Financial Risk Management Financial Risk Management (FRM) is responsible for the second line market risk, counterparty risk, underwriting risk and liquidity risk management at a.s.r. and its legal entities. 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 monitors the profitability of new business and determines if risks related to the profitability of new products are sufficiently addressed in the product development process.
Compliance Compliance is responsible for the execution of the compliance function. An important task of Compliance is to be the countervailing power to the Executive Board and management in managing compliance risks for a.s.r. and its subsidiaries. The mission of the compliance function is to enhance and ensure a controlled and sound business operations and to safeguard a.s.r.’s reputation.
As second line of defense, Compliance encourages the organization to comply with relevant rules and regulations, ethical standards and the internal standards derived from them (‘rules’) by providing advice and devising policy. Compliance supports the first line in the identification of compliance risks and assess the effectiveness of risk management on which Compliance reports to the relevant risk committees. In doing so, Compliance uses a compliance risk and monitoring framework. In line with risk management, Compliance also creates further awareness in order to promote a culture of integrity. Compliance coordinates contacts with regulators in order to maintain an effective relationship and keeps oversight of the current topics.
Audit & Risk Committee The Audit & Risk Committee was established by the Supervisory Board to gain support in the following matters: • Assessment of the risk appetite proposal based on the financial and non-financial risk reports, among other documents; • Assessment of the annual report, including the financial statements of ASR Nederland N.V.; • The relationship with the independent external auditor, including the assessment of the qualities and independence of the independent external auditor and the proposal by the Supervisory Board to the AGM to appoint the independent external auditor; • The performance of the audit function, compliance function and the risk management function; • Compliance with rules and regulations; and • The financial position.
The Audit & Risk Committee has three members, one of whom acts as its chair.
a.s.r. Risk Committee The a.s.r. Risk Committee is a sub-committee of the Executive Board and monitors a.s.r.’s overall risk profile on a quarterly basis. At least annually, the a.s.r. Risk Committee 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. Risk Committee also monitors the progress achieved in managing risks included in the Risk Priorities of the Executive Board.
Financial Risk Committee The Financial Risk Committee discusses and decides upon financial risk policies. The most relevant risk policies are approved by the a.s.r. Risk Committee. The Financial Risk Committee monitors and controls financial risks (market, underwriting (life and non-life) and counterparty default risk). The Financial Risk Committee also monitors whether the risk profile stays within the risk limits. If the risk profile exceeds these limits, the Financial Risk Committee takes mitigating actions. The Financial Risk Committee reports to the a.s.r. Risk Committee. The Chairman of the Financial Risk Committee is the CFO.
Model Validation Committee The model validation committee is a subcommittee of the Financial Risk Committee and is responsible for the execution and update of the model validation policy and for the approval of existing or newly developed validated models before taken into use. The Model Validation Committee receives all required information for the validation of models (for instance model documentation and validation reports), which information is prepared by the validation board that assures the quality of the validation process. The chairman of the Model Validation Committee is the CRO.
Product Approval & Review Committee The Product Approval & Review Committee is responsible for the final decision-making process around the introduction of new products and adjustments in existing products. The Director Marketing is the chairman. The committee evaluates if risks in newly developed products are sufficiently addressed. New products need to be developed in such a way that they are cost efficient, reliable, useful and secure. New products also need to have a strategic fit with a.s.r.’s mission to be a solid and trustful insurer. In addition, the risks of existing products are evaluated, as requested by the product approval and review process as a result of product reviews.
The integrity, i.e. reliability, of information is the degree to which it is up-to-date, complete and error-free. The preparatory body or department also checks the assumptions made and the plausibility of the results, and ensures coordination with relevant parties. When a preparatory body has established that the information is reliable and complete, it approves and formally submits the document(s) to a risk committee.
Risk procedures & policies a.s.r. has established policies for each of the main risk categories (market, counterparty default, underwriting, strategic and operational). These policies address the accountabilities and responsibilities for the management of the different risk types. Also the methodology for risk measurement is included in the policies. The content of the policies is aligned to create a consistent and complete set. The risk policy landscape is maintained by Group Risk Management and Compliance. These departments also monitor the correct implementation of the policies in the business. New risk policies or updates of existing risk policies, are approved by the risk committees as mentioned in the previous section.
Risk culture Risk awareness is a vital component of building a sound risk culture within a.s.r. that emphasizes the human aspect in the management of risks. In addition to gaining sufficient knowledge, skills, capabilities and experience in risk management, it is of importance that an organization enables objective and transparent risk reporting in order to manage them more effectively.
In doing so, a.s.r. aims to create a solid risk culture in which ethical values, desired behaviors and understanding of risk in the entity are fully embedded. Integrity is of the utmost importance at a.s.r.: this is translated into a code of conduct and strict application policies for new and existing personnel, such as taking an oath or promise when entering the company, and the ‘fit and proper’ aspect of the Solvency II regulation, ensuring that a.s.r. is overseen and managed in a professional manner.
Managing Typically, there are five strategies to manage risk: • Accept: risk acceptance means accepting that a risk might have consequences, without taking any further mitigating measures; • Avoid: risk avoidance is the elimination of activities that cause the risk; • Transfer: risk transference is transferring the impact of the risk to a third party; • Mitigate: risk mitigation involves the mitigation of the risk likelihood and/or impact. • Exploit: risk exploitation revolves around the maximization of the risk likelihood and/or increasing the impact if the risk does happen.
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.
5.8.1.2 a.s.r.’s risk categories There are six main risk categories at a.s.r., these are: insurance risk, market risk, counterparty default risk, liquidity risk, operational risk and strategic risk.
Market risk Market risk is the risk of a change in value due to movements in market variables. The following market risks have been identified: • Interest rate risk; • Equity risk; • Property risk; • Spread risk; • Currency risk; • Concentration risk/market concentration risk.
Counterparty default risk Counterparty default risk is the risk of losses due to the unexpected failure to pay or credit rating downgrade of counterparties and debtors. Counterparty default risk exists in respect of the following counterparties: • Reinsurers; • Consumers; • Intermediaries; • Counterparties that offer cash facilities; • Counterparties with which derivatives contracts have been concluded.
Operational risk Operational risk is the risk of losses caused by weak or failing internal procedures, weaknesses in the action taken by personnel, weaknesses in systems or because of external events. The following subcategories of operational risk are used: • Compliance; • Business process; • Information technology; • Outsourcing; • Financial reporting.
Insurance risk is the risk that future insurance claims and benefits cannot be covered by premium and/or investment income, or that insurance liabilities are not sufficient, because future expenses, claims and benefits differ from the assumptions used in determining the best estimate liability. Insurance risk manifests itself in both the non-life and the life portfolio. The non-life portfolio covers the property and casualty, disability and healthcare sectors. The life portfolio consists of funeral, individual life and group-pension business.
Expense risk Measured as the impact of a 10% increase in expense levels.
Lapse risk Measured as the risk of a 10% increase in lapse rates
These scenario’s would have no impact on the 2016 and 2015 total equity, or on the profit for these years, because a.s.r. still passed the IFRS Liability Adequacy Test (LAT). While the sensitivities result in a decrease of the surplus in the Liability Adequacy Test, the outcome is still positive.
Intro d uctio n 5.8.2.1 Life Insurance risk The life portfolio can be divided into funeral, individual life and group pension. The insurance contracts are sold primarily to retail and wholesale clients through intermediaries.
The products are sold as insurance products in cash or unit-linked contracts. With respect to products in cash, the investment risk is fully borne by the insurer whereas, in the case of unit-linked products, the majority of the investment risk is for the policyholder’s account. The following life insurance risks are involved: Mortality risk Mortality risk is associated with (re)insurance obligations, such as endowment or term assurance policies, where a payment or payments are made in case of the policyholder’s death during the contract term. The increase in mortality rates is applied to (re)insurance obligations which are contingent on mortality risk. The required capital for this risk is calculated as the change in own funds of a permanent increase of mortality rates by 15% for all ages and each policy.
Disability-morbidity risk Morbidity or disability risk is associated with all types of insurance compensating or reimbursing losses (e.g. loss of income, adverse changes in the best estimate of the liabilities) caused by changes in the morbidity or disability rates. The scenario consists of a 35% increase in disability rates over the next year and 25% in subsequent years, combined with a decrease in recovery rates of 20%.
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 percentage point per year. Realistic management decisions are taken into account for policies with adjustable costs.
The required capital for a mass lapse event is reduced by the proceeds that are to be expected from a reinsurance arrangement (Mass Lapse Cover).
Life catastrophe risk Catastrophe risk arises from extreme events which are not captured in the other life insurance risks, such as pandemics. The capital requirement for this risk is calculated as a 1.5 per mille increase of mortality rates for (re)insurance obligations where the increase in mortality rates lead to an increase in technical provisions.
Employee benefits ASR Nederland N.V. has insured the post-employment benefit plans for a.s.r.’s employees with ASR Levensverzekering N.V., an insurance company within the a.s.r. Group. Though the liability of this plan is classified as employee benefits on the balance sheet and determined according to IFRS principles, the required capitals for the life insurance risks are fully taken into account and based on Solvency II principles. The risk margin at ASR group level equals the sum of risk margins of all underlying OTSO’s. No correction is made for the elimination of post-employment benefit plans for a.s.r.’s employees with ASR Levensverzekering N.V.
Within a.s.r., life the longevity risk is dominant and arises from group pension business and individual annuities. The longevity risk is partly offset by mortality risk that arises from the funeral portfolio and individual policies with mortality risk. In addition to longevity, a.s.r. life is exposed to expense risk and lapse risk, though lapse risk is reduced due to the aforementioned Mass Lapse reinsurance arrangement.
Technical provision 38,258 5.8.2.1.1 Managing life insurance risk Life insurance risk is mitigated by pricing, underwriting policies and reinsurance.
5.8.2.2 Health Insurance risk and non-life insurance risk 5.8.2.2.1 Health Insurance risk The Health insurance portfolio of a.s.r. is diverse. The portfolio can be divided into two main product types: • SLT Health portfolio (Similar to Life Techniques) Income Protection, which can be divided in - Individual Disability (Zelfstandigen); - Group Disability (WIA); • NSLT Health portfolio (Similar to Non-Life Techniques), which can be divided in - Income Protection (Sickness and Individual and Group Accident); - Medical Expenses (Basis and Aanvullend).
The insurance contracts are sold primarily to retail, wholesale and private clients through intermediaries and proxies and direct to private clients.
SLT Health Risk Mortality risk Mortality risk is associated with (re)insurance obligations, such as endowment or term assurance policies, where a payment or payments are made in case of the policyholder’s death during the contract term. The increase in mortality rates is applied to (re)insurance obligations which are contingent on mortality risk. The required capital for this risk is calculated as the change in own funds of a permanent 15% increase in mortality rates for all ages and each policy.
Longevity risk Longevity risk is associated with (re)insurance obligations where payments are made until the death of the policyholder and where a decrease in mortality rates results in higher technical provisions. The required capital is calculated as the change in own funds of a permanent 20% decrease in mortality rates. The decrease in mortality rates is applied to portfolios where payments are contingent on longevity risk.
NSLT Health Risk Premium and Reserve risk The premium risk is the risk that the premium is not adequate for the underwritten risk. The premium risk is calculated over the maximum of the expected written premium of the next year, and the written premium of the current year.
For the NSLT Health portfolio, the provision at year-end 2016 can be broken down as follows under Solvency II: Similar to Non-Life techniques - Solvency II technical provision
Technical provision 487 5.8.2.2.2 Non-Life Insurance risk Non-Life Insurance risk is divided in: • Premium- and reserve risk; • Non-Life Catastrophe risk; • Lapse risk.
Premium- and reserve risk The premium risk is the risk that the premium is not adequate for the underwritten risk. The premium risk is calculated over the maximum of the expected written premium for the next year, and the written premium for the current year. The Premium and reserve risk is derived at the level of a legal entity based on the Standard Model. For the calculation of the Premium and reserve risk, several input data and parameters are necessary, as described in the Standard
Model. The geographical spread, when a (re)insurer underwrites products in different countries, is not relevant for ASR Schadeverzekering N.V. as there is no material exposure outside the Netherlands.
Lapse risk The lapse risk is the loss of basic own funds, caused by the discontinuance of 40% of the policies for which discontinuation would result in an increase in the basic own funds. The lapse risk is calculated as follows: • Effect of expired future profits on existing contracts (which are already taken into account in the Best Estimate calculation of premium provision) by: - Deriving the level of (Solvency II) Line of Business (LOB) based on the assumption of a 40% lapse; - Solvency II LOB contains a group of products with the same risk profile which are modelled together; - Taking (Solvency II) LOBs into account in case of lapse with an increase in the provision.
In recent years, measures have been taken to improve profitability and reduce risk. Examples are: premium increases, stricter acceptance criteria, shorter claims filing terms and making use of the claims reassessment arrangement between the Dutch Association of insurers and social security institute UWV. Effects are being monitored closely and assessed to be effective. New legislation, in force from 1 January 2017, will invoke market-wide changes to the product design, pricing and conditions, thereby creating both additional market opportunities and additional risks for a.s.r.
Reinsurance When deemed effective in terms of capital relief versus costs incurred, a.s.r. enters into reinsurance agreements to mitigate non-life insurance risks. Reinsurance can be taken out for each separate claim (per risk), for the accumulation of claims due to natural disasters or to human actions (per event), or for both these risks.
Total 2,533 5.8.3.1 Main Market Risk The main market risks of a.s.r. are spread, property and equity risk. This is in line with the risk budgets based on the strategic asset allocation study.
The value of investment funds at year-end 2016 was € 1,704 million. a.s.r. applies the look-through approach for investment funds to assess the market risk.
The interest rate risk is the maximum loss of (i) an upward shock or (ii) a downward shock of the yield curve. For a.s.r. the downward shock is dominant.
Referring to Solvency, 2015 figures are not presented here, as Solvency II replaced Solvency I as at 1 January 2016, which makes a comparison of these two years not useful.
Own funds The capital management section describes the capital targets related to the risk appetite statements and dividend payments. The table below shows how the eligible funds of a.s.r. relate to the different capital targets.
The amount under Risk Appetite Statement is the minimal free surplus (€ 668 million), such that the RAS is met. The additional required capital relative to the Risk Appetite Statement is stated below the lower limit target.
Capital requirement The required capital stood at € 3,338 million per 31 December 2016. The required capital (before diversification) consists for € 2,533 million out of market risk and the insurance risk amounted to € 2,362 million as per 31 December 2016. 2015 figures are not presented here, as Solvency II replaced Solvency I as at 1 January 2016, which makes a comparison of these two years not useful.
The sensitivities of the solvency ratio as at 31 December 2016, expressed as the impact on the Group solvency ratio (in percentage points) are as presented in the table below. The total impact is split between the impact on the solvency ratio related to movement in SCR requirement and the impact on Solvency II ratio related to movement in EOF.
Measured as the impact of an increase of spread on loans and corporate bonds of 75 bps.
IFRS sensitivities The next table shows sensitivities of total equity and profit for the year, including insurance liabilities discounted with a fixed interest-rate, shadow accounting, investments valued at amortised cost (part of it), and post-employment benefits.
The sensitivities to property increased in 2016 in line with the higher exposure to property. Property held for own use is not taken into account in the sensitivity of profit In the property up scenario. The sensitivity of total equity to foreign currency increased due to improvements of look through data quality, therefore the currency hedges in investments funds are taken into account.
Intro d uctio n 5.8.3.2 Interest rate risk Interest rate risk is the risk that the value of assets, liabilities or financial instruments will change due to fluctuations in interest rates. Many insurance products are exposed to interest rate risk; the value of the products is closely related to the applicable interest rate curve. The interest rate risk of insurance products depends on the term to maturity, interest rate guarantees and profit-sharing features. Life insurance contracts are particularly sensitive to interest rate risk.
SCR interest rate risk 423 a.s.r. has assessed various scenarios to determine the sensitivity to interest rate risk. The impact on the solvency ratio is calculated by determining the difference in the change in available and required capital.
Interest rate risk is managed by aligning fixed-income investments to the profile of the liabilities. Among other instruments, swaptions and interest rate swaps are used for hedging the specific interest rate risk arising from interest rate guarantees and profit-sharing features in life insurance products.
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.
The table below shows the exposure of the equity portfolio to sectors. Externally managed funds are excluded; the total value in scope is € 1,120 million (2015: € 1,570 million). The external funds typically use a representative market index as benchmark with a limited tracking error. The difference between the fund and the general market index will therefore be limited and the funds will have a diversified sector allocation.
The required capital for property risk is determined by calculating the impact on the available capital due to an immediate drop in property prices by 25%.
The property investments are diversified across the Netherlands. A limited part of the portfolio consists of indirect in property investment funds.
Specification currencies with largest exposure The foreign currency position is monitored on a quarterly basis. The total net exposure in foreign currency is € 1,202 million (2015: € 1,342 million). The largest net-exposure is in USD, which mainly consists investment in equities and bonds. The majority of the net currency exposure is related to equities. The following tables show the currencies with the largest exposures: Currencies 31 December 2016 - in € million Total USD GBP CHF AUD HKD ZAR Other 31 December 2015 - in € million Total USD GBP CHF AUD HKD ZAR Other 5.8.3.6 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 realized 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.
Composition of fixed income portfolio Spread risk is managed on a portfolio basis within limits and risk budgets established by the relevant risk committees. Where relevant, credit ratings provided by the external rating agencies are used to determine risk budgets and monitor limits. A limited number of fixed-income investments do not have an external rating. These investments are generally assigned an internal rating. Internal ratings are based on methodologies and rating classifications similar to those used by external agencies. The following tables provide a detailed breakdown of fixed-income exposure by rating class, sector, and country of risk and level of subordination for the financial sector.
The composition of the fixed income portfolio showed no material changes over the different bond categories. In general the exposures increased due to the lower yield curve. The financial bond portfolio slightly decreased due to the reduction of covered bonds. a.s.r. don’t invest in new Structured Instruments, redemptions therefore lead to the decrease in this portfolio.
The composition of the portfolio Financials showed no material changes over the different bond categories: Sector corporates
As a.s.r. participates in structured entities solely for investment purposes, no other commitments or guarantees have been made to the entities concerned. The maximum exposure is therefore limited to the fair value of the structured entity and amounts to € 205 million (2015: € 402 million).
Asset-backed securities (ABSs) An ABS is a financial security backed by a portfolio of loans, leases or receivables against assets other than real estate and mortgage-backed securities. The majority of this portfolio consists of a bond issued by a ring-fenced entity of a large UK airport.
Mortgage-backed securities (MBSs) MBSs are a type of asset-backed security that is secured by a portfolio of mortgages. The MBS portfolio of a.s.r. consists of mainly AAA tranches in Dutch residential mortgage-backed securities (58%). The rest of the portfolio consists of investments in the senior tranches of UK RMBS (around 8%) and some peripheral exposure, mostly in Spain (18%).
Other structured financial instruments (SFI) This part of the portfolio consists of equity tranches of CDOs, i.e. the most high-risk tranche in the CDO structure. These first-loss tranches will be the first to fall in value if losses occur in the assets that back the CDO and are not rated.
Distribution of the total fixed income portfolio over ratings and sectors
Loans to intermediaries form a relatively small risk for a.s.r. At year-end 2016, the value of outstanding loans to intermediaries was € 45 million (2015: € 54 million). The loans are generally secured by collateralizing an insurance portfolio.
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. The CLFC monitors concentration risk on a quarterly basis. All exposures were within the limits at year-end 2016.
Total 555 5.8.4.1 Mortgages Mortgages are granted for the account and risk of third parties and for a.s.r.’s own account. The a.s.r. portfolio consists only of Dutch mortgages with a limited counterparty default risk. In line with the strategic investment plan, the mortgage portfolio increased by € 680 million in 2016.
The table above shows the exposure to reinsurers per rating. The total exposure to reinsurers at year-end 2016 was € 656 million (2015: € 611million).
Total deposits amounted to € 1,000 million (2015: € 1,178 million).
The following table shows the contractual cash flows of assets and liabilities (excluding investments on behalf of policyholders and insurance contracts on behalf of policyholders). For liabilities arising from insurance contracts, expected lapses and mortality risk are taken into account. Profit-sharing cash flow of insurance contracts is not taken into account, nor are equities, property and swaptions.
Operational Risk Management involves the management of all possible risks that may influence the achievement of the company targets and that can cause financial or reputational damage. Operational risk management includes the identification, analysis, prioritization and management of these risks in line with the risk appetite. The policy on operational risk management is drafted and periodically evaluated under the coordination of Enterprise Risk Management. The policy is implemented in the decentralized business entities under the responsibility of the management boards. A great number of risks is encountered with the operational risk management policy: IT risk, outsourcing, data quality, claim handling etc.
Measuring All risks in the risk-control frameworks are assessed on probability of defaults and impact. Where possible, the variables are quantified, but often judgments of subject matter experts are required. Based on the estimation of the variables, each risk is labeled with a specific level of concern. Risks with a high level of concern are considered ‘key’.
Evaluating Periodically, at least every year, the risk-control frameworks and operational risk management policies are evaluated to see if adjustments are desirable. The risk management function also challenges the business entities on their risk-control frameworks.
ICT Through IT risk management, a.s.r. devotes attention to the efficiency, effectiveness and integrity of ICT. The logical access control for key applications used in the financial reporting process remains a high priority in order to enhance the integrity of applications of data. The logical access control procedures also prevent fraud by improving segregation of duties and by conducting regular checks of actual access levels within the applications. Proper understanding of
a.s.r. considers something a crisis when one or more business lines are (in danger of being) disrupted in the operational management, due to a calamity, or when there is a reputational threat. In order to reduce the impact of the crisis, to stabilize the crisis, and to be able to react timely, efficiently and effectively, a.s.r. has assigned a crisis organization.
Recovery Planning a.s.r.’s Recovery Plan helps to be prepared and have the capacity to act in various forms of extreme financial stress. To this end, the Recovery plan describes and quantifies the measures that can be used to get through a crisis situation. These measures are tested in the scenario analysis, in which the effects of each recovery measure on a.s.r.’s financial position (solvency and liquidity) are quantified. The required preparations for implementing the measures, their implementation time and effectiveness, potential obstacles and operational effects are also assessed. The main purpose of the Recovery Plan is to increase the likelihood of successful early intervention during a financial crisis situation and to further guarantee that the interest of policyholders and other stakeholders are protected.
One single risk scenario takes multiple risks into account. In this manner, the risk scenarios provide (further) insights into risk interdependencies. In these scenario’s the impact on the balance sheet, the solvency position and the income statement is simulated.
Managing As part of the CRSA processes, the effectiveness of risk mitigating measures and planned improvement actions is assessed. This means risk management strategies are discussed, resulting in refined risk management strategies.
Monitoring and reporting The output of the ORSA process is translated into day-to-day risk management and monitoring and reporting, both at group level and product line levels. At group level, the risk priorities are discussed on a quarterly basis in the a.s.r. Risk Committee. At the level of the product lines, risks are discussed in the Business Risk Committees.
The solvency ratio stood at 189% as at 31 December 2016 after distribution of the proposed dividend of € 187 million and is based on the standard formula as a result of € 6,299 eligible own funds and € 3,338 million SCR.
Management Overall capital management is administered at Group level. Capital generated by operating units and future capital releases will be allocated to profitable growth of new business or repatriated to shareholders, beyond the capital that is needed to sustain commercial capital levels at management’s targets. a.s.r. actively manages its in-force business, which is expected to result in substantial free capital generation over time. Additionally, business improvement and balance sheet restructuring should improve the capital generation capacity while advancing the risk profile of the company. The legal entities are capitalised separately, and excess capital over management’s targets are intended to be up-streamed to the holding company to the extent local regulations allow and within the internal risk appetite statement.
Objectives The Group is committed to maintain a strong capital position in order to be a robust insurer for its policyholders and other stakeholders. The objective is to maintain a solvency level that is within the limits defined in the risk appetite statements and the solvency targets. Sensitivities are periodically performed for principal risks and annual stress tests are performed to test a.s.r.’s robustness to withstand moderate to severe scenarios. An additional objective is to achieve a combination of a capital position and a risk profile that is at least in line with a single A Standard & Poor’s rating.
a.s.r. uses an Economic Capital (ECAP) model for the allocation of market risk budgets. This model applies a full lookthrough principle to the assets and the relevant risks.
The SCR is reported on a quarterly basis and proxies are made on a monthly basis. The internal minimum solvency ratio for a.s.r. as formulated in the risk appetite statement is 120%. The management target for the solvency ratio is above 160%. The solvency ratio stood at 189% at 31 December 2016, which was comfortably higher than the internal requirement of 120% and the management target of above 160%.
Legal entities (including a.s.r. Bank) complied during 2016 with the applicable externaly imposed capital requirement. The table below presents the solvency ratio at Group level as at the date indicated.
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 is deductible for tax purposes and can be compensated with taxable profits. This positive tax effect can only be taken into account when it is probable that sufficient future taxable profits are available. a.s.r. included a beneficial effect on its solvency ratio(s) due to the application of the LAC DT. The LAC DT volume is € 585 million.
The a.s.r. solvency ratio does not include any contingent liability potentially arising from compensation schemes for unitlinked insurance contracts or for other products sold, issued or advised on by a.s.r.’s insurance subsidiaries in the past, the reason being that it is impossible at this time to make reliable estimates of the number of expected proceedings, possible future precedents and the financial impact of current and possible future proceedings.
The Group has formulated its dividend policy in line with its current strategy. The Company intends to pay an annual dividend that creates sustainable long-term value for its shareholders. The Company aims to operate at a solvency ratio, calculated according to the standard formula, above a management threshold level. This management threshold level is currently defined as above 160% of the Solvency Capital Requirement (‘SCR’). In general, it expects to not pay cash dividends if the Group level solvency ratio (calculated according to the standard formula) falls below 140%. The Company currently intends to consider investing capital above the solvency ratio (calculated according to the standard formula) of 160% with the objective of creating value for its shareholders. If and when the Company operates at a certain level safely above 160%, and the Company assesses that it cannot invest this capital in value creating opportunities for a prolonged period of time, the Company may decide to return (part of this) capital to shareholders. If the Company elects to return capital, it intends to do so in the form that is efficient for shareholders at that time. a.s.r. intends to pay € 187 million dividends over full year 2017 and to purchase 3% of its own shares in the first quarter of 2017.
5.10.3 Notes to the company financial statements 5.10.3.1 Accounting policies The company financial statements are prepared in accordance with Title 9, Book 2 of the Netherlands Civil Code. The consolidated financial statements of a.s.r. for 2016 have been prepared in accordance with IFRS – including the International Accounting Standards (IAS) and Interpretations – as accepted within the European Union and with part 9 of the book of the Netherland Civil Code. In accordance with Section 362(8), Book 2 of the Netherlands Civil Code, the ASR Nederland N.V. Executive Board has decided to apply the same accounting policies to the company financial statements as applied to the consolidated financial statements. This has been the practice since 2005.
Investments in group companies are recognized, using the equity method, in accordance with the accounting policies used in a.s.r.’s consolidated financial statements. The share of profit of group companies is reported in conformity with the accounting policies used in a.s.r.’s consolidated financial statements.
Unless stated otherwise, all amounts presented in these financial statements are in millions of €.
Interest income on loans to group companies amount to € 2 million (2015: € 0.7 million).
Remeasurement of post employment benefit obligation - - 167 - - 167 - 167
Remeasurement of post employment benefit obligation - - -288 - - -288 - -288
Change in reserves required by law - - - 63 -63 - - -
Share capital For a breakdown of the share capital, see chapter 5.5.8.1.
Intro d uctio n 5.10.3.10 Employee benefits Employee benefits can be broken down as follows (see chapter 5.5.11 for further details): Employee benefits
5.10.3.12 Subordinated liabilities Subordinated liabilities can be broken down as follows (see chapter 5.5.9 for further details).
5.10.3.13 Debts to group companies The debts to group companies of € 10 million (2015: € 20 million) contains a deposit due to group companies with an interest-rate of 1.05%. The maturity of the deposit is 12 months.
There is no significant difference between the carrying amount of € 10 million (2015: € 20 million) debt to group companies and the fair value of these liabilities.
Interest expense on debts to group companies in 2016 is € 0.2 million (2015: less than € 0.1 million).
There is no significant difference between the carrying amount of € 178 million (2015: € 207 million) other liabilities and the fair value of these liabilities.
5.10.3.17 Interest expenses The interest expenses relate primarily to the interest on the Hybrid and interest on the employee benefits obligation, allocated to the Holding.
5.10.3.18 Auditor’s fees • With reference to Section 2:382a(1) and (2) of the Netherlands Civil Code, the following fees for the financial years have been charged by EY Accountants LLP (2016) and KPMG Accountants N.V. (2015) to the Company, its subsidiaries and other consolidated entities; • Fees for audit engagements: these include fees paid for the audit of the consolidated and company financial statements, quarterly reports and other reports; • Fees for non-audit services: these include fees for support and advisory services provided during acquisitions.
Lease commitments For the table with the breakdown of the commitments for non-cancellable operating leases, see chapter 5.7.4.
5.10.3.20 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, subsidiaries and group companies, 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. a.s.r. has applied the partial exemption for government-related entities. The company regularly enters into transactions with related parties during the conduct of its business.
Supervisory Board Kick van der Pol Annet Aris Cor van den Bos Herman Hintzen
Other | 6.1 Report on the audit of the financial statements 2016 included in the Annual Report 260
Intro d uctio n 6.1 Report on the audit of the financial statements 2016 included in the Annual Report
Our opinion We have audited the financial statements 2016 of ASR Nederland N.V. (the company), based in Utrecht, the Netherlands. The financial statements include the consolidated financial statements and the company financial statements.
The consolidated financial statements comprise: • The company balance sheet as at 31 December 2016; • The company income statement for 2016; and • The notes comprising a summary of the accounting policies and other explanatory information.
The company financial statements comprise: • The company balance sheet as at 31 December 2016; • The company income statement for 2016; and • The notes comprising a summary of the accounting policies and other explanatory information.
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 ‘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).
Benchmark used Approximately 5% of a three year average of profit before tax, excluding one-offs/special items.
We evaluated the income before tax amounts for 2016 and prior years noting significant fluctuations from year to year. As a result, we used the average of 2016, 2015 and 2014 income before tax for purposes of determining our group materiality. Using an average helps to maintain an appropriate materiality level giving more consideration to the users’ view of the scale of the financial position and operations rather than volatile circumstances. Also, we excluded one-offs/special items in those years. For ASR Nederland N.V as listed company, financial performance and thus profit before tax is a key IFRS metric for its stakeholders and therefore selected as basis for the calculation.
We agreed with the supervisory board that misstatements in excess of € 1.5 million, which are identified during the audit, would be reported to them, as well as smaller misstatements that in our view must be reported on qualitative grounds.
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 based on their size and or the risk profile. We included all insurance entities, real estate entities, bank entity and distribution and services entities in the audit scope for consolidation purposes, resulting in a coverage of 99.5% of total assets and 99% of profit before tax. We have: • Used the work of non-EY auditors in the Netherlands when performing audit procedures regarding the investments in mortgages; • Performed audit procedures ourselves at group level and at other group entities.
For the entities were we have used the work of other EY auditors, we provided detailed instructions to each component team including areas of audit emphasis. We also executed oversight procedures and engaged in regular communication to confirm that the audit progress and findings for each of the in-scope locations were discussed between the group audit team and the component teams.
By performing the procedures mentioned above at group entities, together with additional procedures at ASR Nederland N.V. level, we have been able to obtain sufficient and appropriate audit evidence regarding ASR Nederland N.V.’s financial information as a whole to provide a basis for our opinion on the consolidated annual accounts.
Our key audit matters After being appointed as the Company’s auditors effective for the year 2016, we developed a comprehensive transition plan in December 2015, which included specific planning activities to ensure an effective transition from the predecessor auditor. The specific planning activities included, but were not limited to, obtaining an initial understanding of the Company and its business, including background information, strategy, business risks, ITlandscape and its financial reporting and internal controls framework, to assist us in performing our risk assessment procedures. We have assessed the opening balances and the selection and consistent application of accounting policies by discussing the audit with the predecessor auditor and reviewing the predecessor auditor’s file. Furthermore, in December 2015 and January, February and March 2016, we attended closing meetings and Audit Committee meetings related to the 2015 audit. The foregoing has been used as a basis for our 2016 audit plan. We discussed and agreed our 2016 audit plan with the
Other | 6.1 Report on the audit of the financial statements 2016 included in the Annual Report 262
ASR Nederland N.V. has insurance and investment contract liabilities of € 42.4 billion representing 81% of its total liabilities.
Other | 6.1 Report on the audit of the financial statements 2016 included in the Annual Report 263
We assessed and tested the design and operating effectiveness of the controls over valuation, independent price verification and model approval. We performed additional procedures for areas of higher risk and estimation, involving our valuation specialists. This included, where relevant, comparison of judgements made to current and emerging market practice and re-performance of valuations on a sample basis. We also assessed the impact of other sources of fair value information including gains or losses on disposal. Finally, we assessed and tested the design and operating effectiveness of the controls over related disclosures including the disclosures in note 5.8.
Other | 6.1 Report on the audit of the financial statements 2016 included in the Annual Report 264
Based on the following procedures performed, we conclude that the other information: • Is consistent with the financial statements and does not contain material misstatements; • Contains the information as required by Part 9 of Book 2 of the Dutch Civil Code.
Management is responsible for the preparation of the other information, including the management board’s report in accordance with Part 9 of Book 2 of the Dutch Civil Code and other information pursuant to Part 9 of Book 2 of the Dutch Civil Code.
• 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 communicate with the supervisory board regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit.
Article 35 35.1 A distribution can only be made to the exten that the
35.2 The Executive Board may resolve to make interim distributions, provided that it appears from interim accounts to be prepared in accordance with Section 2:105(4) DCC that the requirement referred to in Article 35.1 has been met and, if this pertains to an interim distribution of profits, taking into account the order priority described in Article 37.1.
35.3 Subject to Article 19.10, the Executive Board may adopt and from time to time amend a dividend and reservation policy for the Company. Amendments to such policy shall be discussed in the General Meeting.
35.4 The preferred shares do not carry any entitlement to distributions other than as described in Articles 12.2, 37.1 and 38.3.
Article 36 36.1 All reserves maintained by the Company shall be attached exclusively to the ordinary shares. The Company shall not attach any reserve to the preferred shares.
36.2 Subject to Article 31.1, the General Meeting is authorized to resolve to make a distribution from the Company’s reserves.
36.4 The Executive Board may resolve to charge amounts to be paid up on any class of shares against the Company’s reserves, irrespective of whether those shares are issued to existing shareholders.
Article 37 37.1 The profits shown in the Company’s annual accounts in respect of a financial year shall be appropriated as follows, and in 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) related 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; 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 hall be at the disposal of the General Meeting for distribution to the holders of ordinary shares.
37.3 Without prejudice to Article 35.1, a distribution of profits shall be made only after the adoption of the annual accounts that show that such distribution is justified.
Intro d uctio n 7 Report of Stichting Continuïteit ASR Nederland
The Stichting Continuïteit ASR Nederland (the ‘Foundation’) was established on 26 May 2016 in connection with a.s.r.’s listing on Euronext Amsterdam.
After the Foundation has held preference shares for a period of 20 months (or such later date as the Foundation deems appropriate given the facts and circumstances at hand), the Foundation may ultimately request, by means of a notice to that effect, that a.s.r. consider submitting, as soon as practicable, a motion to the General Meeting for a resolution to cancel all preference shares. a.s.r. is free to propose such a resolution without this being requested by the Foundation if non-cancellation of the preference shares in a timely fashion were to result in the Foundation being required to make a mandatory public offer in respect of a.s.r. In addition, if and when a.s.r. has issued preference shares to the Foundation, a.s.r. will convene a General Meeting within 20 months following such issuance, for the purposes of adopting a resolution on the cancellation of any such preference shares. The Foundation has not exercised the call option and did not acquire any preference shares during the year under review.
The Foundation has an independent board. The composition of the board of the Foundation is as follows: • Mr H.J. Hazewinkel (Chairman); • Mr A.A.M. Deterink; • Ms M.E. Groothuis.
Stichting Continuïteit ASR Nederland Mr H.J. Hazewinkel (Chairman) Mr A.A.M. Deterink Ms M.E. Groothuis
Amortized cost The amount at which a financial asset or financial liability is measured on initial recognition net of principal repayments, plus or minus accumulated amortization using the effective interest method or any difference between that initial amount and the amount at maturity, and minus any reduction for impairments or uncollectibility.
Branded content publications Branded content is a form of advertising in which a brand message is blended with content that adds value in the form of entertainment or information.
Building Research Establishment Environmental Assessment Methodology (BREEAM) BREEAM, which was first published by the Building Research Establishment (BRE) in 1990, is the world’s longest established method for assessing, rating, and certifying the sustainability of buildings.
Circular economy Also referred to as cradle-to-cradle. A circular economy is an economic and industrial system that does not exhaust any final natural resources and that feeds back any residual materials into the system. The energy used in a purely circular economy must be generated from renewable sources, the main resources being solar and wind energy.
Claims ratio The cost of claims, net of reinsurance in non-life, excluding the internal costs 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.
Customer-Oriented Insurance Quality Mark The Customer-Oriented Insurance Quality Mark is a quality mark that is awarded for the quality of service provision and customer focus of an insurance company. For more information, please visit keurmerkverzekeraars.nl (in Dutch only).
Deferred acquisition costs Deferral of costs of acquiring new and renewal customers, mainly involving commissions and expenditure relating to underwriting, intermediaries and the issue of new contracts, over the duration of the insurance contract. These costs vary and relate mainly to acquiring new customers.
Discounted cash flow method A valuation technique whereby expected future cash flows are discounted at a rate that expresses the time value of money and a risk premium that reflects the extra return that investors demand as compensation for the risk that the cash flows may not materialize.
Embedded derivative A component of a hybrid instrument that also includes a non-derivative host. The host contract may be a bond or equity, a lease, an insurance contract or a contract of purchase and sale.
ESG Environmental, social and governance (ESG) refers to the three main areas of concern that have developed as central factors in measuring the sustainability and ethical impact of an investment in a company. These areas cover a broad set of concerns increasingly included in the non-financial factors that feature in the valuation of investments in equities, property, and corporate and fixed-income bonds. ESG is the catch-all term for the criteria used in what has become known as socially responsible investment.
Fair value The amount for which an asset could be exchanged, or a liability settled, between knowledgeable and willing partners in an arm’s length transaction.
FIRA FIRA is a Dutch sustainability platform that verifies the corporate social responsibility disclosures of businesses and modifies them to allow benchmarking based on reliable information.
Intro d uctio n board of land and nature owners in the Netherlands, in partnership with Federatie Particulier Grondbezit, the federation of private land owners, SBNL, an organization for private and agricultural nature management, the Society for the Preservation of Nature in the Netherlands, 12 Landschappen, an organization for landscape management, and others.
GPR municipal sustainability rating The GPR sustainability rating looks at energy efficiency, environmental impact, health issues in the home and high user quality in residential construction.
GRESB The Global Real Estate Survey Benchmark (GRESB) is a benchmark that looks at the sustainability performance of more than 700 institutional investment funds worldwide.
Institution for Occupational Retirement Provision (IORP) IORP is a pension vehicle in the form of a separate legal entity that can operate a defined contribution pension scheme on a separate account basis during the pension accrual phase. When an employee reaches his or her retirement age, the IORP transfers the accrued capital to a pension insurer of the employee’s choice to pay the pension benefits. Employers wishing to insure any additional risks (such as survivors’ pensions) can do so through an IORP.
Materiality An aspect is considered material if it is relevant to the stakeholders and can have a major impact on the development of a.s.r. The greater the impact of the aspect on both society and a.s.r.'s business operations, results and strategy, the greater its materiality.
MYA3 MYA3 refers to multi-year energy efficiency agreements between the public and private sectors, institutions and local authorities. The Dutch Ministries of Economic Affairs, Foreign Affairs and Kingdom Relations, and Infrastructure and the Environment support these agreements to encourage a more effective and efficient use of energy.
Non-participating life insurance contracts In non-participating life insurance contracts, all values related to the policy (death benefits, cash surrender values, premiums) are usually determined at policy issue, for the life of the contract, and usually cannot be altered after issue.
Paper-based output The total amount of paper used for communicating with the intermediary channel and consumers, such as for policies, guidelines, newsletters, mail.
People How does the organization meet the needs of people and how does it protect their interests? In this context, people are taken to include employees, consumers, suppliers and society at large. Common issues in the People domain are occupational health and safety, attracting and retaining employees, sustainable mobility, compliance with labour and human rights law, education and training, internship policy, occupational health and safety at outsourcing or insourcing partners, corporate social responsibility, discrimination, diversity in the workplace, etc.
Principles for Sustainable Insurance (PSI) The United Nations Principles for Sustainable Insurance are a set of standards designed to serve as a global framework for the insurance industry to address environmental, social, transparency, customer focus and governance aspects. The PSI were launched in 2012. For more information, see unepfi.org/psi.
Profit The goal is to have in place a sustainability policy that is appropriate to the organization and focuses on social return in combination with financial return. Energy efficiency and reducing the cost of waste are examples of this. In this context, profit is a multi-faceted concept: it is not just about the bottom line, but also about pride, trust, commitment, innovation, quality, loyalty, job creation, productivity, positioning, reputation and engaging with a growing group of customers and organizations who demand sustainable products. Common issues in the Profit domain are sustainable investment, sustainability reporting, transparency, cooperation and partnerships, risk management and stakeholder dialogue, etc.
Provision A liability of uncertain timing or amount. Provisions are recognized as liabilities if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations (assuming that a reliable estimate can be made).
Recoverable amount The recoverable amount of an asset or a cash-generating unit is its fair value less costs to sell or its value in use, whichever is higher
Securities lending This refers to the lending of securities by one party to another, with the latter agreeing to return the securities on a specified future date. The borrower usually provides the lender with collateral. Securities lending allows the owner of the securities to generate extra income.
Solvency II Solvency II is an EU regulatory regime that has been in force in all Member States since 1 January 2016. It has introduced a new, harmonized Europe-wide regime for insurance companies and sets regulatory requirements for solvency and risk governance.
Stakeholders Stakeholders are persons or organizations that have an interest of whatever nature in an organization. They have a link with its activities, share in its earnings, influence its performance and assess its economic, social and environmental effects. a.s.r.’s main stakeholder groups are its employees (internal), customers and suppliers, and the financial authorities, government and public organizations.
Subordinated debt Loans (or securities) that rank lower than other debts should the company fall into receivership or be discontinued.
Transparency Benchmark The Transparency Benchmark is an annual survey of the subject matter and quality of sustainability reports published by Dutch companies. EY has been engaged by the Dutch Ministry of Economic Affairs to conduct the survey.
Vacancy A job opening for which Recruitment (HR Development) has effectively initiated a recruitment and selection process. Vacancies can be for full-time or part-time positions.
ALM Asset Liability Management APF General Pension Fund a.s.r. GAM a.s.r. Group Asset Management a.s.r. REIM a.s.r. Real Estate Investment Management ASRH ASR Hypotheken B.V.
ASR DCRF ASR Dutch Core Residential Fund ASR DPRF ASR Dutch Prime Retail Fund a.s.r. RED a.s.r. Real Estate Development ATP insurance intermediary AuM Assets under Management BeZaVa Liability for temporary employees BPO Business Process Outsourcing BREEAM Building Research Establishment
Treadway Commission CSA Credit Support Annex DAC Deferred Acquisition Costs DB Defined Benefit DC Defined Contribution DBO Defined Benefit Obligation DNB Dutch Central Bank (De Nederlandsche Bank) DNB LAT Dutch DNB (regulatory) Liability Adequacy Test DPF Discretionary Participation Features ECAP Economic Capital EPA Energy Performance Advisory Eonia Euro overnight index average ERM Enterprise Risk Management ESG Environmental, Social and Governance EUR Euro Euribor Euro interbank offered rate FIG Fair Insurance Guide FIRM Financial Institutions Risk Assessment Method FTE Full-time equivalent GDP Gross Domestic Product GRESB Global Real Estate Survey Benchmark GRI Global Reporting Initiative IAS International Accounting Standards IBNR Incurred But Not Reported IFRIC International Financial Reporting
Development VEB Dutch Shareholders’ Association VEH Dutch Home Owners’ Association VNG Association of Netherlands Municipalities VOBA Value Of Business Acquired VPL Early retirement and life cycle ‘VUT’ (Vervroegd
Standards, covenants and memberships a.s.r. has undertaken a public commitment to act as a responsible insurer and investor. In evidence of this, it has signed the following national and international standards and covenants: • United Nations Environment Programme Finance Initiative (UNEP FI) a.s.r. signed this covenant in August 2013. This is a public-private partnership between UNEP and the financial sector. The goal is to promote the integration of sustainability principles at all operational levels of financial institutions. This is achieved by integrating environmental, social and governance factors into an institution’s risk assessment procedures (unepfi.org).
• UN Global Compact (UNGC) a.s.r. signed the United Nations Global Compact in 2011. By signing the UNGC, a.s.r. has undertaken to embrace, support and implement within its sphere of influence these principles relating to human rights, labour standards, the environment and the fight against corruption. For a status report on 2016, see asrnl.com and unglobalcompact.org.
• Call to Action: Anti-Corruption and the Global Development Agenda As part of the UN Global Compact, a.s.r. signed the Call to Action: Anti-Corruption and the Global Development Agenda in 2014 (unglobalcompact.org). Through this initiative, the private sector calls upon governments to promote anti-corruption measures and to implement good governance practices.
• UN Principles for Sustainable Insurance (PSI) a.s.r. signed the PSI of the UNEP FI in August 2013. By adhering to these principles, a.s.r. demonstrates its belief in the need to integrate sustainability in its insurance operations. The objective of these principles is to reduce sustainability risks, develop innovative solutions and improve the operating performance of businesses in terms of social, economic and environmental aspects. Globally, 85 insurance companies have signed these principles (benchmark date: July 2015). The report has been posted on unepfi.org.
• UN Principles for Responsible Investment (PRI) a.s.r. signed the UN PRI in 2011. The 1,600 companies worldwide that endorse these principles together manage investments worth € 59 trillion. By applying the six UN principles for responsible investment, a.s.r. contributes to the development of a more sustainable financial system. a.s.r. gives a status update on its progress in meeting the Principles for Responsible Investment every year. This report has been posted on unpri.org.
Intro d uctio n 2. Actively communicate the initiatives it undertakes to raise awareness, acceptance and recognition of the role of sustainable mobility as a part of the solution to climate change; 3. Report any hurdle to bringing about a shift towards sustainable mobility to the government and, by doing so, contribute to the establishment of a supporting policy framework; 4. Personally encourage leaders of other companies to learn from its efforts and join this initiative.
• oPuce In July 2016, a.s.r. signed a letter of intent with oPuce, a business network whose members have expressed the intention to provide professional support to employees suffering from cancer and to give special consideration to people who have lost their jobs due to cancer when hiring new people. This network is also a platform on which to exchange best practices with other businesses.
• European Association for Investors in Non-Listed Real Estate Vehicles (INREV) INREV is an umbrella organization that seeks to create more transparency, accessibility and professionalism, and share best practices.
Intro d uctio n are carried out by the research and advisory agency Profundo. Each year, a benchmark survey is published in which insurers are assessed for their insurance and sustainability policies.
• Global Reporting Initiative (GRI) The standards of the Global Reporting Initiative governing transparent reporting on (quantifiable) economic, ecological and social performance. The GRI benchmark helps to present non-financial information in as structured, measurable and comparable a way as possible. The benchmark was established to compare the non-financial performance wherever possible.
• Transparency Benchmark (TB) The Transparency Benchmark of the Dutch Ministry of Economic Affairs gives an overview of the overall scores achieved by organizations. a.s.r. is included in this benchmark.
• Social partner of Feyenoord football club As part of the sponsorship and partner agreement with Feyenoord, the a.s.r. Foundation undertakes various community activities in collaboration with Rotterdambased football club under the name Feyenoord in Society. These initiatives often centre on financial education.
• WeShareTalent a.s.r. joined the WeShareTalent network in 2016. This platform brings together joins up people and organizations to allow them to learn from each other, develop skills and talents, and broaden their horizons.
• a.s.r. receives prestigious Group Diamond Award for investment funds The Group of a.s.r. bond funds was ranked first in the vwd Cash Fund Awards. The ASR Nederlandfonds received an honourable mention. The award ranks the best-performing investment funds and fund managers. Both investment funds and index trackers (ExchangeTraded Funds) are nominated in different categories. The group of a.s.r. bond funds received the highest score. Any investment fund with a history of five years or more were eligible for nomination. a.s.r.’s bonds funds are well-diversified across different bond categories and countries.
• Honourable mention for Equity Netherlands Investment Funds The ASR Nederland Beleggingsbeheer N.V. (ANB) saw its ASR Nederlandfonds were nominated in the category Equity Netherlands Investment Funds. Although the ASR Nederlandfonds fell just short of the podium, it did receive an honourable mention.
• a.s.r. positive exception in Fair Insurance Guide study A new Fair Insurance Guide study shows that most insurers are not transparent about their investments. a.s.r. is mentioned as a positive exception. Most insurers do not score very well when it comes to transparency about their actual investments. a.s.r. is mentioned as a positive exception. a.s.r. stands out in this regard because it is the only insurer that also allows noncustomers to file a complaint about its investment policy.
• Annuity savings account again awarded five-star status by MoneyView Comparison website MoneyView once again awarded the highest score to the terms and conditions of a.s.r. Bank’s annuity savings account. In its product category ‘Terms & Conditions’, MoneyView studied 25 singlepremium products, 18 of which were bank savings products and seven were insurance products. The products were reviewed based on 27 features. a.s.r. Bank was awarded the maximum of five stars. This highest ranking confirms that the product offered by a.s.r. Bank clearly stands out from the average in the market.
The study concluded that Ditzo and two other insurers offer their policyholders the most transparency as far as medical expenses are concerned through their portals. ‘These insurers provide transparency in terms of medical expenses. They also show clearly whether medical expenses are covered by basic or top-up insurance, and what the policyholder’s deductible is.’
• a.s.r. mortgages in top 3 Gouden Spreekbuis award for distributors a.s.r. Bank’s mortgage business was nominated for the Gouden Spreekbuis 2016 award for distributors, a competition organized by Blauw Research. To arrive at the nominations, Blauw conducted a one-year survey of 2,400 consumers. a.s.r. was nominated for the award in two categories, i.e. Distributors and Providers.
a.s.r. adviser campaign Given that a.s.r. firmly believes that advisers offer added value, a campaign was launched to stress the importance of intermediairies. Advisers tend to know the personal situation of customers, which is why they know best what product is most appropriate for them.
NPS by business line a.s.r. Non-life a.s.r. Life a.s.r. Pensions a.s.r. Banking
Throughout the year Implementing improvements for business lines, teams, employees and processes
Usability test of a.s.r. website Optimise user-friendliness Six tests, spread across six months
Have advisers review the message: is it complete, clear and easy-to-understand?
Once a year Having the review prove that the message is clear.
The Workforce at a glance The section contains information regarding a.s.r. employees, excluding of employees of PoliService, Van Kampen Groep, Dutch ID, SuperGarant and Corins. For the segmentation of a.s.r.’s workforce, see page 45.
Executive Council, Oval (sector organization of occupational health & safety boards and reintegration businesses)
Carbon emissions are reported based on Scopes 1, 2 and 3 of the Greenhouse Gas Protocol. Scope 1 covers all direct emissions (fuel consumed by company vehicles and lease cars), Scope 2 encompasses carbon emissions from consumption of purchased electricity (emitted by the electricity company rather than by a.s.r. itself) and Scope 3 relates to indirect carbon emissions in the corporate value chain (caused, for instance, by commuters without lease cars and external services providers (e.g. airlines). a.s.r.’s carbon footprint is determined by Carbon Manager based on the Green Deal carbon emission factors.
Breakdown of total carbon emissions by scope and by emission category head office
Scope 3 Business travel (air travel) Expense claims for private mileage
a.s.r.’s carbon emissions are lower because it operates more energy-efficiently. a.s.r. is committed to achieving the energy efficiency targets set in the MYA3 energy covenant, which are assessed by the government.
Biodiversity The office garden at Archimedeslaan borders on the Ecological Network of the province of Utrecht and provides a habitat for several species of fauna, including bats, hedgehogs, salamanders, insects, storks and grass snakes. To promote biodiversity, among other things a.s.r. has made nesting areas for house sparrows, swifts and bats and created a habitat for bees. a.s.r. also tries to promote biodiversity by maintaining the gardens extensively so that native plans have a greater chance of survival. By making these arrangements a.s.r. hopes to contribute to the continued existence of the grass snake (Natrix Natrix), a rare species that is on the red list of endangered species.
Customers and Intermediaries Telephone support, surveys, corporate events, seminars and stakeholder dialogue
102-3 Location of headquarters Page 309, Utrecht 102-4 Location of operations Ch. 2.1 Profile / a.s.r.
102-5 Ownership and legal form Ch. 4.1 Corporate governance Ch. 5.5.8.1 Share capital 102-6 Markets served Ch. 2.3 Strategy / Brand and distribution strategy Ch. 2.4.3 Value creation model 102-7 Scale of the organization Ch. 1.2 At a glance Ch. 3.4 Group and segment Financial Performance Ch. 5.2 Consolidated financial statements 102-8 Information on employees and other workers
Appendix F, Additional employee information: • Table Breakdown of employees by contracts of definite and indefinite duration at 31 December • Table Number of part-time and full-time employees at 31 December 102-9 Supply chain Ch. 2.5.4 Environment / Procurement / table Supply chain 102-10 Significant changes to the organization and its supply chain
Ch. 5.8.2.1 Enterprise Risk Management Framework Ch. 5.8.8 Strategic and operational risk 102-12 External initiatives Appendix C, Standards: covenants and memberships 102-13 Membership of associations Appendix F, Additional employee information: table Additional positions of executives and memberships of a.s.r.
Ch. 1.3 Message from the Chairman 102-15 Key impacts, risks, and opportunities
Ch. 2.1.4 SWOT Ch. 2.2 Key trends Ch. 3.5 Risk management and Compliance / Risk management
Governance 2016 102-18 Governance structure Ch. 4.1.1 Supervisory Board Ch. 4.1.2 Executive Board Ch. 4.2.1 Supervisory Board Committees asrnl.com / governance and organization 102-19 Delegating authority Ch. 3.5 Sustainability / Governance asrnl.com / governance and organization 102-20 Executive-level responsibility for economic, environmental, and social topics
Ch. 2.4.1 Materialitial aspects / Priorities Ch. 2.4.2 Stakeholders / Stakeholder dialogue 102-22 Composition of the highest governance body and its committees
Ch. 4.1.1 Supervisory Board Ch. 4.1.2 Executive Board 102-23 Chair of the highest governance body
Ch. 4.1 Corporate governance asrnl.com / Rules of procedure for the Supervisory Board / Appendix D: Rules of procedure for the Selection & Appointment Committee of the Supervisory Board (page 17)
102-26 Role of highest governance body in setting purpose, values, and strategy
Ch. 4.1 Corporate Governance Ch. 4.1.1. Supervisory Board Ch. 4.1.2 Executive Board asrnl.com / Rules of procedure for the Supervisory Board / Article 1.3 (page 4) asrnl.com / Rules of procedure for the Executive Board of ASR Nederland N.V. / Article 3.6 (page 5)
Ch. 4.1.1 Supervisory Board / Evaluation and education Ch. 4.1.2 Executive Board / Education and evaluation 102-28 Evaluating the highest governance body’s performance
Ch. 3.5 Risk Management and compliance Ch. 5.8.3.2 Risk governance 102-31 Review of economic, environmental, and social topics
Ch. 3.5 Risk management and Compliance / Compliance 102-34 Nature and total number of critical concerns
Median annual total compensation for all employees: € 52,253 Annual total compensation for highest-paid individual: € 541,303 102-39 Percentage increase in annual total compensation ratio
Stakeholder engagement 2016 102-40 List of stakeholder groups Ch. 2.4.2 Stakeholders 102-41 Collective bargaining agreements 95.5% of the total number of employees is covered by collective bargaining agreements.
The selection of stakeholders was made by defining groups that have a direct or indirect stake in the organization.
Appendix H, Additional information: table Interaction with stakeholders and identified aspects
Reporting practice 2016 102-45 Entities included in the consolidated financial statements
Ch. 1.1 Notes to the reader Ch. 2.4.1 Value creation / Materiality 102-47 List of material topics Ch. 2.4.3 Value creation model / Materiality matrix 102-48 Restatements of information
Ch. 2.5 Sustainability Ch. 3.4 Group and segment financial performance Ch. 5.9.2 Solvency II
Ch. 2.5 Sustainability / KPIs Ch. 3.4 Group and Segment financial performance Ch. 5.9.2 Solvency II
Ch. 5 Annual financial statements 2016 201-2 Financial implications and other risks and opportunities due to climate change
Ch. 2.5 Value creation / Planet / Climate change Ch. 5.8.7 Operational risk 201-3 Defined benefit plan obligations and other retirement plans
Ratio of entry level wage to minimum wage by gender; • Male 3.11 • Female 2.51 202-2 Proportion of senior management hired from the local community
Given that ASR Nederland N.V. is based exclusively in the Netherlands, this indicator is not applicable.
Ch. 1.5 2016 in overview Ch. 3.1 Themes in 2016 Ch. 3.4 Group and segment financial performance / Group
Appendix G, Additional environmental information: table Type of waste 301-2 Recycled input materials used
GRI Standard Disclosure Location of disclosure, url(s) and/or information 302-2 Energy consumption outside of the organization
Water 2016 303-1 Water withdrawal by source Appendix G, Additional environmental information: table Energy consumption and water withdrawal 303-2 Water sources significantly affected by withdrawal of water
Biodiversity 2016 304-1 Operational sites owned, leased, managed in, or adjacent to, protected areas and areas of high biodiversity value outside protected areas
Surface area of land (owned or managed by a.s.r.) in, or adjacent to, protected areas: 5,179 hectares. Areas of high biodiversity value: 1,846 hectares.
Ch. 2.4 Stakeholders Ch. 2.5.3 / Investments / ESG Integration for best-in-class investments asrnl.com / Investments SRI policy: Detail criteria Positive screening 304-3 Habitats protected or restored
Appendix G, Additional environmental information, Biodiversity 304-4 IUCN Red List species and national conservation list species with habitats in areas affected by operations
Appendix G, Additional environmental information, Total CO2 reduction 305-2 Energy indirect (Scope 2) GHG emissions
Ch. 2.5.4 Environment / environmental performance Appendix G, Additional environmental information, Total CO2 reduction 305-6 Emissions of ozonedepleting substances (ODS)
No fines or sanctions were imposed in 2016 for non-compliance with environmental laws and regulations.
Ch. 2.5.2 People / KPI 7 50% Vacancies filled by internal candidates: table: Vacancies filled Appendix F, Additional employee information: table Staff turnover at 31 December, by age category
GRI Standard Disclosure Location of disclosure, url(s) and/or information 401-2 Benefits provided to fulltime employees that are not provided to temporary or part-time employees
401-3 Parental leave Total number of employees that were entitled to parental leave: • Male 2,051 • Female 1,314 Total number of employees that took parental leave: • Male 92 • Female 129 Total number of employees that returned to work after parental leave ended: • Male 88 • Female 117 Return to work rate of employees that took parental leave: • Male 95.6% • Female 90.7%
Ch. 2.5.2 People / Pay and benefits / New redundancy plan
Occupational Health and Safety 2016 403-1 Workers representation in formal joint management– worker health and safety committees
The RI&E applies to all a.s.r. employees (100%). The Social Policy Committee and the Occupational Health and Safety Committee consist of 13 members: four from HR, one from BS, and eight from the Business Lines. The Occupational Health and Safety Committee has three Safety Managers who coordinate all branches. There are 103 emergency responders, six of whom are based in Enschede, three in Rotterdam (warehouse) and 94 in Utrecht.
Appendix F, Additional employee information: table Number of emergency reports 403-3 Workers with high incidence or high risk of diseases related to their occupation a.s.r. offers an absenteeism course for managers and HR officers, a.s.r. has engaged Arboned, an occupational health and safety service, to assist with risk assessment and evaluation. In 2016, HR had two absenteeism specialists who provided support to the business managers and HR officers.
403-4 Health and safety topics covered in formal agreements with trade unions
These agreements are outlined in the occupational health and safety catalogue for the insurance sector (Dutch only).
Ch. 2.5.2 People / Sustainable employability / Training and development: • On the Move • Financial Supervison Act (Wft)
Diversity and Equal Opportunity 2016 405-1 Diversity of governance bodies and employees 2.5.2 People / Diversity / Tables.
Child Labour 2016 408-1 Operations and suppliers at significant risk for incidents of child labour
Forced or Compulsory Labour 2016 409-1 Operations and suppliers at significant risk for incidents of forced or compulsory labour
Ch. 2.5.3 Investments: • Exclusion criteria for countries and companies • ESG Integration for best-in-class investments Ch. 2.5.4 Environment / Procurement / Outsourcing policy
Security Practices 2016 410-1 Security personnel trained in human rights policies or procedures
Human Rights Assessment 2016 412-1 Operations that have been subject to human rights reviews or impact assessments
Ch. 2.5.3 Investments: • Exclusion criteria for countries and companies • ESG Integration for best-in-class investments Ch. 2.5.4 Environment / Procurement / Outsourcing policy 412-2 Employee training on human rights policies or procedures
No training is provided with regard to aspects of human rights.
Ch. 2.5.2 People / Diversity Ch. 2.5.4 Environment / Mobility policy 413-2 Operations with significant actual and potential negative impacts on local communities
Ch. 2.5.4 Environment / Procurement, table Supply chain Appendix C, Standards, convenants and memeberships / Guidelines and memberships / FIRA
414-2 Negative social impacts in the supply chain and actions taken
Ch. 2.6 Sustainability / Insurance 416-2 Incidents of noncompliance concerning the health and safety impacts of products and services
Marketing and Labelling 2016 417-1 Requirements for product and service information and labelling
Besides testing for cost effectiveness, usefulness, safety and reliability, PARP also reviews whether information meets the relevant statutory requirements and self-imposed regulations (voluntary codes).
The review of products showed on several occasions that there is room for improvement in information provision. Actions have been taken based on these findings.
Customer Privacy 2016 418-1 Substantiated complaints related to breaches of customer privacy and losses of customer data
Total number of compliants, classified as ‘ Privacy’: • Received: 13 • Process completed: 12 • Awarded: 7
Socioeconomic Compliance 2016 419-1 Non-compliance with laws and regulations in the social and economic area
Contact The a.s.r. Annual Report 2016 is published in the English language only. The report can be downloaded as a pdf.
Photography Wilco van Dijen, Wijk bij Duurstede Tara Fallaux Fotografie, Amsterdam Jarno Verhoef, Nuland