Deposito’s. 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.
The increase of the portfolio is due to the acquisition of Generali Nederland. This led to an increase of SCR Counterparty risk equal to 35 million. This was compensated by a decrease of exposure to reinsurance and cash. The counterparty risk type 2 has decreased a) due to the lower volume of the receivables from intermediaries that have been due for more than three months; b) due to the overall decrease of exposures to Mortgage loans, Intermediaries and policyholders. The total counterparty risk has decreased by 53 million.
7.8.4.1 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 € 7,546 million at year-end 2018 (2017: € 6,990 million).
The Loan-to-Value ratio is based on the value of the mortgage according SII principals with respect to the a.s.r. calculated collateral.
Composition savings-linked mortgage loans portfolio 7.8.4.3 Derivatives Over the Counter (OTC) derivatives are primarily used by a.s.r. to manage the interest-rate risks incorporated into the insurance liabilities. Interest-rate derivatives are traded with a well-diversified and qualitative dealer panel with whom there is an established International Swaps and Derivatives Association (ISDA) contract and a Credit Support Annex (CSA) in place. These CSAs include specific agreements on the exchange of collateral limiting market and counterparty risk. The outstanding value of the interest rate derivative positions is matched by collateral received from eligible counterparties, minimising the net counterparty default risk.
7.8.4.4 Reinsurance a.s.r. collaborates with reinsurers for fire and catastrophe risk. The table below shows the exposure to reinsurers per rating. The total exposure to reinsurers at year-end 2018 was € 583 million (2017: € 549 million).
Financial statements 2018 | 7.8 Risk management 267 7.8.4.6 Cash and cash equivalents The current accounts amounted € 2,625 million in 2018 (2017: € 2,523 million).
a.s.r.’s liquidity management principle consists of three components. First, a well-diversified funding base is necessary in order to provide liquidity for cash management purposes. A portion of assets must be invested in unencumbered marketable securities that can be used for collateralised borrowing or asset sales. Second, the strategic asset allocation should reflect the expected and contingent liquidity needs of liabilities. Finally, an adequate and up-to-date contingency liquidity plan is in place to enable management to act effectively and efficiently in times of crisis.
In 2018 the liquidity risk table has been updated for better understanding of the future cash flows. Additional time buckets were added to increase granularity. The comparative figures have been adjusted accordingly.
Payable on demand < 1 years 1-5 years 5-10 years > 10 years Carrying value
• Financial liabilities payable on demand include the liability recognised for cash collateral received under ISDAs, concluded with counterparties.
• The related cash collateral received is recognised as cash and cash equivalents, and not part of the liquidity risk exposure table. See Chapter 7.8.4.6 Cash and cash equivalents.
Managing As part of the SRA 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.
7.8.7.2 Operational risk management Operational Risk Management (ORM) involves the management of all possible risks that may influence the achievement of the business goals and that can cause financial or reputational damage. ORM includes the identification, analysis, prioritisation and management of these risks in line with the risk appetite. The policy on ORM is drafted and periodically evaluated under the coordination of Enterprise Risk Management. The policy is implemented in the decentralised business entities under the responsibility of the management boards. A variety of risks is covered by ORM policy: IT risk, outsourcing, data quality, underwriting etc.
The SCR is reported on a quarterly basis and proxies are made on both a monthly and weekly basis. The internal minimum solvency ratio for a.s.r. as formulated in the risk appetite statement is 120%. The lower limit solvency target is 140%. The management threshold level for the solvency ratio is above 160%. The solvency ratio stood at 197% at 31 December 2018, which was comfortably above the internal requirement of 120% and the management threshold level of 160%.
Under Solvency II it is permitted to reduce the required capital with the mitigating tax effects resulting from a 1-in- 200-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 € 640 million.
Relevant regulation and current guidance (Delegated Regulation, Level 3 guidelines, Dutch Central Bank Q&A’s and IAS12) is taken into account in the development of the LAC DT methodology.
Standard & Poor’s confirmed the single A rating of a.s.r., ASR Levensverzekering N.V., and ASR Schadeverzekering N.V. on August 20, 2018.
In June 2018, a.s.r. group paid € 229,7 million in cash dividend over the financial year 2017, representing a payout ratio of 45% in line with our dividend policy. Furthermore, a.s.r. paid € 91,65 million in interim dividend in September 2018. This interim dividend relates to the financial year 2018 and is determined as 40% of the total dividend over the previous financial year (in casu 2017). Dividends paid out by a.s.r. group is financed by the underlying entities with exception of ASR Basis Ziektekostenverzekeringen N.V.
In December 4th 2018, a.s.r. announced the intended acquisition of Loyalis for a total consideration of € 450 million. This transaction will be financed with short-term debt, which leaves ample headroom in all capital tiers. The acquisition of Loyalis is expected to be completed in the first half of 2019.
Financial statements 2018 | 7.10 Company financial statements 275 7.10 Company financial statements 7.10.1 Company balance sheet
Financial statements 2018 | 7.10 Company financial statements 276 7.10.2 Company income statement
Unless stated otherwise, all amounts presented in these financial statements are in millions of €. Calculations in the tables are made using unrounded figures. As a result rounding differences can occur.
7.10.3.2 Intangible assets The goodwill amounting to € 74 million as at 31 December 2018 (2017: € 27 million) relates for € 23 million to the 2015 acquisition of De Eendragt Pensioen N.V., for € 4 million to the 2016 acquisition of BNG Vermogensbeheer B.V. and for € 47 million to the 2018 acquisition of Generali Nederland N.V.
Other changes 1 7. 10.3.6 Deferred tax assets The deferred tax assets arises from the difference in commercial and fiscal valuation of employee benefits (including the asset resulting from the insurance contracts), which are administrated by ASR Levensverzekering N.V.) amounting to € 113 million (2017: € 119 million) and € 24 million (2017: nil) because of the future corporate tax rate reduction offset by the equalisation reserve of € 66 million (2017: € 66 million).
7.10.3.7 Other receivables The other receivables are including receivables from group companies, which include the receivable with respect to non-qualifying plan assets (see chapter 7.5.15) administered by ASR Levensverzekering N.V. amounting to € 2,944 million (2017: € 2,738 million). The plan assets administered by ASR Levensverzekering N.V. include the separate account to fund future inflation indexation amounting to € 306 million as at 31 December 2017 (2017: € 335 million). The remaining portion of the receivables from group companies is payable on demand.
Financial statements 2018 | 7.10 Company financial statements 278 7.10.3.8 Cash and cash equivalents Cash and cash equivalents are stated at face value. They are fully and freely available to the company.
S ta tu to ry r e se rv e s
R e ta in e d e ar n in g s
Tax relating to interest on other equity instruments - - - - 15 - 15 - 15
Issue of other equity instruments - - - - - - - 300 300
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. See chapter 5.9 for more information on the regulatory restrictions.
Financial statements 2018 | 7.10 Company financial statements 279 1 Less the nominal value of treasury shares if applicable.
Distributable items The calculated Available Distributable Items as at 31 December 2018 and 2017 is as follows.
In 2015, a.s.r. issued € 500 million subordinated liabilities in the form of Tier 2 Notes, first callable on 29 September 2025 and maturing on September 2045. The coupon is fixed at 5.125% and paid annually on 29 September with a step up at the first call date.
The debts to group companies of € 39 million (2017: nil) contains a deposit due to group companies with an interest-rate of 0.6%. The maturity of the deposit is 12 months.
The interest expense on debts to group companies in 2018 is € 0.1 million (2017: € 0.1 million).
7.10.3.14 Due to banks In 2018 due to banks contained € 135 million (2017: nil).
7.10.3.16 Operating expenses The operating expenses of € 111 million (2017: € 104 million) are operating expenses relating to Holding – activities. Please see chapter 7.6.8 for the total operating expenses of the group.
7.10.3.17 Interest expense The interest expense relates primarily to the interest on subordinated liabilities and interest on the employee benefits obligation, allocated to the Holding.
7.10.3.19 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.
The group regularly enters into transactions with related parties during the conduct of its business. These transactions mainly involve loans, deposits and commissions, and are conducted on terms equivalent to those that prevail in arm’s length transactions. These disclosures related to these transactions are included in the relevant note in the company financial statements and in the consolidated financial statements (see primarily chapters 7.7.4 and 7.7.8).
7.10.3.20 Contingent liabilities Joint and several liability ASR Nederland N.V. forms a fiscal unity for corporate income tax and VAT with nearly all of its subsidiaries. The company and its subsidiaries that form part of the fiscal unity are jointly and separately liable for taxation payable by the fiscal entity.
Supervisory Board Kick van der Pol Annet Aris Cor van den Bos Herman Hintzen Sonja Barendregt
Basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the ‘Our responsibilities for the audit of the financial statements section’ of our report.
We are independent of ASR Nederland N.V. in accordance with the EU Regulation on specific requirements regarding statutory audit of public-interest entities, the Wet toezicht accountantsorganisaties (Wta, Audit firms supervision act), the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA, Dutch Code of Ethics).
N.V. as listed company, financial performance and thus Operating Result is a key metric for its stakeholders and therefore selected as basis for the calculation. In note 7.4.3. of the financial statements a reconciliation is provided from profit before tax to Operating Result.
We are responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for the reporting units by our component teams based on their size and or the risk profile. We included all insurance entities, asset management entities and bank entity in the audit scope for consolidation purposes (full scope and specific scope). We performed for the remaining entities, amongst others, analytical review procedures to corroborate our assessment that there are no significant risks of material misstatement (limited scope). This resulted in the following coverage: Assets Equity Operational result
The group consolidation, financial and non-financial disclosures and a number of complex items were audited by the group engagement team at the ASR Nederland N.V. level. These included amongst others taxation, pensions, Solvency, goodwill impairment testing, contingent liabilities, the note on the Generali Nederland
By performing the procedures mentioned above at group entities, together with additional procedures at group level, we have been able to obtain sufficient and appropriate audit evidence about the group’s financial information to provide an opinion about the consolidated financial statements.
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The valuation of insurance contract liabilities and the related Liability Adequacy Test (LAT) is complex, highly judgmental and is based on assumptions that are subject to uncertainties regarding future outcomes. Various economic and non-economic assumptions are being used to estimate these long-term liabilities in the LAT. The assumptions for life contracts used relate to risks regarding interest, mortality, longevity, morbidity, catastrophe, lapse and expense and for non-life contracts liabilities these are the disability, claims incurred but not reported, cost and recovery rate assumptions.
ASR Nederland N.V.’s LAT is performed in order to confirm that insurance contract liabilities, net of deferred acquisition cost, are adequate in the context of expected future cash outflows. The company has comprehensive procedures and internal controls in place to determine the value of the liabilities arising from insurance contracts and the related LAT. The LAT discount rate is based on Solvency II guidance. As disclosed in notes 7.5.14, 7.8.3 and 7.9.2 the UFR has a significant impact on the LAT.
The company applies shadow accounting in its financial reporting as disclosed in note 7.3.4 and 7.5.14.
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Risk ASR Nederland N.V. invests in various categories of investments, of which 86% (year-end 2017: 85%) is carried at fair value in the balance sheet.
Specific area of focus include the fair value hierarchy disclosure, where the investments are classified in 3 levels: Level 1: fair value based on quoted prices in active market; Level 2: fair value based on observable market data; and Level 3: fair value not based on observable market data. The level 3 investments are 6,5
Key observations Based on our audit procedures performed, we consider the fair value of investments to be within a reasonable range.
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Risk ASR Nederland N.V. presents its capital position in accordance with Solvency II, in the capital management section of the annual accounts (note 7.9).
Changes to the interpretation of the Solvency II requirements of the accounting for contingent liability for the unit linked issue can materially impact the Solvency II ratio disclosed.
A negative outcome of such claims and proceedings in respect of unit-linked products, settlements or any other actions for the benefit of customers by other insurers and sector-wide measures could have a significant impact for ASR Nederland N.V. relating to compensation. The financial consequences of these legal proceedings cannot be reliably estimated or quantified at this point. Refer to note 7.7.6 to the financial statements.
We performed audit procedures in this area, which include: • An assessment of ASR Nederland N.V.’s governance, processes and internal controls with respect to unitlinked exposure; • A review of the documentation and enquiries about the unit-linked exposures with management and its internal legal advisor. These procedures took into account ASR Nederland N.V.’s specific developments as well as broader market developments in 2018; • Obtaining a legal letter from ASR Nederland N.V.’s external legal advisor; • Consideration of the recognition and measurement requirements for establishing provisions under IFRS.
We also considered whether the Company’s disclosures in respect of this legal exposure is compliant with the relevant accounting requirements. We focused on the adequacy of disclosure of the related risks and assumptions in note 7.7.6 to the financial statements.
Other information | 8.1 Report on the audit of the financial statements 2018 included in the annual report 288
Key observations Based on our audit procedures performed, we found management’s assessment that the financial consequences of the unit-linked exposure cannot be reliably measured or quantified at this point and therefore no provision is recognised in the 31 December 2018 balance sheet, sufficiently substantiated.
The disclosure of the exposure in note 7.7.6 describes the related risks and management judgments in compliance with the relevant accounting requirements.
Net assets acquired were valued at € 108 million and an excess purchase consideration (goodwill) of € 45 million was recognised.
The management of ASR Nederland N.V.’s engaged a third-party expert to provide support with respect to the determination of the fair values of Generali Nederland N.V. ‘s assets and liabilities under IFRS 3.
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 goodwill amount.
In addition, we determined whether ASR Nederland N.V. has made the disclosure as required by IFRS 3.
Risk Management of ASR Nederland N.V. has decided on 10 October 2018 to label ASR Bank N.V. as a noncore component. As a consequence, ASR Nederland N.V. has classified the component ASR Bank N.V. as held for sale and as a discontinued operation in its 2018 financial statements in accordance with IFRS 5
As part of our audit procedures, we have assessed the held for sale and discontinued operation classification and related disclosures of ASR Bank N.V. by investigating if the requirements of IFRS 5 are met.
We performed audit procedures in relation to the impairment, which included: • An audit of the significant accounts Loans and receivables and Due to customers in the balance sheet of
Risk ASR Nederland N.V. is highly dependent on its IT infrastructure for the continuity of the operations.
To meet clients’ needs and business requirements ASR Nederland N.V. is continuously improving the efficiency and effectiveness of its IT infrastructure and the reliability and continuity of the electronic data processing, including its defense against cyber-attacks. Additionally, the IT applications of Generali
We tested the IT general controls related to logical access, change management and application controls as embedded in the IT systems, where relied upon for financial reporting. In some areas we performed additional (substantive) procedures. We also assessed the impact of changes to the infrastructure and where relevant adjusted the scope of our IT procedures.
In addition to the financial statements and our auditor’s report thereon, the annual report contains other information that consists of: • Report of the Management Board; • Other information pursuant to Part 9 of Book 2 of the
Management is responsible for the preparation of the other information, including the Report of the Management Board in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information as required by Part 9 of Book 2 of the Dutch Civil Code.
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As part of the preparation of the financial statements, management is responsible for assessing the company’s ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.
We have exercised professional judgment and have maintained professional skepticism throughout the audit, in accordance with Dutch Standards on Auditing, ethical requirements and independence requirements. Our audit included among others: • Identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud or error, designing and performing audit procedures responsive to those risks, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; • Obtaining an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control; • Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Concluding on the appropriateness of management’s use of the going concern basis of accounting, and based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company to cease to continue as a going concern; • Evaluating the overall presentation, structure and content of the financial statements, including the disclosures; • Evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
We provide the supervisory board with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with the supervisory board, we determine the key audit matters: those matters that were of most significance in the audit of the financial statements. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, not communicating the matter is in the public interest.
Other information | 8.1 Report on the audit of the financial statements 2018 included in the annual report 293
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 the former holders of preferred shares) shall be paid in proportion to the amounts paid up (or formerly paid up) on those preferred shares.
Company’s annual accounts in respect of a financial year shall be appropriated as follows, and in the following order of priority: a. to the extent that any preferred shares have been cancelled without the payment described in Article 12.2 paragraph b. having been made in full on those preferred shares and without any such deficit subsequently having been paid in full as described in this Article 37.1 or Article 37.2, any such deficit shall be paid to those who held those preferred shares immediately before such cancellation became effective; b. to the extent that any Preferred Distribution (or part thereof) in relation to previous financial years has not yet been paid in full as described in this Article 37.1 or Article 37.2, any such deficit shall be paid on the preferred shares; Other information | 8.2 Provisions of the Articles of Association regarding profit appropriation 294
c. the Preferred Distribution shall be paid on the preferred shares in respect of the financial year to which the annual accounts pertain; d. subject to Article 19.10, the Executive Board shall determine which part of the remaining profits shall be added to the Company’s reserves; and e. any remaining profits shall be at the disposal of the General Meeting for distribution to the holders of ordinary shares.
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 annual accounts, the deficit shall be paid out of the Company’s reserves, subject to Articles 35.1 and 35.2.
Other information | 8.2 Provisions of the Articles of Association regarding profit appropriation 295
Chosen by Robert van der Schaaf, Director of Claims and Secretary, Stichting Kunst & Historisch Bezit
The Foundation has been formed under Dutch law. Its objectives are to promote and protect the interests of a.s.r., its business and its stakeholders, and to counter possible influences that might threaten the continuity, independence, strategy and/or identity of a.s.r. or its business to such an extent that these could be considered contrary to the aforementioned interests.
The call option is continuous in nature and can be exercised repeatedly and on more than one occasion, each time that the Foundation considers, or reasonably expects, there to be an act that is, in the opinion of the Foundation, materially contrary to the interests of a.s.r., its business or its stakeholders, which may include the following (to the extent materially contrary to the aforementioned interests), (i) the announcement of a public offer for shares in the capital of a.s.r., or the legitimate expectation that such a public offer will be announced, without agreement on the offer having been reached with a.s.r. or the offer being supported by a.s.r., and (ii) an activist shareholder (or group of activist shareholders acting in concert) in a.s.r. directly or indirectly representing at least 25% of the ordinary shares forming part of a.s.r.’s issued share capital.
The Board of the Foundation met on two occasions in 2018. The matters discussed included the full-year 2017 results of a.s.r., the execution of the strategy, the financing of a.s.r., acquisitions and divestments by a.s.r., developments in the market, and the general course of affairs at a.s.r. At these meetings, a representative of the Executive Board of a.s.r. provided the Board of the Foundation with information on the developments within a.s.r. and the relationship with its shareholders. The Board of the Foundation also monitored the developments of a.s.r. outside of Board meetings, for instance through a Board member’s receipt of press releases issued by a.s.r.
Report of Stichting Continuïteit ASR Nederland | 9.1 Report of Stichting Continuïteit ASR Nederland 298
Dutch Transparancy Benchmark (out of 200) (Since 2017 once every two years) NA 177 164
category; • a.s.r. office nominated for daylight award; • a.s.r. wins GRESB/BREEAM individual leadership price; • a.s.r. wins the participation desk ‘Only the talent counts’ award; • HR policy a.s.r. nominated for the most innovative and inspiring HR policy; • Annual report a.s.r. nominated for the Sijthoff price.
% shareholder return including dividend reinvested in a.s.r. shares 7.1% 58.6% 13.0%
Total spending on training and development in (in € millions) 6.8 5.4 4.4
Employees took at least one targeted training session (in %) 44 52 45
Total number of incidents of lack of integrity 35 49 NA
Impact investing in euros > 300 million 300 million 57 million
GRESB Real Estate and Debt Assesment scores ASR Dutch Core Residential Fund (score out of 100) 80 72 56
ASR Dutch Mobility Office Fund (score out of 100) 70 NA NA
Scope The financial information in this annual report has been consolidated for a.s.r. and all its subsidiaries. All quantitative and qualitative information relates to a.s.r. as a whole, unless a specific business unit is explicitly mentioned. The data in chapter 4 Long term value creation (excluding PARP data) is exclusive Van Kampen Groep (VKG), Dutch ID (Felisson and Boval), PoliService, SuperGarant, Corins, Stoutenburg and ANAC. Their combined assets account for approximately 0,2% of total assets. Together, the sections 1, 2, 3, 4 and 5 make up the Report of the Management Board.
Audit & Risk Committee. Disclosure of the annual report is subject to the approval of the Executive Board and the Supervisory Board.
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 Annex F. 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.
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. From 2018 on the Jutte estate has been included in the population of buildings.
Claims ratio The cost of claims, net of reinsurance in Non-life, excluding the internal costs and exclusively commissions paid of handling non-life claims, less interest accrual on reserves, and a margin of prudence for health, expressed as a percentage of net earned premiums.
money and a risk premium that reflects the extra return that investors demand as compensation for the risk that the cash flows may not materialise.
Engagement Engagement is a constructive dialogue designed to increase the level of sustainability. a.s.r. uses three types of engagement: (1) monitoring, (2) influencing, and (3) public engagement.
Global Reporting Initiative (GRI) The GRI is an international organisation that defines standards for sustainability reporting.
Global Real Estate Survey Benchmark (GRESB) The GRESB is a benchmark that looks at the sustainability performance of more than 700 institutional investment funds worldwide.
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 recognised through profit and loss.
International Financial Reporting Standards (IFRS) As of 1 January 2005, these standards have been the generally accepted international accounting policies that apply to all listed companies in the European Union. They make annual results easier to compare and offer a better understanding of a company’s financial position and performance.
Net Promoter Score (NPS) A management tool that can be used to gauge the customer satisfaction of an organisation’s customers. The question to the customer now places the emphasis on the employee of a.s.r.: How likely is it that you will recommend a.s.r. to family, friends and colleagues based on your experience with me?
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.
Private equity An asset class consisting of equity securities of companies that are not publicly traded on a stock exchange. The transfer of private equity is strictly regulated. In the absence of a marketplace, any investor looking to sell their stake in a private company personally has to find a buyer.
Socially responsible investment (SRI) Investing with due regard for ethical standards, policies and procedures, in line with the interests of a.s.r. stakeholders, whereby the integration of ESG criteria is key. To achieve this a.s.r. makes use of multiple ESG approaches such as the exclusion of controversial activities, exclusion of companies and countries due to their ethical performance, the engagement dialogue, the integration of ESG assessments in the portfolio construction and impact investing. A detailed description of a.s.r.’s SRI policy is published on asrnl.com.
Analysis CSA Credit Support Annex CSR Corporate Social Responsibility DB Defined Benefit DBO Defined Benefit Obligation DC Defined Contribution DGBC Dutch Green Building Council DNB Dutch Central Bank DNO Declaration of no-objection DPF Discretionary Participation Features ECB European Central Bank EIOPA European Insurance and Occupational
Pensions Authority ERM Enterprise Risk Management ESG Environmental, Social and Governance ESI Ethibel Sustainability Index EU European Union
Euribor Euro interbank offered rate EVO Entrepreneurs organisation for Logistics and
Change IIRC International Integrated Reporting Council IORP Institution of Occupational Retirement
NFRC Non-Financial Risk Committee NGOs non-governmental and nonprofit organisations NLFI NL financial investments NPS Net Promoter Score OCC Organic Capital Creation OECD Organisation for Economic Cooperation and
SCR Solvency Capital Requirement SDGs Sustainable Development Goals SDSN Sustainable Development Solutions Network SME Small and Medium-sized Enterprises SRA Strategic Risk Analysis SRI Socially Responsible Investment STA Social Team Activity TCFD Task Force on Climate-related Financial
Guarantees UFR Ultimate Forward Rate UNGC United Nations Global Compact UNGPs The United Nations Guiding Principles on
Investments URM uniform calculation method USD United States Dollar UWV Employee Insurance Agency VBDO Dutch Association of Investors for
In 2018, a.s.r. had communication and engagement on the selection of material issues through an internal survey sent to all our employees and in-depth 1-on-1 interviews with a selection of more than 15 internal and external stakeholders. To validate completeness of the issues included in the survey and interview questionnaire, a desktop review was conducted. Input for this desktop review was a wide variety of documents, including peer reports, studies within and outside the insurance industry, existing / upcoming legislations and global trends report. In addition, input was gained on the completeness and accuracy of the issues ranked in the 2017 materiality matrix. Desktop research together with the survey and interview outcomes, were used and analysed to define the materiality matrix as presented in chapter 2.3 Material topics. Compared to the 2017 materiality matrix year, the following adjustments are noteworthy: • The issue of ‘transparent product and service descriptions’ is included in the topic ‘Customer satisfaction’. Transparent product and service descriptions is an important aspect of the assessment of new products and adjustments in existing products, so called PARP. The focus of the PARP is on customers and customer interests and therefore relates and impacts strongly with customer satisfaction; • The 2017 issue of ‘Innovation’ is no longer used, as innovation is considered as a driver for short and long term adaptations for all issues and therefore grouped under the trend of ‘technological innovation’; • The issue of Climate change and Energy transition are combined and considered as a driver for short and long term adaptations for several issues and therefore grouped as a trend.
For the asset management activities, stakeholders expect order in house as well. Specific attention was paid to the issue of social responsible investments, which is considered as an order in house element. The commercials by a.s.r. were in this context well known by most stakeholders, whom also concluded that a.s.r. should take a proactive role in the many debates around this issue. Action on climate change was linked to this issue by most of the stakeholders and considered as a key trend to follow-up now and in the future by integrating risks and opportunities in the asset management approach. Signing the Spitsbergen ambition was known and appreciated by a selected number of stakeholders.
Other issues, such as sustainable employment, diversity and responsible procurement were considered as responsible business conduct. Although not directly material for daily businesses, stakeholders do appreciate efforts taken. In particular internal stakeholders were positive and interested to participate in activities around these themes. Finally, the a.s.r. foundation was named by a few stakeholders. Activities taken on financial literacy were regarded as a good example of an issue which fits well a.s.r. core business and for which efforts through a foundation make a positive contribution to the society.
102-2 Activities, brands, products, and services Ch. 1.1, 1.4, 3.1 (p. 10, 17, 36-39)
102-12 External initiatives www.asrnl.com/about-asr/sustainable-business/codes-and-guidelines 102-13 Membership of associations www.asrnl.com/about-asr/sustainable-business/codes-and-guidelines 102-14 Statement from senior decision-maker Ch. 1.3 (p. 15-16)
102-15 Key impacts, risks, and opportunities Ch. 1.4, 2.1, 5.2, 7.8 (p. 17, 22-27, 99-105, 239-270)
Annex E Stakeholder engagement 102-41 Collective bargaining agreements 99.3% of the total employees are covered by collective bargaining agreements.
Annex A Facts and figures 102-42 Identifying and selecting stakeholders Ch. 2.2 (p. 28)
Annex E Stakeholder engagement 102-43 Approach to stakeholder engagement Ch. 2.2 (p. 28)
102-49 Changes in reporting Material theme from 2017 that does not return in the 2018 materiality matrix: - Transparant product and service descriptions; - There were no new themes included.
102-50 Reporting period 1 January to 31 December 2018 102-51 Date of most recent report 27 maart 2018 102-52 Reporting cycle Annual 102-53 Contact point for questions regarding the report
Management Approach 2018 Disclosure on management approach Ch. 1.4, 1.5, 2.2, 2.3, 3.1, 3.2, 7.2 (p.17-19, 28201 -1 Economic Performance 2018 Direct economic value generated and distributed
Management Approach 2018 Disclosure on management approach Ch. 1.5, 2.3, 3.1, 3.2, 4.1 (p. 19, 30, 36, 45,
Management Approach 2018 Disclosure on management approach Ch. 2.3, 4.1, 5.1 (p. 31, 48, 78-98)
Management Approach 2018 Disclosure on management approach Ch. 1.2, 2.3, 5.1 (p. 12, 31, 78-98)
404-2 Training and Education 2018 Programmes for upgrading employee skills and transition assistance programmes 404-3 Training and Education 2018 Percentage of employees receiving regular performance and career development reviews
The outcome of those policies. Yes Ch. 4.4, 4. 6 (p. 62-66,
Non-financial key performance indicators. Yes Ch. 1.2, 4.4, 4.6 (p. 13,
Non-financial key performance indicators. Yes Ch. 4.3, 4,4, 4.6 (p. 60-61,
Results of the diversity policy Yes Ch. 1.2, 4.3 (p. 13, 58-59)