Part III Corporate Social Responsibility 29 3 Corporate Social Responsibility 31
Part IV Governance report 37 4.1 Governance report 39 4.1.1 Financial statements and appropriation of profi t 39 4.1.2 Issues addressed by committees 41 4.1.3 Management and supervision 42 4.1.4 Corporate governance 46 4.1.5 Final word from the Supervisory Board 47
Part V Executive Board Responsibility Statement 51 5 Executive Board Responsibility Statement 53
Part VI Financial Statements 55 Consolidated Financial Statements 58 Notes to the balance sheet 117 Notes to the income statement 157 Other notes 170 Company fi nancial statements 175
Our stable profi t growth and strong solvency ratio in 2012 underline the importance that a.s.r. attaches to continuity and certainty for our customers. At the same time, we have made progress in creating a customer-oriented organization and in cutting costs. Improving our service and increasing effi ciency featured strongly in 2012.
We also managed to conclude the giant task of providing compensation for individual unit-linked policy holders. All eligible customers have now been contacted personally. Compensation payments were deposited directly into the policies where appropriate, alternative products were suggested and customers were offered independent advice free of charge.
Partly as a result of interest rates, which continue to be low, our focus in the Pensions segment in the past year was primarily on retaining existing business and further organizing and streamlining our processes.
In the context of effi ciency and cost savings, a start was also made this past year with the large-scale renovation of the a.s.r. offi ce at the Archimedeslaan in Utrecht. The challenge is to create a much more sustainable workplace that fully integrates the principles of the New World of Work (NWW). It is the largest renovation project of an offi ce building in the Netherlands, whereby the building remains in use throughout. Renovating our Utrecht offi ce, in a sustainable way, enables us to reduce the number of offi ce locations and to permanently lower our accommodation costs.
Finally, our positioning took shape in the fi nal quarter of 2012, with the launch of a.s.r.’s proposition as ‘the Dutch insurance company for all your insurance needs’. We aim to be a socially desirable insurer that helps people by taking action and eliminating waste.
We are a business in transition in a market in transition. We have every confi dence that we are on the right track.
Offering people certainty in uncertain situations, is a.s.r.’s reason for being. a.s.r. does this by providing fi nancial continuity in people’s lives and enabling customers to take calculated risks in achieving their ambitions. Everyone at a.s.r. works according to the guiding principle that the insurance industry can improve and must improve. a.s.r. is different. Different in terms of business models and in mentality. a.s.r. goes back to the roots of insurance: helping people. The cooperative philosophy, that working together provides certainty to all, is embraced. Insurance is the essence, and providing certainty is a.s.r.’s reason for being. Helping people by taking action.
The legal predecessors of a.s.r. put insurance, as a service, on the map in the Netherlands. a.s.r.’s history dates back to 1720, when sharing risk was the founding principle. It still is for a.s.r. today.
All employees are responsible for meeting customers’ demands, and customer trust is an important part of this. Trust goes further than the customer alone. It applies equally to the successful cooperation with distribution partners by offering employees an inspiring and interesting working environment, and by giving the shareholder the prospect of attractive returns based on responsible risk.
Customers tell a.s.r. that they want transparent products, clear communication and personal services. Meeting these needs is a.s.r.’s number one priority and this means that activities and targets are assessed against customer interests. New products are presented to customer panels and their feedback is incorporated into the product development process. Ultimately, this is refl ected in the appreciation rating that customers give a.s.r. in terms of the Net Promoter Score (NPS).
The focus of a.s.r. is on private individuals and business owners with its three strong brands: a.s.r., Ditzo and De Amersfoortse. These brands have a number of common values that resonate with the a.s.r. organization. Each brand has its own unique role, and it is the interaction between these roles that make them strong.
Products sold under the Ardanta label will eventually be sold as a.s.r. products.
Europeesche Verzekeringen will continue to be the insurer for the travel and leisure market.
a.s.r. 2012 annual report 13 2.1 Financial results 2.1.1 ASR Nederland N.V.
• Gross premiums written decreased by 3% to € 4,290 million (2011: € 4,437 million)
The return on Equity is calculated each year by dividing the net result attributable to shareholders by the average IFRS Equity attributable to shareholders (excluding the revaluation of real estate).
To remain competitive, it is essential for a.s.r. to focus on effi ciency. In recent years, efforts in this respect have resulted in an annual decline in operating expenses. This is a trend that a.s.r. will continue in the years to come. But at the same time, a.s.r. is investing in systems to administer both new and existing products better and faster and a.s.r. is working on transparent products that meet the current wishes of customers more and more.
Operating expenses Operating expenses decreased by € 36 million from € 621 million to € 585 million (-6%) in comparison to 2011. This decline is the result of the continuous focus on effi ciency, austerity in operations and eliminating waste. Besides cutting costs, an important step was taken towards making costs more fl exible by outsour cing the back offi ce operations of a Life portfolio, agreeing on a Software as a Service (SaaS) contract for the Health business IT-platform and outsourcing a.s.r.’s mainframe. Furthermore, savings were realized by reducing accommodation costs due to the closing of the offi ces in Rotterdam and Woudsend. This move is part of the policy to accommodate all employees in the renovated a.s.r. offi ce in Utrecht by 2015.
Net Result The net result in 2012 is € 255 million (2011: € 212 million). The net result of the Non-life segment decreased from € 145 million to € 59 million. On a comparable basis, the combined ratio increased by 4.2 percentage points from 95.0% to 99.2%, primarily due to a higher cost of claims. This is particularly evident in the Occupational Disability portfolio, primarily due to the impact of the WGA regulation. Compared to the fi rst half of 2012, the combined ration improved by 2.0 percentage points, thanks to measures regarding acceptance of policy holders, terms and conditions, and pricing.
In the Life segment, the net result rose from € 135 million to € 275 million in 2012. This was attributable to a higher return on investment on the one hand and a drop in expenses on the other thanks to the fi nalization of the compensation process for unit-linked policyholders, among other factors.
In view of developments in the market, such as the euro crisis and the debt crisis, a.s.r. persisted in its investment policy of risk reduction in 2012. This policy was mainly designed to preserve the solvency level; as a result, the solvency position has been robust for years. In line with this risk reduction, reinvestments in the government bond portfolio were made, in German government bonds in particular. To further spread risks, a.s.r. slightly increased its exposure to government bonds issued by emerging countries. a.s.r. had already started to drastically scale back its exposures to government bonds issued by peripheral eurozone countries since 2009; these exposures were virtually brought down to nil in 2012 (remaining exposure: € 1 million). a.s.r. also reduced its exposures to bonds issued by fi nancial institutions in its investment portfolio, by scaling back exposures to senior and subordinated bonds via swaps and sales. This reduction in bonds issued by fi nancial institutions is counteracted by a rise, thanks to massive upgrades and an increase in covered bonds (+48%). Disregarding the increase in covered bonds, the share of bonds issued by fi nancial institutions fell by 7%, dropping to € 4.7 billion. In addition, there were rises in the share of residential mortgages (+24%) and corporate bonds (+19%) in the portfolio.
a.s.r. Vastgoed Vermogensbeheer was awarded ISAE 3402 Type II certifi cation in 2012 for its Commercial Real Estate and Residential Real Estate divisions. The division Rural Real Estate was awarded the ISAE-2402 Type I certifi cate. Now that it has these certifi cates, a.s.r. Vastgoed Vermogensbeheer has demonstrated that, in the period under review, it had adequate procedures in place for its business processes and related risks, risk-mitigating measures and evidence, and that all these procedures were executed and documented promptly, correctly and in full.
The Dutch State has been the sole shareholder of a.s.r. since October 2008. In September 2011, all shares in a.s.r. were transferred to Stichting Administratiekantoor Beheer Financiële Instellingen (NL Financial Investments or NLFI), a trust offi ce. a.s.r. has the ambition to become a private company again at some point in time. a.s.r. is large and robust enough to operate as an independent insurer in the Dutch market. The Dutch insurance market is contracting, which is why a.s.r. is constantly looking for consolidation opportunities in the market. The shareholder will decide in this regard.
Notes to key fi gures of Non-Life segment The calculation of the ratio’s improved in 2012 compared to 2011. The combined ratio over 2011 as reported earlier amounted to 98.9%, and the cost-premium ratio was 11.0%. On a comparable basis, the combined ratio increased by 4.2 percentage points in 2012, to 99.2%, particularly due to the impact of WGA. Exclusive of the impact of WGA regulation, the increase amounts to 2.8 percentage points.
Key fi gures of Non-Life segment (in millions of euros) 2012 2011
Competition on pricing in the non-life market continued to be fi erce in 2012. The Non-Life business is also suffering the effects of the economic crisis. Customer claims increased in 2012.
The occupational disability insurance market has been highly competitive for a number of years now; new contracts sold mostly involve policy renewals on different conditions. As a result, pricing and margins were weighed down in 2012 as well. During the course of 2012, the fi rst premium increases in the market were seen for individual occupational disability insurance policies and for group illness-related absenteeism insurance and WGA policy excess insurance. The economic crisis led to an increase in the number of bankruptcies and reduced the fi nancial scope of businesses. The overall occupational disability market is contracting slightly as a result. At the same time, insurers are experiencing (sharp) increases in claims in nearly all areas of their occupational disability business, particularly when it comes to WGA policy excess insurance.
The market for traditional non-life insurance (motor, fi re, liability, etc.) was also under pressure in 2012. Competition on pricing remains tough, although there were also signifi cant price hikes because of the structural increase in claims. Claims under home content and hazard policies were high in 2012 due to such causes as fl ooding and more reports of theft.
Gross premiums written The gross premiums written increased by 6% to € 2,487 million (2011: € 2,353 million). This increase is primarily due to the number of customers that took out health insurance with Ditzo. The consequences of the diffi cult market conditions are evident in the individual occupational disability segment and in the motor, fi re and other non-life segment. For example, car insurance policies show a decrease in revenue due to more stringent acceptance criteria that were implemented during the course of 2012, in order to control the claims expense, and due to a decrease in the number of new cars sold in 2012.
Operating expenses Operating expenses amounted to at € 226 million (2011: € 245 million). The decline was caused, in part, by a reduction in internal FTE’s and the implementation of more effi cient business processes. On a comparable basis, the expense ratio was down 0.5 percentage points, dropping from 9.6% in 2011 to 9.1% in 2012. Although the combined ratio rose to 99.2% due to higher claims expenses, it stayed below 100%.
Achievement of strategic targets in 2012 a.s.r. attaches great value to treating customers fairly. Major improvements were implemented in the complaints management process, a.s.r.-wide, but in the Non-Life segment in particular. Complaints handling was sped up and customer feedback was used to make structural improvements to the process.
The successful introduction of Ditzo health insurance has shown a.s.r. that customers are increasingly wanting to take out insurance via the direct channel.
Because of the weak economy, the non-life market is not expected to show growth in terms of volume in 2013. We do, however, predict a further shift towards products that can be purchased directly via online platforms.
The occupational disability market is under pressure due to unfavourable economic conditions. a.s.r.’s policy will generally focus on improving returns by being cost effi cient, adjusting rates and controlling claims expenses. De Amersfoortse’s integrated product propositions will be broadened, linking them explicitly to health and pension insurance. a.s.r. is also committed to further improvements to its service offering in the areas of prevention and reintegration, which will bring out the full potential of De Amersfoortse’s strengths and expertise.
In the travel and leisure market, the drop in holiday bookings is expected to persist in 2013, which will have a direct effect on travel and leisure insurance. Consumers will keep putting off purchasing or replacing recreational items in 2013.
The Life segment comprises all insurance policies that involve asset-building, asset reduction, asset protection, family income protection and funeral expenses for consumers and business owners. These operations are conducted by ASR Levensverzekering N.V. Products are offered under the De Amersfoortse, Ardanta and a.s.r. labels. The vast majority of these policies are distributed via the intermediary channel.
The individual life insurance market is contracting. Consumers increasingly opt for bank savings rather than life insurance products to accumulate capital. Because of the ongoing stagnation of the housing market, fewer mortgages with life insurance are being sold.
Furthermore, the changes in laws and regulations made many pension advisors with relatively small portfolios, decide not to take the required courses as of 1 January 2012. As a result, they are no longer licensed to provide pension advice and to manage the existing pension portfolios. That is why pension advisory and management services will now be provided mostly by specialist consultancies.
There was a decline in the funeral insurance market in 2012. The Dutch market has a high penetration rate and is virtually saturated. More and more consumers are economizing on funeral insurance.
a.s.r. 2012 annual report 21 to ensure that, in general, the fi rst customer service representative that customers and intermediaries speak to, can answer their questions directly or take adequate action, so that the number of links in the chain are reduced, fewer resources are wasted and the process is sped up. The fi rst results of the pilot were promising.
The sales organization was changed to be able to provide more effi cient services at lower costs. At present, services to customers of the Life and Banking divisions are provided by desk account managers who work in close collaboration with the new Contact Center. The team supports about 3,000 Life and Banking advisors. They provide services to all private and corporate customers for a small group of about 750 advisors. Account managers will continue to be responsible for serving the other (larger) intermediaries.
The ongoing economic crisis will continue to affect all divisions of the Life segment in 2013. An important development is the introduction of the commission ban as of 1 January 2013, which is expected to impact sales of new insurance contracts.
One of the main priorities of the Individual Life business is to retain its customers in a contracting market and to strengthen its position in the term life insurance market where possible. Early in 2013, a.s.r. announced the acquisition of the entire funeral insurance portfolio from De Facultatieve Groep, which comprises about 70,000 policies representing € 100 million in insured capital. Expectations are that the market for funeral insurance will continue to contract in 2013.
The savings portfolio in the Banking business increased by more than 20%, reaching € 808 million. Deposits into lijfrente opbouwrekening accounts by customers who converted their unit-linked policies more than outweighed the outfl ow of regular savings.
New mortgages sold stood at € 1,248 million (2011: € 1,259 million). The WelThuis savings-linked and annuity mortgages proved popular. The Dutch Consumers’ Association (Consumentenbond) gave high ratings to the WelThuis mortgage and to Vermogen bij Overlijden, a family income protection policy. At year-end 2012, changes in the tax regime drove higher sales of mortgages; this will manifest itself, in part, in the fi gures for 2013.
Key fi gures of Other segment, inclusive of eliminations (in millions of euros) 2012 2011
The property development market was under pressure in 2012. A number of developments were terminated or scaled down in order to reduce risks. Impairment losses on, and reservations for, various land banking plots and future construction projects amounted to € 75 million in total on balance.
For the third year in a row, a.s.r. Vastgoed Ontwikkeling has made strides in its derisking strategy. In dialogue with local authorities and investors, property developments were built in stages and scaled back, and developments that were not in keeping with the new strategic priorities were cancelled. Due to derisking efforts, total assets of a.s.r. Vastgoed Ontwikkeling were reduced by about € 100 million in the year under review to reach € 258 million. While scaling back its exposure, a.s.r. also reduced internal fi nancing by € 165 million. In line with the cut backs in the portfolio, the organization was downsized as well.
Most of the IJDock development in Amsterdam was completed in 2012: the court buildings and the national police headquarters were delivered, and 90% of the residential properties have been sold; the hotel, the parking garage and most of the offi ces have been leased. A second important commercial success in 2012 was the preletting (>70%), sale and start of the construction of the city centre development in Waddinxveen.
Owing to the bleak outlook for the residential and retail markets in combination with the scaling down of exposures, a provision was formed for a number of land banking plots and future property developments.
Expectations are that, in the future, many property developments will be concentrated in city centres. For this reason, a.s.r. Vastgoed Ontwikkeling will beef up its strategic focus and expertise in the area of complex urban developments, so as to create an edge as soon as the market improves.
Capital policy a.s.r. is committed to maintaining a robust capital base that forms a solid foundation for achieving corporate targets. This makes the effective execution of the capital policy a core task for risk management and one a.s.r.’s priorities. Capital management comprises all activities that focus on controlling, managing and monitoring any available and required solvency.
The Solvency I rules that are enforced by the regulator form the current regulatory framework. In addition to supervision under Solvency I, a.s.r. is starting to see more and more of the outlines of the rules and regulations of the Solvency II regime. Although the effective date for Solvency II has been delayed, a.s.r. has nevertheless started to implement far-reaching measures to prepare its organization and processes for the Solvency II regime.
The Solvency II rules dictate a different method for measuring and managing available and required capital. a.s.r. incorporated this method into its management approach, and throughout this process, further refi ned its practical application. a.s.r. regularly measures and manages its available and required capital under Solvency II; this process is now an integral part of managing the capital position of a.s.r. as a whole.
In addition to the Solvency II requirements, the self-developed ECAP method has now also been cascaded through the organization and integrated into the risk management structure. This system guarantees the transparency of the robust fi nancial position that a.s.r. holds in terms of fair market value.
Capital and solvency Including the revaluation of real estate, equity was up 18%, rising from € 3,228 million to € 3,809 million. This increase was mainly attributable to the net result and increases in gains on unrealized changes in the value of equities and fi xed-income securities. The fair market value of investment in real estate exceeded its carrying amount by € 874 million, an 11% rise on 2011. Disregar ding these changes in value, equity increased by 24% to reach € 2,935 million.
At year-end 2012, the DNB solvency ratio (including the ultimate forward rate or UFR) stood at 293%, which demonstrates that a.s.r. has a stable fi nancial base. In accordance with regulatory requirements, the UFR has been applied since June 2012. Disregarding the UFR, the solvency ratio was virtually stable at 231% (2011: 230%).
As access to, and expenses associated with, funding channels can range over time, a.s.r. seeks to create a balanced spectrum of funding options. a.s.r. has currently achieved this by keeping its programms up-to-date both in terms of secured and unsecured fi nancing, so as to ensure access to the money and capital markets, and minimize funding expenses.
a.s.r. has more than adequate scope for meeting its minimal funding requirements where appropriate and with the necessary fl exibility.
At the request of a.s.r., Fitch Ratings withdrew its ratings for different a.s.r. divisions on 19 December 2012.
Effect of market risk on solvency ratio: Type of market risk scenario 2012 2012 2011 inclusive of UFR
The integrated risk profi le for a.s.r. is defi ned every quarter, after which it is assessed against the chosen risk appetite. The risk appetite has been defi ned by the a.s.r. Risk Committee, which includes all members of the Executive Board. The risk appetite has been endorsed by the Supervisory Board. This allows the Executive Board to quickly take action when the risk profi le is exceeded. The a.s.r. risk appetite describes the accepted level of risk for both fi nancial and non-fi nancial aspects, as well as the priorities that govern the chosen risk appetite pillars. To provide customers with certainty at all times, a.s.r. gives preference to solvency over profi t, and to profi t over premium.
a.s.r. uses the ECB AAA curve in the adequacy test provision to measure liabilities in the DNB solvency ratio inclusive of the UFR. This yield curve includes the Netherlands, Germany, France and Austria. If France’s rating is downgraded, it will be removed from the AAA ECB curve, so that the curve will drop and solvency will be adversely affected.
Starting from the third quarter of 2012, DNB has dictated the application of the UFR to the yield curve used to discount insurance liabilities, meaning that the yield curve at maturities of more than 20 years gradually approaches a level of 4.2%, which signifi es an increase. This represents a considerable boost of the solvency position for a.s.r. For the sake of prudence, the solvency position is also assessed exclusive of the UFR.
a.s.r. sees the availability, integrity and confi dentiality of information as its priorities. A project was launched in 2012 to further increase risk awareness among employees. a.s.r. will keep focusing heavily on information security, given its importance to the organization’s continuance of operations.
All divisions perform a CRSA annually. In this process, they identify the risks that pose a threat to the achievement of the corporate targets. Risk priorities for the coming year are set by the Executive Board on the basis of identifi ed risks and other external developments. The progress made on managing the identifi ed risk priorities is reported to the a.s.r. Risk Committee on a quarterly basis.
Changing market Premium income is under pressure because of the current economic crisis. Consumers are taking a critical look at their insurance package due to the increase in insurance premium tax from 9.7% to 21% and the fi nancial implications of the economic crisis. This pressure on premium income can manifest itself in an increase in non-life policy cancellations, loss of retention in the life business and a drop in sales of new insurance contracts. In addition, the current market is characterized by keen competition and a growing focus on the part of consumers on pricing, which is weighing down margins.
Because of the change in market dynamic, a.s.r. and its emplo yees need to be quick to acquire the necessary new competencies and adopt the required level of fl exibility. Any delay in adapting to the changes in requirements can jeopardize a.s.r.’s ability to continue business operations in the long run.
The intermediary distribution channel (including mandates) is suffering because of the commission ban, the popularity of direct channels and the economic situation. As a result, inter mediaries might land themselves in fi nancial diffi culties as they potentially become unable to meet their payment obligations to a.s.r.
Ongoing uncertainty in fi nancial markets There are no signs that the unrest in the fi nancial markets is letting up. Some of the main causes of this risk are the European debt crisis, and the current interest rate and investment climate. The solvency and profi tability of a.s.r. may come under pressure in 2013. Continuing to manage the impact this has on solvency and return is a top priority.
Solvency II is the regulatory framework for European insurers. The effective date of Solvency II was scheduled to be 1 January 2014, but this date was postponed due to delays at European level in 2012. At present, expectations are that the new rules will be introduced in 2015 or 2016. There is a chance, however, of earlier partial introduction of the rules in the Dutch insurance market.
The principles and objectives of our CSR policy are established through dialogue with all stakeholders. a.s.r. maintains close contact with a broad group of external stakeholders, including customers, intermediaries, suppliers, the shareholder, political parties, public interest organizations, trade bodies and labour unions.
The key task of a.s.r. as a sustainable insurer is to offer people certainty in uncertain situations. Financial robustness is an integral part of this and is therefore the number one priority. a.s.r. creates insurance products that meet customers’ needs and that have been tested by customers. a.s.r. continually seeks to improve the transparency, simplicity and clarity of its products and services. The a.s.r. core value and various codes of conduct ensure that sustainability is embedded in our attitudes and behaviours.
The standards of the Customer-Oriented Insurance Quality Mark help a.s.r. to test the level of service provided. In 2011, the Quality Mark was awarded to the Ardanta, De Amersfoortse, Ditzo and Europeesche Verzekeringen labels. The standards were tightened in 2012 and all a.s.r. labels were reassessed against the stricter standards. The outcome of the assessments is expected in the course of 2013.
Customer appreciation rating The Net Promoter Score is used by a.s.r. to measure customer perceptions of its products and services. a.s.r. has the ambition to lead the fi eld by 2015, measured in terms of its NPS compared to its peers. From 2012 onwards, a.s.r. employees’ variable pay has been determined, in part, by improvements in the customer appreciation rating (measured using the NPS).
From winter 2010, when the NPS was -58, the score improved to -44 in winter 2012-2013. The results of the NPS are not yet satisfactory, and action is needed to generate further improvement in the NPS.
Products/processes Product development at a.s.r. is driven by the needs of customers, and a.s.r. collects information using market surveys and customer panels, among other tools. Making customer information accessible and easy-to-understand is an ongoing process. It involves using customer panels, the customer information improvement plan, the approval and review process for new and existing products (PARP) and long-term assurance (by style guides and courses in B1/Customer-friendly information).
Five years ago, a.s.r. embarked on its Continual Improvement approach, based on the lean principle. a.s.r. puts Continual Improvement into practice by taking an integrated approach to Processes, Operations Management and Attitude & Conduct. Every day, 80% of a.s.r. teams work in accordance with the Continual Improvement approach. In 2012, the transition was made to Continual Improvement in chains rather than teams, to ensure that improvement initiatives form a better match with customer wishes.
Complaints management Complaints allow a.s.r. to understand customers and to learn from mistakes. The complaints policy was further refi ned in 2012. The key objectives behind this policy are that a.s.r. wants to make it easy for customers to fi le a complaint (there is an easy-to-fi nd link on the website), and that a.s.r. communicates clearly about its vision and how the complaint will be resolved. The complaints handling procedure – including the related deadlines – can be found on www.asr.nl.
(these are category-specifi c); and 3. a.s.r. challenges its suppliers to come up with alternatives that constitute a better match for today’s environmental and social criteria.
According to the results of the Engagement Scan that was conducted in February 2012 and was completed by more than 83% of employees, the a.s.r. employee engagement score rose from 80.6% in 2011 to 82.9% in 2012. This is the highest score since 2008.
Leadership In 2011 a.s.r. initiated an intensive programme of cultural change. The main priority of this programme is that a.s.r. wants to win back the trust of customers as well as its employees. At the heart of this are the core values of being personal, approachable and accountable, and true to who we are.
Diversity At a.s.r., diversity is being enhanced in many ways. Employees are encouraged to participate in all manner of business networks in order to broaden their horizons and advance their personal growth.
Contrary to the downward trend in the Netherlands as a whole, a.s.r. appointed more women in 2012. The percentage of women in management positions grew in 2012 to 21% (from 14% at the start of 2012). The most recent (2011) biennial survey of the top 500 businesses in the Netherlands conducted by the Netherlands Institute for Social Research (Dutch acronym: SCP) shows that women account for 4.3% of Executive Board members and 9.0% of Supervisory Board members. The percentages of women on the Executive Board and the Supervisory Board at year-end 2012 were 25% and 50%, respectively. These percentages far exceed the national average.
As an institutional investor, one way in which a.s.r. demonstrates its corporate social responsibility is in its use of ethical and sustainability criteria as part of its investment policy.
a.s.r. believes in engagement through constructive dialogue with the businesses it invests in, with the aim of increasing shareholder value and social benefi t in the long term. If the dialogue does not produce a positive outcome, businesses may be excluded from the investment portfolio, if they have acted contrary to international conventions on human rights and workers’ rights. a.s.r. observes criteria, for instance, for the equal treatment of men and women, trade union freedom and the exclusion of child labour. With regard to investments in sovereign debt, a.s.r. excludes countries that have a poor score in the Freedom in the World Annual Report and the Corruption Perceptions Index.
a.s.r. also signed the United Nations Global Compact Principles (UNGC) on 30 December 2011. The UNGC asks businesses to embrace, support and implement, within their sphere of infl uence, a number of principles relating to human rights, labour standards, the environment and the fi ght against corruption.
These ten principles are based on four international conventions: 1. the Universal Declaration of Human Rights; 2. the International Labour Organization Declaration on Fundamental Principles and Rights at Work; 3. the Rio Declaration on Environment and Development; and 4. the United Nations Convention against Corruption.
Sustainability is also an important aspect in the property developments of a.s.r. Vastgoed Ontwikkeling. Here, the focus is on the use of sustainable materials, lower environmental impact, a healthy living environment, and good ergonomics. This has been translated into a concrete target to have all retail properties assessed for the BREEAM standards with the aim of achieving a “very good” rating. For residential properties, the goal is to achieve a minimum sustainability score of 7.5 in all a.s.r. Vastgoed Ontwikkeling developments. This score is measured in accordance with the Municipal Practice Guideline for Buildings (Dutch acronym: GPR). Apart from energy effi ciency, GPR also addresses environmental impact, health issues in the home and ergonomics.
a.s.r. wants to minimize the environmental impact of its operations, and so it uses resources, energy and water effi ciently. Furthermore, a.s.r. is actively getting to grips with waste management, mobility and carbon emissions, and for this purpose has developed a special environmental management system.
Thanks to a new printing policy, the number of prints has been reduced by two million in the space of two years. This is primarily because employees now have to enter a personal code to retrieve a print job from the printer, thereby ensuring that they use the printer more responsibly. Moreover, employees need special privileges to print in colour, and this has led to a considerable reduction in the number of colour prints.
The building in Utrecht is equipped with a system for Long-Term Energy Storage (Dutch acronym: LTEO), which uses the ground as a source for heating and cooling the building. In the summer, groundwater with a temperature of 10-12 degrees Celsius is pumped up from the 50-metre deep cold source. In the heat exchanger in the building, the air for the cooling system meets the cold water and the air loses its heat to the groundwater, which warms up. In the winter, the process is reversed. This system means a considerable saving on energy costs; it has a long lifespan and a high degree of reliability.
a.s.r. has an active mobility policy that seeks to improve accessibility to the buildings and reduce carbon emissions. One aspect of this is the optimization of the parking facilities. At the Utrecht, Amsterdam and Amersfoort locations, employees are encouraged not to use their cars, especially at peak times. Alternatives include working from home and using video conferencing.
On 6 December 2012, a record number of employees worked from home: simultaneously 2,029 out of a total of just over 4,000. The high number of remote workers was prompted by the severe weather warning that had been issued by the Dutch meteorological institute. On an ordinary business day, an average of 1,000 employees works from home.
The ambition of a.s.r. Foundation is to encourage employees to become involved in the community and to help them support social initiatives. By enabling employees to come together and actively make a contribution to society, a.s.r. Foundation also strengthens team spirit among employees and their sense of pride in the business.
To garner enthusiasm from as many employees as possible, a.s.r. Foundation offers various options. For instance, the Stimulus Plan provides individual employees with a fi nancial contribution for the active role they play in volunteer work in their community. In 2012, employees used the Stimulus Plan to raise money for their chosen charities, ranging from SOS Children’s Villages to the National Play Outdoors Day.
More than 40 teams combined a team-building event with giving back to the community by doing odd jobs for Jeugddorp De Glind, a Dutch town in service of vulnerable children, care farms and other social organizations. In addition, more than 1,000 employees took the opportunity to make a contribution to society by taking part in one of the more than 30 special activities.
At the start of the year, the ‘vanmij’ party was held for the second time at the a.s.r. building in Utrecht; the event is a party by and for employees that raises money for charity. It includes performances by employees and a charities marketplace. a.s.r. also gave € 10 to each of the more than 2,000 party-goers, which they could donate to the charity of their choice. In total, the performances, marketplace and donations raised € 61,000 for a variety of good causes.
The Supervisory Board will present the fi nancial statements for adoption to the Annual General Meeting of Shareholders (AGM). The Supervisory Board proposes to adopt the fi nancial statements and to discharge the members of the Executive Board and the Supervisory Board for their management and super vision respectively. For the profi t appropriation proposal to the AGM, which the Supervisory Board approved, see page 187 of this report.
• Financial performance (quarterly, interim and annual results) • Developments in fi nancial markets and solvency • Dividend proposal • Budget • Risk management and risk appetite • Market developments and strategy • Customers interests • Compliance reports • Audit reports • Governance • Performance targets of identifi ed staff • Status of compensation process for unit-linked policies
The Supervisory Board explicitly addressed and approved the risk appetite in 2012. This risk appetite also proved to be an important benchmark in 2012 for both tactical and strategic decisions.
Market developments and strategy Developments in the fi nancial sector were addressed in virtually every meeting. The consolidation potential in the insurance sector and the possible role of a.s.r. in this regard were talked about at length. In addition, specifi c topics for discussion were developments in, and the strategy for, mortgages and assetbuilding. The Supervisory Board endorses the chosen strategy for the Banking business to continue to offer a competitive mortgage proposition and to return to the basics of being a small, effi cient savings and investment bank. a.s.r. offers a range of brands for a broad audience. The Executive Board refi ned the brand and distribution strategy in the fourth quarter of 2012. The refi ned strategy was discussed with the Supervisory Board. The members of the Supervisory Board are happy about the shift in focus and the effect of the strategy on the marketing of the different brands.
Although the members of the Supervisory Board addressed CSR separately, they feel that this issue was somewhat snowed under in the reporting period. The Supervisory Board will devote more attention to CSR in 2013.
Governance The Dutch Central Bank (DNB) reviewed the design and effectiveness of the governance structure in place at a.s.r. at the end of 2011. The Supervisory Board discussed the outcomes and recommendations of the review with the Executive Board during various meetings. In addition, a dialogue was initiated with DNB to discuss the recommendations and the effects of their implementation. In the design of the governance structure, the members of the Supervisory Board attach great value to balancing the interests of groups of policyholders on the one hand and the possibility to run a.s.r. as an integrated business on the other. One of the decisions taken was to adjust the design of the governance structure of a number of licensed
There was a vacancy on the Executive Board as of 1 January 2012. After the proposal to appoint Michel Verwoest to the Executive Board was discussed in the Selection, Appointment and Remuneration Committee, it was presented to the Supervisory Board. The AGM appointed Michel Verwoest to the Executive Board as of 1 December 2012. Earlier in the year, the Supervisory Board agreed to a change in the division of duties among the members of the Executive Board.
Audit and Risk Committee The meetings of the Audit and Risk Committee focused on fi nancial performance every quarter. The Committee discussed the fi nancial results for the full year based on the annual report, the fi nancial statements and the actuary’s report. The Committee issued a positive opinion to the Supervisory Board.
The Multi-Year Budget 2013-2017 and the risk priorities for 2013 were discussed at year-end. Ahead of the requirements of Solvency II, the Investment Plan was also addressed at length.
The Selection, Appointment and Remuneration Committee was closely involved in the selection and appointment process of a new Executive Board member after Roeland van Vledder stepped down on 1 January 2012. In mid-June 2012, the Committee advised the Supervisory Board to nominate Michel Verwoest for appointment to the Executive Board.
The Act on the limitation of liability for DNB and AFM, and the bonus prohibition for state-aided enterprises, was a frequently recurring agenda item for the Selection, Appointment and Remuneration Committee. In accordance with this Act, the members of the Executive Board of a.s.r. are not awarded any variable pay as long as a.s.r. falls under the scope of the Act. To somewhat mitigate the resulting loss of income, the Committee has proposed to utilize the one-off option offered under the Act to award a temporary personal allowance. By setting the
42 a.s.r. 2012 annual report allowance at 16% on average, the Selection, Appointment and Remuneration Committee has deliberately kept it well below the permitted 20%; as a result, the remuneration of the members of the Executive Board is well below the market median. The Supervisory Board has agreed to this proposal. The CEO has not been awarded a personal allowance.
Jos Baeten studied law at Erasmus University Rotterdam and started his career in 1980 when he joined Stad Rotterdam Verzekeringen, one of the pillars supporting a.s.r.; he was appointed CEO of Stad Rotterdam in 1999. He then joined the Board of Directors of Fortis ASR Verzekeringsgroep N.V., becoming Chairman of the Board of De Amersfoortse Verzekeringen in June 2003. In 2005, he was appointed Chairman of the Board of Directors of Fortis ASR Verzekeringsgroep. He has served as the Chairman of the Executive Board and CEO of a.s.r. since January 2009.
Additional positions Jos Baeten is a member of the Board of the Dutch Association of Insurers and of Holland Financial Centre. He also serves as Chairman of the Supervisory Committee of Gemiva-SVG Groep, an organization providing support to the disabled, and of Stichting Rotterdamse Schouwburg (Rotterdam Theatre). In addition, he sits on the General Administrative Board of the Confederation of Netherlands Industry and Employers (VNO-NCW) and is a member of the Advisory Board of ROC Midden-Nederland vocational college.
K.T.V. (Karin) Bergstein MSc Karin Bergstein (born 1967) is a member of the Executive Board. Her areas of responsibility are the product lines Non-Life, Life and Banking, and the divisions Intermediary Distribution, Customer Service, Europeesche Verzekeringen and Ardanta.
Additional positions Karin Bergstein is a member of the Supervisory Committee of Stichting Sanquin Bloedvoorziening, a blood bank, and a member of the Supervisory Board of 365, formerly ArboNed, a nation-wide occupational health and safety board.
M.H. (Michel) Verwoest, M.A. Michel Verwoest (born 1968) is a member of the Executive Board. His areas of responsibility are the product lines Pensions, Occupational Disability Insurance and Health Insurance.
He is also responsible for Property Development, Property Asset Management and the support departments ICT and Information & Project Management.
Michel Verwoest studied marketing at TiasNimbas Business School in Tilburg and business administration at IBO Business School, and held several executive positions at ING Group between 1997 and 2012. Within ING, he served as CEO of RVS Insurance and was in charge of the Individual Life business. His last position within ING Group was that of CEO of Nationale Nederlanden Services and director of Nationale Nederlanden Leven. He was appointed to the Executive Board of a.s.r. as of 1 December 2012.
Additional positions Michel Verwoest is a member of the Advisory Board of Post & Blankestijn, a recruitment and secondment company, and a member of the Board of Stichting Vrienden van de Gelderhorst, a care provider for elderly deaf people.
Roel Wijmenga studied econometrics and earned a Ph.D. in economics from Erasmus University Rotterdam. He started his career in insurance at AMEV, one of the legal predecessors of a.s.r., where he held several executive positions until 2003. After having left AMEV, he served as a member of the Executive Board of Interpolis and as CFO/member of the Executive Board of Eureko/Achmea. He was appointed to the Executive Board of a.s.r. early in 2009.
Additional positions Roel Wijmenga is the Chairman of Stichting Certifi cering Federatie Financieel Planners, a foundation for the certifi cation of fi nancial planners, and a member of the Board of Stichting DSI, a foundation for the promotion and monitoring of the integrity and reliability of fi nancial services providers and compliance professionals. He also serves on the Financial & Economic Committee of the Dutch Association of Insurers.
Kick van der Pol (born 1949) is the Chairman of the Board of Directors of Ortec Finance, Chairman of the Board of the Federation of Dutch Pension Funds and Chairman of the Advisory Board of Syntrus Achmea, a pensions administrator. He is also a member of the DNB Bank Council, a member of the Advisory Board of Nationaal Register, a recruitment organization for supervisory directors, and a member of the Board of the Confederation of Netherlands Industry and Employers (VNO-NCW). In the past, he served as Vice-Chairman of the Executive Board of Eureko/Achmea and as Chairman of the Executive Board of Interpolis.
First appointed on: 15 December 2008 Current term of offi ce: 15 June 2010-15 June 2014
Annet Aris (born 1958) had a 17-year career at McKinsey as a management consultant, nine years of which she served as a partner. She serves as a supervisory director at several Dutch and foreign enterprises, including Finland-based Sanoma Group
Cor van den Bos (born 1952) was on the Executive Board of SNS Reaal N.V. until August 2008; in this position, he was responsible for all insurance operations. He is the Chairman of the Super visory Board of CED, a claims-processing manager, and of Noordwijkse Woningstichting, a housing corporation. He also sits on the Supervisory Boards of investment company Kardan, NIBE-SVV, a knowledge institute and publisher for the Dutch banking, insurance and investment industry, and Trust Hoevelaken.
M.A. (Margot) Scheltema MSc Member of the Audit and Risk Committee
The Supervisory Board performs a self-assessment annually. At the end of 2011, the Supervisory Board engaged an outside party to assess its performance. The outcome of the assessment was fi rst discussed in the Supervisory Board early in 2012 before being tabled in a meeting between the Supervisory Board and the Executive Board. The overall impression of the Supervisory Board’s performance was good; the supervisory directors work well as a team and the relationship with the Executive Board is open and professional. The fact that the Supervisory Board is small makes it easier to respond quickly to developments. Following up on the outcome of the assessment, the supervisory directors have introduced periodic operational meetings. In these meetings, the supervisory directors make sure that information from the two committees of the Supervisory Board is shared. In addition, it was agreed that the Supervisory Board would focus even more on the main outlines and that the manner in which issues are discussed would be evaluated regularly with the Executive Board.
In addition to the regular and ad-hoc meetings, the Supervisory Board had two sessions with the Executive Board to discuss the personal development and succession planning of senior managers.
Independence and confl icts of interest In 2009, Cor van den Bos announced that his role as Chairman of the Supervisory Board of CED might potentially cause a confl ict of interest if CED-related issues were to be discussed in the Supervisory Board of a.s.r. This was not the case in 2012.
Contacts with compliance offi cers The Committee spoke twice with just the heads of Audit, Integrity and Risk Management (i.e. the compliance functions). The Committee also met, and consulted with, the persons in charge of Finance and Risk Management (CFROs) in the product lines.
Appointment and re-appointment of executive and super visory directors Michel Verwoest was appointed to the Executive Board as of 1 December 2012, so that the vacancy that arose on 1 January 2012 has now been fi lled. Like the other Executive Board members, Michel Verwoest was appointed for an indefi nite term. This deviated from the term of appointment as part of the Corporate Governance Code (For the application of the Corporate Governance Code, see section 4.1.4 and the Governance Statement on www.asr.nl).
Meetings of Supervisory Board and committees The Supervisory Board met with the Executive Board twelve times during the year under review. Six meetings were scheduled as regular meetings and six were ad-hoc meetings to discuss specifi c issues, including the outcome of the assessment of the performance of the Supervisory Board, the fi ndings from DNB’s governance review, the distribution strategy and the brand portfolio, and the latest developments in the insurance sector. In addition, many telephone calls were devoted to these latest developments. With one exception, the supervisory directors attended all meetings in the year under review.
Supervisory Board in the absence of the Executive Board 2/2 2/2 2/2 2/2
General The Dutch State became the sole shareholder of ASR Nederland N.V. on 3 October 2008. On 29 September 2011, the Dutch State transferred all shares in ASR Nederland N.V. to NLFI in exchange for depositary receipts for the shares.
Partial two-tier regime ASR Nederland N.V. is a two-tier company subject to the so-called ‘partial regime’ because the State, in its capacity as a legal person under public law, has provided the entire issued capital for its own account (Section 155a, Book 2 of the Netherlands Civil Code). As a result, the rules for appointing and removing supervisory directors are different from those in effect at companies not subject to the partial two-tier regime. In addition, specifi c executive decisions mentioned in the law are subject to Supervisory Board approval.
Supervisory Board The Supervisory Board has every power the law confers upon a Supervisory Board of a two-tier company subject to the partial regime. The Supervisory Board’s main duties and responsibilities are supervising the policies pursued by the Executive Board, overseeing the general conduct of affairs at the company and its affi liated entities, and advising the Executive Board.
Articles of Association and rules of procedure The current Articles of Association and rules of procedure for the Executive Board and the Supervisory Board have been posted on the corporate website: www.asr.nl. ASR Nederland N.V. and the Dutch State signed a covenant earlier that formalizes procedural aspects for information provision and decisionmaking, and policy and parameters for decisions regarding capital reduction, and interim and year-end dividend distributions, among other provisions.
For an overview of how ASR Nederland N.V. applies the Code, please visit the corporate website (www.asr.nl) to view the Corporate Governance Statement.
ASR Nederland N.V. sees much of its mission, vision and core values refl ected in the principles of the Dutch Insurance Code and the Dutch Banking Code, and therefore fully endorses these two Codes. By seeking to achieve its mission, vision and core values, ASR Nederland N.V. wants to contribute to improving the workings of the Dutch fi nancial sector and help restore trust in the fi nancial sector, never losing sight of customer interests.
To fi nd out what measures ASR Nederland N.V. has taken to comply with the Dutch Insurance Code, please log on to the corporate website: www.asr.nl.
Details on how ASR Bank N.V. applies the Dutch Banking Code can be found in its Annual Report that has been posted online on www.asr.nl.
Professional oath The members of the Executive Board, the Supervisory Board and all a.s.r. directors took the professional oath early in 2013. By taking this oath, they promised to treat customers fairly, act with integrity and observe all relevant laws, rules and regulations, and codes of conduct so as to help increase confi dence in the fi nancial sector. With effect from 1 January 2013, all decisionmakers working in the fi nancial sector have been under the obligation to take this oath in accordance with the Dutch Oath or Affi rmation (Financial Sector) Regulation.
The remuneration policy is designed to help achieve the a.s.r. strategy and business targets. The principles of the policy are preservation and further improvement of the fi nancial robustness of a.s.r., focus on sustainable, long-term value creation for customers and other stakeholders, management of risks and a transparent policy whose structure and methodology is applicable to a.s.r. as a whole. This policy should allow a.s.r. to attract and retain qualifi ed people.
The Supervisory Board is responsible for implementing and evaluating the remuneration policy governing the members of the Executive Board as adopted by the AGM. The Supervisory Board adopts the policy for remunerating senior managers. The Executive Board is responsible for adopting, implementing and evaluating the remuneration policy governing all other employees. The Supervisory Board assesses the principles of the remuneration policy for other employees.
Based on the provisions of CRD III, which are enshrined in the Dutch Restrained Remuneration Policy (Financial Supervision) Regulation, a.s.r. has defi ned a group of identifi ed staff. The remuneration policy governing identifi ed staff is subject to the approval of the Supervisory Board, which also monitors the Executive Board’s implementation of this policy. Identifi ed staff is taken to include the members of the Executive Board, senior management and two employees in higher management positions.
Groups 4 and 5 are governed by the industry-wide collective bargaining agreement (CBA) for back offi ce positions and for front offi ce positions in the insurance sector respectively, and by the CBAs concluded by a.s.r. itself, i.e.: • CBA selection system for contract hours and pay-and-benefi ts package • CBA job classifi cation and pay structure for back offi ce positions • CBA job classifi cation and pay structure for front offi ce positions
With effect from 2012, all remuneration groups, except for the Executive Board, have been awarded basic and variable pay. For this purpose, the remuneration paid to back offi ce and front offi ce staff had a built-in profi t-sharing mechanism. Considering that such a pay component can lead to inappropriate behavior (favouring premium income over customer interests), this system was abolished in 2011 and replaced by a system that links the variable pay component to the achievement of individual targets, fi nancial group targets and group-wide customer targets.
The basic pay awarded to the members of the Executive Board comprises a fi xed amount per month, including holiday allowance, which is not increased other than by indexing in accordance with the CBA.
Of the variable pay component, one-third is determined by an employee’s score on individual targets in a calendar year. The remaining two-thirds are determined by the fi nancial performance of a.s.r. measured in terms of fi nancial results and customer appreciation. At the beginning of every calendar year, employees and their managers agree on individual targets that need to be achieved during that year. These targets need to refl ect a clear focus on improving a.s.r.’s customer appreciation rating. The targets to be achieved in terms of fi nancial results and customer appreciation are adopted annually by the Executive Board and the Supervisory Board. These targets are discussed with, and explained to, the Works Council before they are adopted. Variable pay is a percentage of basic annual pay.
Identifi ed staff are conditionally awarded a material share (i.e. 50%) of their variable pay in the form of cash and non-cash instruments. The conditional variable pay is deferred for three years; a reappraisal is performed at the end of the three-year period, after which the cash part is paid out. The non-cash part is retained for another two years. Some of the unconditional variable pay is paid out in cash right away. The non-cash part of the unconditional variable pay is also retained for two years.
In addition to a basic and variable pay component, front offi ce staff are also awarded target-related pay, which is determined by their individual score on quantitative and qualitative targets. The employee and their manager agree on these targets annually and in the following year it is determined whether these targets have been achieved. The target-related pay is a percentage of the annual basic pay awarded to the employee. Depending on the job description, the target-related pay for a performance ‘on target’ will amount to 20%, 24% or 30% of the basic pay. The maximum level is 40%, 48% or 60%.
The consolidated and company fi nancial statements for 2012 of ASR Nederland N.V., as well as Part I, II and III of the Annual Report, have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and with Part 9, Book 2 of the Netherlands Civil Code.
The Executive Board declares that, to the best of its knowledge: 1. the fi nancial statements give a true and fair view of the assets, liabilities, fi nancial position and earnings; 2. the fi nancial report does not contain any material misstatements and the risk management and control systems functioned properly in the year under review; 3. the Annual Report gives a true and fair view of the situation at the balance sheet date and developments during the year under review; and 4. the Annual Report describes the principal risks that the company faces.
Other notes 169 37 Related party transactions 170 38 Remuneration of the Executive Board and
Share of profi t/(loss) of associates and joint ventures -9 8
Shadow accounting allows a recognized but unrealized gain or loss on an asset to be transferred to insurance liabilities (see chapter 2.26).
Unrealized change in value of available-for-sale fi nancial assets 1,482 -85
Attributable to: - Holders of other equity instruments 45 45 - Tax on interest of other equity instruments -11 -11
Other reserves amounting to € 613 million (2011: € 506 million) consist primarily of retained earnings. Unrealized gains and losses include shadow accounting adjustments (see chapter 2.26). For more detailed information on the unrealized gains and losses, see chapter 16.2.
S h a re p re m iu m re se rv e
Acquisition of non-controlling interest - - - - - - - -2 -2
Amortization/depreciation: - Deferred acquisition costs 91 108 - Property, plant and equipment 12 12
Net increase/decrease in liabilities arising from insurance contracts on behalf of policyholders -276 -1,294
The consolidated fi nancial statements of a.s.r. have been prepared in accordance with the International Financial Reporting Standards (IFRS) – including the International Accounting Standards (IAS) and Interpretations – as adopted by the European Union (EU).
• Amendments to IAS 19 Employee Benefi ts: As a result of this revision, € 372 million is added to the provision for employee benefi ts effective 1 January 2013. Per this date, Equity decreased by € 279 million after tax to € 2,656 million. The amendments relate primarily to the following: • unrealized actuarial gains and losses which are currently reported using the ‘corridor method’ (see chapter 2.31) whereby unrealized actuarial gains and losses remain outside the profi t for the year and total equity. As of 1 January 2013, all actuarial gains and losses will be recognized directly in Other comprehensive income (component of total equity)
• IFRS 10 Consolidated Financial Statements: New consolidation standard that establishes principles for the preparation and presentation of consolidated fi nancial statements when a reporting entity controls one or more investees (effective 1 January 2014).
• IFRS 11 Joint Arrangements: This standard describes the accounting for joint arrangements and the classifi cation into two types—joint operations and joint ventures (effective 1 January 2014).
• IFRS 13 Fair Value Measurement: This standard explains how to measure fair value for fi nancial reporting purposes.
• IAS 27 Separate fi nancial statements and IAS 28 Investments in associates and joint ventures: Amendments as a result of changes to IFRS 10, 11 and 12 as mentioned above (effective 1 January 2014).
• Amendments to IFRS 7 fi nancial instruments: Disclosures - Offsetting fi nancial assets and fi nancial liabilities and IAS 32 fi nancial instruments: Presentation - Offsetting Financial assets and fi nancial liabilities.
Income statement 2012 As reported Changes as a result of IAS 19
Profi t attributable to holders of equity instruments 255 61 316
(‘control’). This is the case if more than half of the voting rights may be exercised or if a.s.r. has control in any other manner. Subsidiaries are fully consolidated from the date on which control is acquired by a.s.r. Subsidiaries are deconsolidated when control ceases to exist.
A subsidiary’s assets, liabilities and contingent liabilities are measured at fair value on the acquisition date and are subsequently accounted for in accordance with the a.s.r. accounting policies, which are consistent with IFRS.
Upon recognition, investments in associates are initially accounted for at cost price, including any goodwill paid. Subsequent measurement is based on the equity method of accounting. Where an associate’s accounting policies are different from a.s.r.’s, carrying amounts have been changed to ensure that they are consistent with the policies used by a.s.r. For details, see chapter 2.17.
The preparation of the fi nancial statements requires a.s.r. to make estimates and assumptions that have an effect on the reported amounts in the fi nancial statements.
The consolidated fi nancial statements are presented in euro’s (€), which is the functional currency of a.s.r. and all its group entities.
Transactions denominated in foreign currencies are translated into the functional currency using the exchange rates prevailing at the transaction date. Monetary balance sheet items denominated in foreign currencies are translated at the applicable exchange rate as at the balance sheet date. Foreign exchange gains and losses arising from the settlement of foreign currency transactions and from the translation at closing rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity as part of qualifying cash fl ow hedges or qualifying net investment hedges.
Foreign exchange differences arising from monetary fi nancial assets available for sale related to amortized cost are recognized in profi t and loss for the period. Any residual translation differences relating to fair value changes are recorded in equity.
Translation differences on non-monetary balance sheet items measured at fair value, with fair value changes through profi t and loss, are recognized in the income statement. For non-monetary balance sheet items measured at fair value, with fair value changes recognized within equity, exchange rate differences are recorded in equity.
Non-life insurance contracts Non-life insurance contracts are contracts that provide cover that is not related to the life or death of insured persons. These insurance contracts are classifi ed into the following categories: Accident & Health, Property & Casualty (motor, fi re and liability) and Other.
(see chapter 2.26); • group contracts with segregated pools with return on investment guarantees.
Life insurance contracts on behalf of policyholders Claims from these life insurance contracts are directly linked to the underlying investments. The investment risk and return are fully for policyholders (see chapter 2.27). Life insurance contracts for the account and risk of policyholders are generally comprised of contracts where premiums, after deduction of costs and risk premium, are invested in unit-linked funds. For some individual contracts, a.s.r. guarantees returns on unit-linked investment funds. In addition, group life insurance contracts with unguaranteed segregated pools (discretionary self-insurance) are classifi ed as life insurance contracts on behalf of policyholders.
At organizational level, a.s.r.’s operations have been divided into operating segments. These segments are: Non-life, Life and Other. The Non-life and Life segment comprises all the respective non-life and life insurance entities and their subsidiaries. The segment Other comprises the non insurance related operations, such as a.s.r. Bank, a.s.r. Hypotheken, a.s.r. Vastgoed Ontwikkeling, SOS International, Ditzo (distribution channel) and several holding companies, including ASR Nederland N.V.
There is a clear difference between the risk and return profi les of these three segments. Intersegment transactions or transfers are conducted at arm’s length conditions. For detailed information per segment, see chapter 5, ‘Segment information’.
The table below shows the exchange rates of the major foreign currencies: Exchange rate at Average exchange rate 1 euro=
Fair value hierarchy a.s.r. uses the following three hierarchical levels to determine the fair value of fi nancial instruments and non fi nancial instruments when accounting for assets and liabilities at fair value and disclosing the comparative fair value of assets and liabilities: Level 1. Fair value on the basis of quoted prices in an active market Level 1 includes assets and liabilities whose value is determined by quoted (unadjusted) prices in the primary active market for identical assets or liabilities. A fi nancial instrument is quoted in an active market if: • quoted prices are readily and regularly available
(from an exchange, dealer, broker, sector organization, third party pricing service, or a regulatory body); and
assets or liabilities; • quoted prices for identical or similar assets or liabilities in inactive markets; • input variables other than quoted prices observable for the asset or liability. These include interest rates and yield curves observable at customary intervals, volatility, early redemptions spreads, loss ratio, credit risks and default percentages.
The fi nancial instruments in this category mainly consists of private equity investments. The main non-observable market input is the net asset value of the investment.
Fair value for investment property and buildings for own use For investment property and land and buildings for own use the following methods of determining fair value by the appraisers for disclosure purposes: • direct comparables - on an active market for similar properties: current and recent prices, adjusted to refl ect differences in lease contract, operating costs, vacancy, nature, condition, location and other factors that might infl uence the fair value of the property and any changes in economic conditions since the date of the transactions that occurred at those prices (use comparables); • indirect comparables - on an active market for non-similar properties: gross actual rent, theoretical rent, estimated rental value, remaining rental period, voids and rental incentives, rates for comparable properties. The net capitalization factor and the present value of the differences between market rent and contracted rent, of vacancies and of maintenance expenditure to be taken into account are calculated for each property separately; • income approach- on an inactive market for non-similar properties: the discounted cash fl ow method and the direct capitalisation method, in which market parameters concerning rents, yields and discount rates are based on comparable and current market transactions.
Retail, offi ces and residential property are valued using all three methods, whereas for parking and rural properties the income approach is primarily used. For income producing properties in active markets generating market evidence – fair value methods using comparables or income approach – should result in similar valuations and could both be utilized in determining fair value. The fair value of investment property and land and buildings for own use, shall be estimated annually (or in the case of rural, updated annually).
Fair value for other non fi nancial assets and liabilities For other non fi nancial assets and liabilities where the fair value is disclosed these fair values are based on observable market inputs, primarily being the price paid to acquire the asset or received to assume the liability at initial recognition, given that the transactions have taken place at an arm’s length basis. Where the payment terms are longer than one year, valuation techniques using present value calculations are applied using current interest rates.
The statement of cash fl ows classifi es cash fl ows by operating activities, investing activities and fi nancing activities. Cash fl ows denominated in foreign currencies are converted at the exchange rates applicable on the transaction date.
Cash fl ows from operating activities are reported using the indirect method. Cash fl ows from operating activities include operating profi t before taxation, adjustments for gains and losses that did not result in income and payments in the same fi nancial year, adjustments for movements in provisions, and accrued and deferred items.
Goodwill Acquisitions by a.s.r. are accounted for using the acquisition method. Goodwill represents the excess of the cost of an acquisition over the fair value of a.s.r.’s share of the net identifi able assets and liabilities and contingent liabilities of the acquired company at acquisition date. If there is no excess (negative goodwill), the carrying amount is directly recognized through the income statement. At the acquisition date, goodwill is allocated to the cash-generating units that are expected to benefi t from the business combination.
In the event of an impairment, a.s.r. fi rst reduces the carrying amount of the goodwill allocated to the cash-generating unit. After that, the carrying amount of the other assets included in the unit is reduced pro rata to the carrying amount of all the assets in the unit.
Software The cost of software is capitalized if it concerns identifi able assets that a.s.r. is able to use or sell, and which will generate probable future economic benefi ts. The costs mainly involve licensing fees. Capitalized software is amortized using the straight-line method over its expected (fi nite) useful life, which does not exceed fi ve years. If there is objective evidence of impairment, capitalized software is tested for impairment. An impairment is charged to the income statement as an impairment loss.
Capitalized deferred acquisition costs of insurance products in the non-life operating segment are amortized over the period in which the relevant premiums are realized.
Buildings are depreciated using the straight-line method based on expected useful life, taking into account their residual value. The useful life of buildings is assessed for every individual component (component approach) and is assessed every year. Property is classifi ed into the following components: land, shell, outer layer, systems, fi ttings and fi xtures (both rough fi nish and detailed fi nish).
Repair and maintenance costs are charged to the income statement in the period in which they are incurred. Expenses incurred after the acquisition of an asset are capitalized if it is probable that the future economic benefi ts will fl ow to a.s.r. and the cost of the asset can be measured reliably.
Accounting for borrowing costs attributable to the construction of property, plant and equipment is the same as accounting for borrowing costs attributable to investment property. For details, see chapter 2.16.
If objective evidence of impairment exists, property, plant and equipment are tested for impairment and if necessary, written down to the fair value of the property, plant and equipment (see chapter 2.9).
Investment property is recognized at cost less accumulated depreciation and impairment losses, if any. Buildings are depreciated using the straight-line method based on their expected useful life and taking account of the residual value. Land is not depreciated. The residual value and the estimated useful life are determined separately for every main component (component approach) and assessed at every balance sheet date.
Residential property is generally let for an indefi nite period. Other investment property is let for defi ned periods under leases that cannot be terminated early. Some contracts contain renewal options. Rentals are accounted for as investment income in the period to which they relate.
Borrowing costs directly attributable to the acquisition or development of an asset are capitalized. Borrowing costs are capitalized when the following conditions are met: • expenditures for the asset and borrowing costs are incurred; and • activities are undertaken that are necessary to prepare an asset for its intended use.
If objective evidence of impairment exists, based on the fair value of the investment property, then the investment property is tested for impairment and, if necessary, written down to the fair value of the investment property (see chapter 2.9).
Financial Statements a.s.r. 2012 annual report 73 2.17 Associates and joint ventures
Associates Associates are entities over which a.s.r. has signifi cant infl uence on operating and fi nancial contracts, without having control. Associates are recognized using the equity method of accounting from the date at which a.s.r. acquires signifi cant infl uence until the date at which such infl uence ceases. This means that associates are initially recognized at cost, including any goodwill paid. This value is subsequently adjusted to take account of a.s.r.’s share of the associate’s comprehensive income. Comprehensive income is adjusted in accordance with the accounting principles used by a.s.r.
Re b. Loans and receivables are measured at fair value plus transaction costs at initial recognition. They are subsequently measured at amortized cost based on the effective interest rate method, less impairment losses where deemed necessary (see also chapter 2.20). Loans and receivables are accounted for separately under fi nancial assets.
The fi nancial assets available for sale will be tested for impairment if objective evidence exists that the counterparty will default. Objective evidence includes: bankruptcy, fi nancial reorganization or delinquency in payments for more than 30 days. The assessment may also involve circumstances requiring a more detailed estimate, such as in the event of an equity defi cit, recurring fi nancial diffi culties, downgrading of the credit rating or other creditors reverting to legal action.
Loans and receivables are measured at amortized cost based on the effective interest rate method, less impairment losses where deemed necessary.
An individually assessed asset is considered impaired if objective evidence exists that a.s.r. will be unable to collect all the amounts due by the counterparty in accordance with the contractual terms and conditions. The amount of the impairment loss is equal to the difference between the asset’s carrying amount and its recoverable amount. The recoverable amount equals the present value of estimated future cash fl ows, including amounts realized from guarantees and securities furnished, discounted at the fi nancial asset’s original effective interest rate.
IBNR is estimated by reference to historical loss patterns. The current economic climate is refl ected, and account is taken of potentially higher credit risk based on an analysis of the economic situation.
If the forecast transaction or the fi rm commitment is no longer expected to take place, any related cumulative gain or loss on the hedging instrument that was reported in equity is recognized in the income statement.
Non-controlling interest The non-controlling interest relates to the equity in a consolidated subsidiary not attributable, directly or indirectly, to a.s.r. (see chapter 2.4).
Discretionary interest on other equity instruments Discretionary interest on other equity instruments are recognized in equity upon payment.
Liabilities arising from non-life insurance contracts These liabilities comprise a provision for claims payments and current risks, and a provision for unearned premiums. The provision for claims payments and current risks is based on estimates of claims payable and of current risks. Claims payable relate to unpaid claims and claims handling costs, as well as claims incurred but not reported.
Additional provisions are generally recognized for realized gains or losses on fi nancial assets allocated to: • insurance contracts with participation features; • non-participating insurance contracts if and to the extent that the current interest rate is lower than the interest rate that was used in the pricing principles at inception of the insurance contract.
These fi nancial assets include fi xed-income fi nancial assets available for sale, specifi c fi nancial assets designated at fair value through profi t and loss, and specifi c derivatives designated as held for trading (swaptions and interest rate swaps).
Participating contracts include additional obligations relating to contractual dividends or profi t-sharing. These obligations are stated net of capitalized interest rate rebates. These interest rate rebates are amortized in accordance with actuarial principles to the extent that the expected surplus interest is achieved.
Reinsurance liabilities Reinsurance liabilities, with a.s.r. qualifying as the reinsurer and with signifi cant insurance risk being transferred to a.s.r., are accounted for in the same way as regular directly written insurance contracts. They are included under liabilities arising from insurance contracts.
Life insurance contracts with a discretionary participation features (DPF) Under DPF life insurance contracts, policyholders are assigned, in addition to their entitlement to a guaranteed element, an entitlement to a potentially signifi cant additional benefi ts whose amount or timing is contractually at the discretion of a.s.r. These additional benefi ts are based on the performance of a specifi ed pool of investment contracts, specifi c investments held by a.s.r. or on the issuer’s net income.
Expected entitlements to discretionary benefi ts are recorded in equity. Once a decision has been taken for discretionary participation features, any related benefi ts are recognized as liabilities.
Shadow accounting a.s.r. applies shadow accounting in compliance with IFRS 4 to: • insurance contracts with participation features; • non-participating insurance contracts if and to the extent that the current interest rate is lower than the interest rate that was used in the pricing principles at inception of the insurance contract.
Where the Property & Casualty (motor, fi re and liability) and Property & Casualty like business is concerned, the LAT is performed using statistical analyses. Any identifi ed losses are used as a basis for estimating future claims arising from an insurance contract from the portfolio on the balance sheet date. This is the best estimate. An appropriate risk margin is added, which is a function of the claims volatility. The total of best estimate and risk margin is compared to the technical provision recorded in the balance sheet. The LAT for the disability portfolio is comparable to the LAT for the life portfolio. Health liabilities are adequate if the technical provision recognized in a.s.r.’s balance sheet as a whole at least equals the best estimate of the insurance liabilities including an appropriate risk margin. This method is comparable with the method used for Life. The total of best estimate and risk margin for non life as a whole, is compared to the technical provision recorded in the balance sheet. If there is a defi ciency, the insurance liabilities are increased to adequate levels.
Liability Adequacy Test life The LAT is performed at each reporting date to asses the adequacy of insurance liabilities. Liabilities are adequate if the technical provision recognized in a.s.r.’s balance sheet for Life as a whole at least equals the best estimate of the life insurance liabilities including an appropriate risk margin. Also unrecognized gains and losses from relevant assets that are not carried at fair value in the balance sheet are taken into account to the extent these assets are allocated to cover the insurance liabilities. The various elements of the liability adequacy test are further discussed below.
Best estimate The best estimate of an insurance contract is the net present value of the projected cash fl ows of benefi ts and expenses, less the net present value of premiums. These cash fl ows are estimated using realistic (“best estimate”) assumptions in relation to mortality, longevity, lapse rate, expense and infl ation. The best estimate assumptions regarding mortality and longevity include recent trend assumptions for life expectancy in the Netherlands, as provided by the Dutch Actuarial Association.
Where applicable, the participating features of the insurance contracts, such as profi t sharing, are taken into account in the future cash fl ows. Since 30 June 2012, the cash fl ows are discounted using the ECB-AAA curve for government bonds including the UFR as published by the European Central Bank. The best estimate is increased by the time value of options and guarantees (CFOG: Cost of Financial Options and Guarantees) and is calculated using stochastic techniques. The intrinsic value of the options and guarantees is included in the best estimate.
In unit-linked contracts, the best estimate equals the fund value of the contract less the net present value of future margins on mortality and expense. Where unit-linked contracts with a guaranteed minimum benefi t on expiration are concerned, the best estimate is reduced by a CFOG, i.e. the value of that guarantee in accordance with the Black-Scholes model.
Risk margin a.s.r. uses the latest standard Solvency II model, as defi ned in Quantitative Impact Studies, to quantify the risks. The risks that are incorporated in the risk margin are: mortality, longevity, disability, lapse, catastrophe, expense, non-hedgeable fi nancial risk and operational risk. All these risks are projected into the future. The total risk for every future year is determined based on correlations between the risks described in the Solvency II standard model. The projected total risk for every year is multiplied by a cost of capital charge and discounted at the balance sheet date.
Dutch Central Bank LAT For the De Nederlandsche Bank (DNB, which is the Dutch Central Bank and insurance regulator) solvency (regulatory solvency) a.s.r. uses the Dutch Central Bank LAT (DNB LAT). The LAT used for IFRS purpose (‘LAT’ or ‘IFRS LAT’), as described above, differs from the DNB LAT as follows: • No surrender value fl oor is applied in the IFRS LAT • No prudential fi lters are applied in the IFRS LAT
The fair value of the fi nancial liabilities is obtained by multiplying the number of units attributed to each contract holder at the end of the reporting period by the unit value for the same date. Allowance is made also for liabilities arising from technical insurance risks (death, occupational disability).
Liabilities arising from insurance contracts on behalf of policyholders also include obligations in connection with savings pools and group pension contracts, with policyholders bearing the investment risk. These liabilities furthermore include a provision for compensating the costs of these contracts as agreed in 2008 with consumer organizations and additional compensation related to the unit-linked insurance contracts (including costs for the implementation and conversion of systems related to the compensation). This provision equals the present value (based on an interest rate of 4%) of the agreed amounts of compensation (upon maturity), with expenses incurred in prior periods fully provided for. In addition, estimates of additional expenses, such as overheads for administering the compensation scheme, compensation for hardship and surrender, are also taken into account.
Actuarial assumptions may differ considerably from actual results due to changes in market conditions, economic trends, mortality trends and other assumptions. Any change in these assumptions can have a signifi cant impact on the defi ned benefi t obligation and future pension costs.
Past-service costs are recognized directly in the income statement, unless the changes to the post-employment benefi t plan are conditional on the employees remaining in service for a specifi ed period of time (the vesting period).
At initial recognition, debt instruments and other loans are stated at fair value, net of transaction costs incurred. Subsequent valuation is at amortized cost. Any difference between the proceeds and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest rate method.
Non-life insurance premiums Non-life insurance premiums are accounted for in the period in which they are earned. As indicated in chapter 2.26, invoiced but not yet earned premiums are included under liabilities arising from insurance contracts.
Fee and commission income relates mainly to reinsurance, asset management and other services. These are generally recognized as income in the period in which the services are performed.
This item includes changes in liabilities arising from insurance contracts (see chapter 2.26) and the related benefi ts. Expenses associated with contracts on behalf of policyholders relate to changes in liabilities arising from insurance contracts on behalf of policyholders, including the benefi ts charged to the liabilities.
This mainly relates to commissions paid and amortization of capitalized deferred acquisition costs. For details on capitalized deferred acquisition costs see chapter 2.14.
The essence of a.s.r.’s business model is to take on the risks from our policyholders. One of a.s.r.’s main strategic pillars is to be a reliable and fi nancially solid insurance company, both now and in the future. Therefore, a.s.r. seeks to establish the right balance between risk and return. Risk management enables a.s.r. to indentify, measure, manage, report and monitor its risks.
The key risk developments in 2012 at a.s.r. are the following: General • Standards and Poor’s decided to improve a.s.r.’s rating outlook from A with a negative outlook, to A with a stable outlook, partly because of improvement in risk management and balance sheet management.
Market risk • In 2012 the position in fi nancial bonds was reduced in accordance with the strategic investment policy. • Within the limits of the risk appetite, the equity position was expanded in 2012.
Insurance risk – Life • The profi tability development of the individual and group life insurance portfolios are being closely monitored. The result is negatively impacted by the low interest rates. The new actuarial life expectancy and mortality tables issued in 2012 by the Actuarial Society of the Netherlands have been used in the LAT to evaluate the adequacy of the provisions.
Strategic risk • In 2012, as in previous years, a.s.r. executed a Control Risk
• In 2012, a.s.r. executed an Own Risk and Solvency Assessment (ORSA). This assessment helps to identify risks and quantify the impact of these risks on the forward-looking solvency position. The ORSA 2012 is part of the general rehearsal of DNB for Solvency II.
Operational risk • In 2012, a.s.r. continued to improve its system of internal control.
• In 2012, a.s.r. participated in the Parallel Run, to test the preparedness of Dutch insurers regarding Solvency II processes.
Capital management and solvency • For the purposes of DNB solvency, the ECB AAA government bond curve is used for discounting insurance liabilities. Since 30 June 2012, the DNB prescribes the Ultimate Forward Rate (UFR) on the discounting curve. The application of the UFR on the discounting curve has a signifi cant positive effect on the DNB solvency and the interest rate sensitivity becomes adverse. A decrease of the interest rate leads to an increase of DNB solvency.
• To ensure a strong solvency position regardless of the impact of the UFR, a.s.r. reports and monitors the solvency position both excluding and including the UFR impact on the discounting curve.
The a.s.r. ERM framework is based on the COSO (Committee of Sponsoring Organizations of the Treadway Commission) ERM model. The framework comprises the following risk management elements: The a.s.r. Enterprise Risk Management Framework objective The primary objective of the ERM framework is to protect a.s.r.’s shareholders and other stakeholders from events that hinder the sustainable achievement of performance targets. Furthermore, the objective is to support a.s.r. in achieving the right balance between risk and return.
Risk governance The a.s.r. risk governance is based on the principle of ‘three lines of defence’ (see Chapter 3.3). Risk management roles and responsibilities are anchored throughout the organization. a.s.r. has a risk committee structure in place, where the objective of the risk committees is to manage the risk profi le for a.s.r. group and its product lines regarding risk preferences and risk limits. a.s.r. continues to work on heightening risk awareness within the organization.
Policy The risk classifi cation of a.s.r. covers all Solvency II risks and is in line with the Focus approach as applied by DNB. For each of the principal risks that it incurs (market, counterparty default, insurance, strategic and operational), a.s.r. has established policies and updates these policies yearly. Each policy describes the risk defi nition, the risk limits and the risk mitigation techniques.
As part of the overall risk management framework, a.s.r. has established a risk governance framework. Risk governance refers to the duties and responsibilities of the risk management function and the risk committee structure. The duties and responsibilities are designed based on the ‘three lines of defence’. The following defi nition of the ‘three lines of defence’ model is used by a.s.r.: Identifying
• First line – responsible for risks in the product lines and managing these risks. The fi rst line has the day-to-day responsibility for operations (sales, pricing, underwriting, claims handling, etc.). The Executive Board and the management teams of the business lines are responsible for the fi rst line.
• Second line – responsible for developing policies, advising and reviewing te implementation of ERM within the fi rst line. The Risk Management department at group level and Compliance are responsible for the second line.
Integrity, with Compliance and Investigation as sub departments, have been the responsibility of the CEO as of mid-2012.
Risk Management is responsible for ERM. The department consists of the following sub-departments: • Risk Strategy & Policy • Financial Risk Management • Business Process Support Risk (BPS Risk)
Financial Risk Management Financial Risk Management (FRM) is responsible for the actuarial function, the asset and liability management function (ALM) and integrated balance sheet management.
FRM is responsible for the development and execution of fi nancial risk policies and the implementation of these policies at group and legal entity level. The department is also responsible for the methodology and the development of models used in calculating economic capital. FRM reports economic capital both at group and at legal entity level. FRM tests the reported market value and market risk and compares these against a.s.r.’s risk limits and risk budget. FRM also assists legal entities with product development.
Business Process Support Risk BPS Risk is the information management department within Risk Management and the link between Risk Management and IT. The department arranges and administrates processes, and facilitates Risk Management by providing access to systems and high quality data. BPS Risk also facilitates Risk Management with the development of new systems and processes or changes in existing systems.
Group Integrity Group Integrity is responsible for managing compliance risks. Group Integrity has two sub-departments, Compliance and Investigation.
Compliance The main objective of Compliance is to support the Executive Board in managing compliance risks for a.s.r. and its legal entities. Through its compliance function, a.s.r. aims to stimulate integrity among the members of the Executive Board, its managers and its employees in order to maintain a.s.r.’s good reputation and reliability. Compliance is responsible for preparing policies and advising on policy implementation and compliance with laws, regulations and ethical rules. Compliance is also responsible for assessing the adequacy and operating effectiveness of key integrity controls within the business lines and ensuring compliance with laws, regulations and ethical rules through risk-based compliance monitoring.
Investigation The role of the investigation department is to execute a.s.r.’s zero tolerance policy on fraud. a.s.r. rejects any unfair practices or fraud. Investigation is responsible for fraud prevention and fraud investigation and repression: • Fraud prevention: measures are taken to prevent unfair practices or fraud within a.s.r. Fraud prevention measures include customer due diligence checks to ensure that a.s.r. only engages in business relations with reliable individuals or fi rms; • Fraud investigation and repression: measures to investigate unfair practices or fraud correctly, discreetly and with due care.
The a.s.r. Risk Committee monitors a.s.r.’s overall risk profi le. Every year, the Risk Committee decides the risk preferences and risk limits for a.s.r. The a.s.r. Risk Committee also monitors progress made in on the ‘Executive Board risk priorities’. a.s.r.’s Executive Board fully participates in the a.s.r. Risk Committee, the Chairman of the Committee being a.s.r.’s CEO. The involvement of the Board ensures that risk awareness and risk decisions are embedded at the appropriate level. In addition to the Executive Board, representatives of all key departments participate in the Committee, including the CRO.
Financial Risk Committee The Financial Risk Committee (FRC) has a mandate from the Executive Board to decide on fi nancial risk policies. The FRC manages and controls fi nancial risks and defi nes fi nancial risk limits at group level. The FRC also monitors whether the risk profi le stays within the risk limits. If the risk profi le exceeds these limits, the FRC takes mitigating actions. The FRC reports to the a.s.r. Risk Committee.
The Chairman of the FRC is the CFO of a.s.r. Members of the Committee are representatives of various key fi nancial and risk departments. The FRC is supported by the Capital, Liquidity & Funding Committee (CLFC).
Capital, Liquidity & Funding Committee The Capital, Liquidity and Funding Committee (CLFC) is a subcommittee of the FRC. As such, the CLFC prepares and assesses the technical analysis of capital, liquidity and funding positions, rating policy and rating model reporting, and treasury activities. The Chairman of the CLFC is the Director of Financial Markets; other members of this sub-committee are key representatives of various fi nancial and risk departments.
Business Risk Committees The business lines manage and control their risk profi le through the Business Risk Committee (BRC).The BRC monitors that the risk profi le of the business line stays within the risk preferences defi ned by the business line. The BRC reports to the FRC and the NFRC. The Chairman of the BRC is the director of the business line and its members include key offi cers.
3.3.3 Central Investment Committee In addition to the risk committee structure, the Central Investment Committee (CIC) monitors tactical decisions and the execution of the investment policy. It takes major investment decisions within the boundaries of the strategic asset allocation as agreed in the FRC. The CIC bears responsibility in particular for investment decisions exceeding the limits set for the investment department. The CIC is chaired by an Executive Board member, not being the CFO, and reports directly to the Executive Board. This is how the CIC’s independence of strategic decision-making and the CFO is guaranteed.
86 a.s.r. 2012 annual report Financial Statements 3.4 Risk management classifi cation 3.5 Market risk
Market risk reports are submitted to the FRC on at least a monthly basis. Key reports on market risk include the strategic asset mix report, the economic capital report, the interest rate risk report and the report on sensitivity of regulatory solvency to major market risks. A summary of sensitivities to market risks of the regulatory solvency, total equity and profi t for the year are presented in the tables below.
Market risk The risk of changes in values caused by market prices or volatility of market prices differing from their expected values. The following types of market risk are distinguished: • interest rate risk • equity risk; • property risk; • currency risk; • spread risk; • concentration risk.
Insurance risk Insurance risk is the risk that future insurance claims and benefi ts cannot be covered by premium and/or investment income, or that insurance liabilities and results are threatened because costs, claims and benefi ts differ from the assumptions used in the development and premium-setting of a product. Two different major types of insurance risk are distinguished, non-life (including health) and life.
Pension risk that is incurred on the employee benefi ts is categorised as insurance risk.
Operational risk Operational risk is the risk of losses resulting from inadequate or failed internal processes, persons and systems, or from external events (including legal risk).
The sensitivity to interest strongly increased as a result of the decrease of the interest rates as well as the changed shape of the interest curve (excl UFR) in the longer maturities. When applying the UFR, the interest rate sensitivity is adverse. An increase of the interest rate with 1% leads to a decrease of the regulatory solvency ratio with 18%.
The next table shows sensitivities of total equity and profi t of the year. Due to the IFRS accounting treatment (e.g. insurance liabilities discounted with a fi xed interest rate, shadow accounting part of investments on cost price, corridor on post employment benefi ts pensions), these sensitivities can differ substantially from the sensitivities of regulatory solvency.
The sensitivity to interest changed as a result of the decrease of the interest rates. The sensitivity to spreads increased due to an increase of the value of the bonds and due to an improvement in the calculation method. The sensitivities to foreign currency increased due to a higher exposure in CAD and USD (see 3.5.4).
2 For the regulatory solvency ratio including UFR, the interest rate shock +1% has a negative impact. For the regulatory solvency ratio excluding UFR the effect is adverse, the interest rate shock -1% has a negative impact.
88 a.s.r. 2012 annual report Financial Statements 3.5.1 Interest rate risk Interest rate risk is the risk that the value of assets, liabilities or fi nancial instruments will change due to fl uctuations 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 profi t-sharing features. Life insurance contracts are particularly sensitive to interest rate risk (see Chapter 3.7.2).
For the purposes of regulatory solvency, the ECB AAA government bond curve is used for discounting insurance liabilities. Since 30 June 2012 the regulator prescribes applying the Ultimate Forward Rate (UFR) on the discounting curve. As a result, the forward interest rates converge to a level of 4.2%. Since this assumption is artifi cial and might be too optimistic, a.s.r. also evaluates its solvency position without applying the UFR on the discounting curve.
During the course of 2012, interest rates decreased by 60 to 100 basis points. This had a signifi cant impact on the valuation of the best estimate of the insurance liabilities. When the UFR is applied however, the decrease of interest rates in longer maturities is limited.
The property is diversifi ed over the rural, residential, offi ce and retail sectors in the Netherlands. The allocation to offi ces is limited (8%) and partly concerns offi ces for own use.
Sensitivity of regulatory solvency to changes in property prices: Because of a lower volatility, rural property is shocked with -7.5%.
Assets in scope of spread risk are by defi nition not in scope of counterparty default risk (see chapter 3.6)
A combination of changes in tactical positioning and changing yields and yield spreads, explains the geographical breakdown of the government bond portfolio. The most visible change is an increase in exposure to German government bonds. The category “Other” consists of investment grade emerging markets sovereign bond investments.
Asset-backed security (ABS) An asset-backed security is a fi nancial security backed by a portfolio of loans, leases or receivables against assets other than real estate and mortgage-backed securities. This portfolio consists of various securities backed by several types of assets, like loans to small and medium enterprises, rental income on multifamily buildings.
Collateralized Debt Obligation (CDO) Collateralized Debt Obligations are securities backed by a pool of bonds, loans or other assets. CDO’s do not specialize in one type of debt but are often non-mortgage loans or bonds. CDO’s are unique in that they represent different types of debt and credit risk. In the case of CDO’s, these different types of debt are often referred to as ‘tranches’ or ‘slices’. Each slice has a different maturity and risk associated with it. The CDO portfolio of a.s.r. nowadays consists of mainly senior tranches in Collateralized Loan Obligations (CLO), which are CDO’s backed by a portfolio of European bank loans. Also, the portfolio contains various CDO’s with several types of collateral, like loans to smaller fi nancial institutions and ABS.
The next table gives a detailed overview of the distribution of the total fi xed income portfolio over ratings and sectors.
Corporates exposure Structured entities exposure 2011 Government exposure Financial institutions exposure
The non-rated category corporates includes loans issued to intermediaries. The group applies stringent application and approval procedures to these loans. Following an intermediary’s application, their credit rating is determined based on an internal risk-rating model. The loan application is then submitted for approval to the Credit Committee.
The parameters of the internal risk-rating model are regularly adjusted in response to market conditions as well as new legislation. The ban on provision regarding so-called ‘complex’ insurance products, will most likely have a minor impact on the rating of the loan portfolio issued to intermediaries due to the aforementioned internal risk-rating model. The group has already anticipated on the ban on provision by granting fewer loans as a result of restrictions in our loan policy. Furthermore the current value of the collateral has already incorporated the effect of the ban on provision. This value is subsequently used in our internal risk-rating model.
At year-end 2012, the outstanding amount of loans to intermediaries was € 114 million (2011: € 126 million); accumulated impairment losses amounted to € 42 million (2011: € 31 million). The loans are generally secured by collateralizing an insurance portfolio. In total, 15% (2011: 18%) of the loans were in arrears.
Deposits Total deposits amounted to € 1,779 million (2011: € 848 million) of which € 737 million (2011: € 36 million) had a single A rating, € 36 million (2011: € 12 million) a triple A rating and € 1,006 million (2011: € 800 million) is on secured deposit.
Savings-linked mortgage loans Savings-linked mortgages have been sold where savings-linked contracts are carried on a.s.r.’s balance sheet and the mortgage loan is recognized in the balance sheet of third parties. One of the characteristics of a savings-linked mortgage loan is that the interest in the insurance contract and the interest in the mortgage loan are linked. At the same time, a.s.r. extends loans to these third parties with a nominal value equal to the value of the savings-linked contract and at an interest rate linked to the interest rate on the mortgage. The amortized cost of these loans amounted to € 2,330 million at year-end 2012 (2011: € 2,240 million).
94 a.s.r. 2012 annual report Financial Statements 3.6 Counterparty default risk
Assets that are in scope of spread risk are by defi nition not in scope of counterparty default risk and vice versa.
As a rule, a.s.r.’s mortgage portfolio is secured by collateralizing the linked life insurance contracts and a.s.r. generally does not grant interest-only mortgages.
3.6.3 Reinsurance When entering into reinsurance contracts for fi re and catastrophe, a.s.r. requires the counterparty to have at least an ‘A-’ rating. With respect to long-tail business and other sectors, an ‘A’ rating applies as a minimum.
The fi gure above shows the exposure to reinsurers per rating. The total exposure on reinsurers at year-end 2012 was € 445 million (2011: € 462 million).
An accumulated impairment loss for receivables of € 36 million was recognized in 2012 (2011: € 36 million).
Insurance risk is the risk that future insurance claims and benefi ts cannot be covered by premium and investment income.
The risk exposure is mitigated by diversifi cation across a comprehensive range of insurance products. Insurance risk is divided into non-life and life risk. The non-life portfolio is represented across the property and casualty, occupational disability and healthcare sectors. The life portfolio is a welldiversifi ed portfolio consisting of products with either mortality risk or longevity risk. The variability of risk is further restricted by careful selection and acceptance criteria, as well as underwriting guidelines and reinsurance arrangements. The risks are periodically assessed for each of the insurance segments. If and where required, actions are initiated to adjust the risk profi le in line with guidelines agreed at group level.
Every insurance segment within a.s.r. holds insurance provisions for future claims arising from existing contracts and assigns assets to cover these insurance liabilities. • In life insurance and disability insurance these provisions are based on assumptions underlying the premium calculation. By applying shadow accounting, recent impact of movement in the risk free yield curve and credit spreads on corporate bonds is recognized in the provisions. The adequacy of these provisions are reviewed at each balance sheet date using appropriate current principles.
provisions. The adequacy of these provisions are reviewed at each balance sheet date by comparing these provisions with best estimates and corresponding provisions for volatility resulting from statistical analysis and stochastic modelling of observed historical claims performance of the a.s.r. portfolios, using prescribed and generally accepted methods and reliable assumptions regarding future infl ation.
For Basic Coverage (Basisverzekering) it is generally known that there are national uncertainties in determining the claim impact and the subsidy from the Risk Equalization Fund. This is because it takes three to four years before the underwriting year is defi nitively closed. National developments in health care costs can have major consequences on claims, and on the Risk Equalization Fund in particular. Additionally, the Risk Equalization Model changes from year to year, which can lead to new uncertainties. In 2012 the most important changes were: • Introduction of a new expense claim system for hospitals (DOT); • Replacement of the budget funding system for hospitals by performance-based funding. As a result, contract negotiations for 2012 lasted the whole of 2012; • Substantial changes to the Risk Equalization Model.
Based on this increase in uncertainties and the growth of the portfolio, a.s.r. decided on more prudence in the claims provision.
The sensitivities of total equity and profi t for the year to insurance risk are as follows: When these shocks would occur at year-end 2012 there would be no impact on the total equity or profi t, because a.s.r. would still pass the Liability Adequacy Test. The shocks will result in a decrease of the surplus in de Liability adequacy Test.
3.7.1 Non-life insurance portfolio The non-life insurance portfolio of a.s.r. focuses on Accident & Health and Property & Casualty (Motor, Fire and Liability). The insurance contracts are sold to retail and wholesale clients through intermediaries, underwriting agents and direct distribution channels. The non-life insurance portfolio consists of the following categories.
• Health insurance: contracts cover medical expenses incurred by physicians and hospitals, and other medical expenses. Basic coverage (“Basisverzekering”) is mandatory for all residents of the Netherlands and offers limited coverage as stipulated by the Dutch government. Additional coverage (“Aanvullende verzekering”) is sold for a higher level of medical care.
• Fire and other damage to property: fi re insurance offers policyholders fi nancial protection against damage to their property and material consequences of interruption of operations as a result of the damage sustained.
Non-life insurance risk Non-life insurance risk is primarily comprised of risks resulting from third-party liability, disability and general third-party liability. Liabilities are formed to cover the scale and the long-term character of the claims (especially those involving disability).
Claims frequency, size of claim and infl ation To mitigate the risk of claims, a.s.r. bases its underwriting policy on claims history and risk models. The policy is applied to each client segment and to each type of activity. In order to limit claims and/or ensure that prices are adjusted correctly, the acceptance policy is continually refi ned using a number of indicators and statistical analyses. The product lines also use knowledge or expectations with respect to future trends to estimate the frequency, size and infl ation of claims. The risk of unexpected major damage claims is contained by policy limits, the concentration of risk management and specifi c risk transfer contracts (e.g. reinsurance).
Benefi t and claims handling costs Taking estimated future infl ation into account, benefi t and claims handling costs are managed on the basis of regular reviews and related actions.
Concentration risk The risk exposure of a.s.r. on its non-life portfolio is geographically almost entirely located in the Netherlands. Concentration of insurance risks is particularly prevalent in the fi re risk portfolio (i.e. home and content, with storm risk forming the most important factor). Storm risk is managed by means of suitable reinsurance (see also ‘Reinsurance’).
Provision for unearned premium income Generally, the provision for unearned premium income is calculated based on the premium for own account, proportionate to the unexpired portion of the premium payments before deduction of the corresponding provision. A separate provision is formed for insurance contracts with increasing risk over the duration of the contract where premiums not related to the age of the policyholder are concerned. Changes in the provision for unearned premiums are recognized through profi t and loss, which means that the income is recognized during the same risk period.
Provision for claims The provision for claims consists of the estimated amount of the reported but not settled claims plus an amount for claims not yet reported or incurred during or before the fi nancial year. The latter part is based on historical information. This provision implicitly includes a provision for payable external claims handling costs.
Damage to property - fi re Per risk & per event 2,500 2,500
For the retained occupational disability cover portfolio, a provision is formed for current risk exposure on contracts concluded in 2012 that run until 31 December 2012. This provision is based on the difference between premiums required for accounting and actuarial purposes.
The insurance contracts are primarily sold to retail and wholesale clients through intermediaries.
Pricing is based on profi t capacity calculations. The necessary price to cover the risks is calculated. The quantifi cation of risks is based on best estimate assumptions of mortality rates, surrenders, expenses and interest rates.
Policies for life insurance are underwritten by a.s.r. They describe the types of risks and the extent of risk a.s.r. is willing to accept. As far as individual life insurance is concerned, policyholders can be subjected to medical screening.
Although a lapse does not lead to a direct loss in the income statement, due to the surrender value requirement underlying the provision, a lapse might lead to a loss of future profi ts. These effects of lapse risk are monitored in the current Solvency II-based risk frameworks, as are other life risks.
Reinsurance The group enters into reinsurance contracts to minimize insurance risks. Reinsurance may be in place for a separate contract or for all or part of the portfolio.
Following this assessment, every department writes a report outlining all identifi ed risks and the actions that need to be taken to mitigate them. These mitigating actions are limitations/targets for the coming year. This report and the mitigating actions are authorized by local management and the Executive Board. This is important input for senior management for signing their Management in Control Statement (MCS). The report is updated every quarter.
Business continuity management and contingency planning Critical processes/activities are identifi ed, including the resources needed to establish similar activities at a remote location. The continuity of the activities and the recovery of systems supporting critical activities is regularly tested. To deal with any type of catastrophe, crisis teams have been established and are trained every year. The training objective is to give the teams insight into how they function and help them do their job in case of an emergency. The training also serves to clarify the roles, duties and responsibilities of the members of the crisis teams.
Information security Because of the importance of information security, a.s.r. gives special attention to the effi ciency, effectiveness and integrity of ICT. Risk management helps to achieve this through a heightened focus on information and access security. The control of logical access for the main applications in the fi nancial reporting process is always a high priority. The logical access control procedure helps a.s.r. enhance the integrity of applications and data. Logical access control procedure also prevents fraud by improving segregation of duties and by conducting regular checks of actual access levels within the applications. The understanding of information and security risks is very important, which is why an awareness campaign was launched in 2012 to further improve the risk awareness of employees.
Management in control To further improve the effi ciency and the effectiveness of the organization, a.s.r. controls the key processes in the organization. In 2011, a.s.r. improved its control environment from an Enterprise Risk Management perspective. Key risks in the processes were identifi ed and in addition to existing key controls, a minimum set of controls to mitigate these risks were defi ned. In the fi rst half of 2012, the implementation of these key controls was completed, The management in control project has a strong focus on the demonstrably control over key processes. As of the second half of 2012, key controls are periodically tested on their operational effectiveness.
Solvency II is the regulatory framework for European insurance companies, which will replace the current Solvency I regime. In 2012 Solvency II’s original implementation date, 1 November 2012, was adjusted to 1 January 2014 with the adoption of a Quick Fix Directive. However, further delay is expected, presumably till January 1 2016. Given the delay, discussions initiated by EIOPA have started introducing Interim Phasing-in Measures from 2014 on, in particular regarding Pillar 2 topics such as System of Governance and ORSA and Pillar 3 Reporting guidelines.
The group has set up a group-wide Solvency II program. In 2009, a gap analysis was performed under this program and a.s.r. started resolving any identifi ed gaps in 2010. This process continued in 2011 and 2012. The progress made in resolving these gaps helps a.s.r. to become Solvency II-compliant, which is monitored in the Solvency II program.
In 2010, there was a strong focus on Pillar I activities. The focus in 2011 was primarily on Pillar II. In 2012, there was an continued focus on Pillar II besides developing Pillar III reports. The quality, integrity and reliability of data were further improved in 2012. The ORSA process was executed for the third time within a.s.r. In addition, the effectiveness of the risk governance structure was further improved. The risk management function of a.s.r. has been designed to comply with the Solvency II requirements. This means that a.s.r. uses an integrated approach to identify, measure, monitor, report and control all the risks it is exposed to on an individual and aggregate level, including any interdependencies (e.g. risk dashboard).
4.1.2 Solvency The regulatory solvency capital of a.s.r. can be broken down as follows: The solvency ratio as reported to the regulator increased from 230% to 293%. However, this increase is the result of the UFR. To ensure a strong solvency position regardless of the impact of the UFR, a.s.r. reports and monitors the solvency position both excluding and including the UFR impact on the discounting curve. As a result, the forward interest rates converge to a level of 4.2%. This has an impact of 62% on the regulatory solvency ratio. To ensure a strong solvency position regardless of the impact of the UFR, a.s.r. reports and monitors the solvency position both excluding and including the UFR impact on the discounting curve.
With the consent of DNB, the margin on insurance liabilities (DNB LAT margin) has been taken into account in determining regulatory solvency. For a description of the LAT, see Chapter 2.26. a.s.r. did not make use of the regulator’s opportunity to value the LAT margin based on the average interest rate curve of the last quarter of 2011.
The group has the intention to annually distribute a stable dividend to the shareholders annually, if the capital management objectives are met. Dividends are based on a pay-out of 40%-45% of profi t attributable to holders of equity instruments after distribution to holders of Hybrid Tier 1 instruments.
With regard tot liquidity management, a.s.r. needs to be able to meet its obligations towards policyholders and other creditors at all times. Unexpected cash outfl ows could occur as result
The following table shows the contractual cash fl ows of assets and liabilities (excluding investments on behalf of policyholders and insurance contracts on behalf of policyholders). For liabilities arising from insurance contracts, expected lapse and mortality risk are taken into account. Profi t sharing cashfl ow of insurance contracts are not taken into account, as well as equities, property and swaptions.
The group distinguishes between the Non-Life, Life and Other segments. The Non-life segment is comprised of non-life insurance entities and their subsidiaries. These non-life insurance entities offer non-life insurance contracts. Insurance entities are entities that accept the transfer of insurance risks from policyholders.
Segment information has been prepared in accordance with the accounting principles used for the preparation of a.s.r.’s consolidated fi nancial statements (as described in chapter 2). Intersegment transactions are conducted at arm’s length conditions. In general cost related to centralized services are allocated to the segments based on the utilization of these services. In 2012 an improved method of cost allocation has been implemented, whereby group related services are allocated to the group activities included in segment Other. The operating profi ts of the segments are assessed on the basis of the segments’ income statements.
Equity attributable to holders of equity instruments 947 2,717 -716 - 2,948
Liabilities arising from insurance contracts on behalf of policyholders - 9,202 - - 9,202
Result on investments on behalf of policyholders - 949 - -1 948
Insurance claims and benefi ts recovered from reinsurers 101 -1 - - 100
Profi t attributable to non-controlling interests - - 7 - 7
Profi t attributable to holders of equity instruments 59 275 -79 - 255
Result on investments on behalf of policyholders - -370 - -2 -372
Non-technical result includes income from investments that have been allocated to equity and the general provisions, as well as a number of specifi c results not allocated to insurance activities.
Allocated gain (loss) on investments – to technical result 83 100
Technical result – before proceeds (loss) from sales of investments -10 110
The profi t before tax decreased to the amount of € 72 million. This is mainly caused by the increase of the net insurance claims and benefi ts and the change in liabilities arising from insurance contracts.
Gross written premiums declined 13% to € 1.891 million and is related to regular (-9%) as well as single premium (-28%). The decline of single premium is the result of the policy to focus on profi table growth. In a shrinking market the regular premiums were under pressure due to redemption of the unit-linked portfolio.
The increase of profi t before tax to € 350 million is the result of higher contribution of investment results and lower expenses for the compensation of unit-linked policyholders as well as operating expenses.
Allocated other income and expense – to technical result -30 -51
Technical result – before proceeds (loss) from sales of investments 99 -112
N et e a rn ed p re m iu m s
Fire and other property damage 347 350 -206 -107 -38 5
N et in su ra n ce cl a im s a n d b en efi t s
Fire and other property damage 336 329 -203 -102 -42 -9 * including restructuring provision expenses
The amortization periods for the intangible assets are specifi ed in chapter 2.13. Amortization charges related to VOBA are included in net claims and benefi ts; software amortization is included in operating expenses.
In 2012, the cost price of the goodwill increased by € 5 million as a result of goodwill recognized following the acquisition of Terra and the decision to continue the activities of Poliservice B.V. The goodwill recognized for Poliservice B.V. of € 3 million has been fully impaired as this goodwill was deemed not recoverable.
For the purposes of impairment testing, goodwill is allocated to the cash-generating units of the relevant operating segment. The goodwill as at 31 December 2012 relates to ASR Nederland Vastgoed Maatschapij N.V. and B.V. Nederlandse Hulpverleningsorganisatie -SOS International in segment Life and Other respectively.
Property, plant and equipment can be broken down as follows: Land and buildings for own use 59 61
Depreciation of property, plant and equipment is recorded in operating expenses. Impairments in 2012 amounting to € 12 million (2011: € 16 million) have been recognized as a result of the decommissioning of assets following the renovation of buildings for own use.
In 2012, a.s.r. recogized impairments amounting to € 19 million, mainly relating to residential and commercial property.
At year-end 2012, the fair value of investment property amounted to € 2,881 million (year-end 2011: € 2,765 million). This amount is based on valuations by independent valuators. These valuations are performed annually for almost the entire investment property portfolio.
Proceeds from the sale of investment properties and rentals are recognized as investment income. For details, see chapter 27. In 2012, rentals amounted to € 140 million (2011: € 157 million).
a.s.r. 2012 annual report 123Financial Statements 10 Associates and joint ventures
Real estate development joint ventures ranging between 11% and 50% 40 30
The abbreviated balance sheet and income statement information disclosed in the tables below is based on the most recent fi nancial information available from the associates and joint ventures. These are primarily based on the investee’s fi nancial statements and their accounting policies.
In 2012, loans to associates and joint ventures amounted to € 42 million (2011: € 69 million). These loans are classifi ed as loans and receivables.
At fair value through profi t and loss (Chapter 11.2) 8,217 8,581
To ta l fi n a n ci a l a ss et s
Investments available for sale can be broken down as follows: Impairment of investments available for sale The following table is a breakdown of impairments of investments available for sale: Short-term government securities and other discountable securities 2 66
Changes in investments at fair value through profi t and loss: A further breakdown of the investments at fair value through profi t and loss and investments on behalf of policyholders is included in the fair value hierarchy tables (see chapters 11.5. and 11.6 respectively).
Equities and bonds are lent in exchange for a fee, with collateral obtained as security. At the end of 2012, the value of the loaned securities was € 8,846 million (2011: € 8,603 million) with the collateral furnished as security representing a value of € 10,610 million (2011: € 11,552 million) consisting of mortgage loans and corporate and government bonds.
Investments at fair value through profi t and loss can be broken down as follows: C om p a n y in ve st m en ts
Total investments at fair value through profi t and loss 80 87 8,217 8,581 8,297 8,668
Financial Statements a.s.r. 2012 annual report 129 11.3 Loans and receivables
Impairment of loans and receivables The following table breaks down changes in impairments of loans and receivables: The fair value of the loans and receivables is based on the discounted cash fl ow method. It is obtained by calculating the present value based on expected future cash fl ows and assuming an interest rate curve used in the market that includes an additional spread based on the risk profi le of the counterparty.
Notional amounts are used for measuring derivatives; they are not recognized as assets or liabilities in the balance sheet. Notional amounts do not refl ect the potential gain or loss on a derivative transaction. a.s.r.’s counterparty risk is limited to the positive net fair value of the OTC contracts.
Expected cash fl ows in connection with interest rate contracts included in derivatives held for cash fl ow hedging can be broken down as follows: No cash fl ow hedges became ineffective in 2012. No amounts were transferred from the cash fl ow hedging reserve to the income statement.
31 Dec. 2011 Positive fair value Negative fair value Notional amount
Interest rate contracts 2012 Infl ow Outfl ow Net cash fl ow
N ot m ea su re d on th e b a si s of o b se rv a b le m a rk et d a ta
Debt certifi cates covered by other assets 248 - - 248
An increase or decrease in the net asset value of the unlisted equities will have a direct proportional impact on the fair value of the investment.
Fair value of fi nancial assets on the basis of level 3 valuation technique
In ve st m en ts a t fa ir v a lu e th ro u g h p ro fi t a n d lo ss
In ve st m en ts a va il a b le fo r sa le
Changes in value of investments, realized/unrealized gains and losses: - Fair value gains and losses (see chapter 28.3) 3 1 - - - Realised gains and losses (see chapter 28.2) - - 3 9 - Recognised in Other comprehensive income (unrealised gains and losses) - - -3 -2
Total revaluations of investments, held at year-end, recognized in the income statement 74 1 n/a n/a
The breakdown of the Investments on behalf of policyholders in accordance with the level of fair value hierarchy, as explained in chapter 2.9, is as follows: F
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% (2011: 25.0%) is applied when calculating deferred tax.
The available tax losses have been fully utilized in 2012 primarily due to the agreement with the Dutch Tax Services relating to corporate tax returns, see chapter 36.
C h a n g es re co g n iz ed in ot h er c om p re h
140 a.s.r. 2012 annual report Financial Statements 13 Reinsurance contracts 14 Other assets
a.s.r. 2012 annual report 141Financial Statements 15 Cash and cash equivalents 16 Equity
Included in the cash and cash equivalents is € 1,882 million (2011 € 1,716 million) related to the cash collateral received on derivative instruments and securities lending. This debt to repay the cash collateral is included in the amount due to banks (chapter 23).
Share capital can be broken down as follows: The Dutch State has been the sole shareholder of ASR Nederland N.V. since 3 October 2008. On 29 September 2011, the Dutch State transferred all shares in ASR Nederland N.V. to NL
DPF reserve. This reserve is recognized as a component of the unrealized gains and losses recorded in equity. Expected claims for additional benefi ts under insurance contracts with DPF are included in the DPF component.
Life insurance contracts have been entered into that, in addition to offering a guaranteed element, also give policyholders a right to additional benefi ts (see chapter 2.26). Expected claims for additional benefi ts under these insurance contracts with discretionary participation features (DPF) are included in the
Unrealized gains and losses related to segregated investment pools 7 - - - 7
Hybrid Tier 1 instrument variable interest (3-month Euribor + 2.3%) 84 84 Per quarter with effect from 26 October 2009
Movements in non-controlling interest can be broken down as follows: The negative non-controlling interest relates to property development projects where non controlling shareholders have committed to increase capital when required.
Hybrid Tier 1 instrument 6.25% fi xed interest 30 september 2009
Hybrid Tier 1 instrument 10% fi xed interest 26 oktober 2019
The private loan of € 20 million was settled in terms of the agreement on 20 March 2012. The average interest rate on the subordinated loans was 6.6%.
Insurance contracts with retained exposure can be broken down as follows: Changes in liabilities arising from non-life insurance contracts can be broken down as follows: Provision for unearned premiums 416 507
Provision for claims as at 31 December 3,710 3,249 407 419
Non-life insurance contracts as at 31 December 4,126 3,756 445 461
146 a.s.r. 2012 annual report Financial Statements 18.2 Claims development table, non-life
The table below is a ten-year summary of movements in cumulative benefi ts in connection with the non-life portfolio for the period from 2003 to 2012.
19.1 Defi ned benefi t obligation and other post-employment benefi ts
A number of defi ned benefi t post-employment benefi t plans for its employees exist benefi t. All employees are formally employed by ASR Nederland N.V. The a.s.r. post-employment benefi t plans are based on an average-salary pension. All employees who commenced service after 1 January 2006 are included in one post-employment benefi t plan. All other employees remain active within the existing plan at the date of fi rst employment (‘Basic plan’). Furthermore older plans for ‘sleepers and pensioners are still active.
As of 1 January 2013, the indexation for active members is conditional and depends on the realized surplus interest of the managed assets. As a result of this amendment a negative past service cost and curtailment (including actuarial gain and loss) is accounted for in 2012 amounting to € 75 million and € 26 million respectively. This has resulted in an amount of € 26 million being recognized in Other income in 2012 (see chapter 29).
Besides pension benefi ts, the costs of the defi ned benefi ts plans include personnel arrangements for fi nancial products (such as mortgages), which remain in place after retirement.
Unrecognized negative past service cost as at 1 January 15 18 - -
Unrecognized actuarial gains (losses) at 1 January -256 -202 12 16
As a % of liabilities as at 31 December 2.3% -1.3% -0.7% 0.2% -1.8% -7.3% 3.5% -2.9% -2.3% 1.1%
Service cost and other costs of post-employment benefi ts have been broken down in the table below: Under IFRS, assets managed by insurance companies that form part of the group do not count as qualifying assets. Therefore, investment income from these assets has not been included in the above fi gures. Actual investment returns for 2012 amounted to € 52 million (2011: € 54 million). These returns have been recognized in investment income (chapter 28).
The provisions for staff restructuring are based on arrangements agreed in the Collective Bargaining Agreement, restructuring plans, and on decisions made by a.s.r.’s management.
Amounts owed to banks comprises primarily cash collateral received under ISDAs concluded with counterparties, which is included in the cash and cash equivalents. There is no signifi cant difference between the carrying amount of € 1,882 million (2011: € 1,716 million) due to banks and the fair value of these liabilities.
The average interest rate payable for the cash collateral received in 2012 is 0.23% (Eonia) (2011: 0.87%.). There are no specifi c terms and conditions, because they are dependent on the development of the value of the underlying instrument.
158 a.s.r. 2012 annual report Financial Statements 25 Gross insurance premiums
The table below shows the composition of gross insurance premiums: The table below provides an overview of total gross earned non-life insurance premiums. For further details on the individual business lines, see the segment information (see chapter 5.5).
Financial Statements a.s.r. 2012 annual report 159 25 Gross insurance premiums
Reinsurance premiums can be summarized as follows: Interest income includes € 27 million (2011: € 37 million) in interest received on impaired fi xed-income securities and Other interest income includes an amounting of € 30 million related to the agreement reached with the Dutch Tax Administration (see chapter 36).
Fair value gains and losses per category can be broken down as follows: Dividend on equities 35 46
162 a.s.r. 2012 annual report Financial Statements 28 Fee and commission income 29 Other income
Changes in liabilities arising from insurance contracts on behalf of policyholders 240 1,294
The distribution of a.s.r.’s workforce was as follows at 31 December: As a result of continuing cost-cutting programmes, the total work force decreased by 52 to 4.579 (2011: 4.631). The ‘total work force’ consists of the number of internal and external FTEs. The number of internal FTEs decreased by 4% to 4,088 (2011: 4,264 FTE) and the number of external FTEs increased by 34% to 491 (2011: 367 FTE).
Changes in impairments of investments available for sale can be broken down as follows: Commission fees -494 -494
166 a.s.r. 2012 annual report Financial Statements 34 Interest expense 35 Other expenses
In July 2012, a.s.r. concluded an agreement with the Dutch Tax Administration relating to corporate tax returns. This agreement clarifi es the principles upon which the corporation tax returns commencing from 2001 to 2010 for a.s.r. and its tax entities are to be established. The group recognized tax income and related interest income amounting to € 90 million and € 30 million (see chapter 27.1) respectively in 2012 for the period 2001 to 2010.
Adjustments for taxes due on previous fi nancial years 87 4
A related party is a person or entity that has signifi cant infl uence over another entity, or has the ability to affect the fi nancial and operating policies of the other party. Parties related to a.s.r. include the Dutch government, associates, joint ventures, members of the Executive Board, members of the Supervisory Board and their immediate family members. These parties further include entities over which these persons or entities exercise control or substantial infl uence, and other affi liated entities.
The remuneration and combined share ownership of the members of the Executive Board are described in chapter 38 (Remuneration of the a.s.r. Executive Board and Supervisory Board).
Financial Statements a.s.r. 2012 annual report 171 38 Remuneration of the Executive Board and Supervisory Board
The annual remuneration for members of the a.s.r. Supervisory Board has been calculated as follows: * From 1 April 2012 the amount as a committee member also includes remuneration for services as supervisory director of ASR Bank N.V. amounting to 4,000 euro’s per annum per supervisory director.
The remuneration of current and former executive directors is in accordance with the 2012 remuneration policy. This policy was approved by the shareholder. In accordance with the new 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 Directors for the fi scal year 2012. a.s.r. has opted for the opportunity as stated in this law to provide a one-time personal allowance to some Executive Board Directors, excluding the Chairmain. With this personal allowance, a.s.r. will remain well below the allowed maximum of 20%.
172 a.s.r. 2012 annual report Financial Statements 1 This includes pension and VPL. In 2012 pension indexation has been changed from unconditional to conditional and pension benefi ts will be normalized accordingly in 2013.
* Joined a.s.r. on 1 September 2011 and the Executive Board on 15 September 2011. Contractually agreed, she will grow to the remuneration level of the other ordinary board members (not CEO) within a maximum period of two years.
*** Term of service as executive director ended on 31 December 2011. Term of service at a.s.r. ended on 30 June 2012. The termination benefi t has been determined in 2012 in accordance with the Dutch Corporate Governance Code (article II.2.8) and contractual obligations and amounts to a one-year salary.
An amount of € 94,399 (2011: € 272,955) being the fi nal payments were made to former executive directors in 2012 under existing contractual obligations.
F ix ed e m p lo ye e b en efi t s
To ta l, in cl u d in g lo ng -t er m v ar ia bl e re m u n er a ti on
On 14 November 2011, ASR Levenverzekering N.V. acquired 100% of the shares of Paerel Leven N.V. for an amount of 1 Euro. This did not have any signifi cant impact on the income statement for 2011. The legal merger of ASR Levensverzekering N.V. and Paerel Leven N.V. is effective as of 28 June 2012, retrospectively from 1 January 2012.
In November 2011, ASR Deelnemingen N.V. acquired 100% of the shares of Poliservice B.V. for an amount of 1 Euro. a.s.r. initially acquired Poliservice B.V. with the intention to resell and therefore accounted for these shares at fair value. In the second half of the year, management decided to hold Poliservice B.V. with the intention of continuing the activities. Following this decision, a.s.r. recognized an amount of € 3 million in goodwill in addition to the carrying amount of the shareholders’ equity. This goodwill has been fully impaired in 2012 given the limited future benefi ts expected to be realized.
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 suffi cient reliability (see chapters 18 ‘Insurance liabilities’ and 20, ‘Provisions’).
As for other claims and legal proceedings against a.s.r. known to management (and for which, in accordance with the defi ned principles, no provision has been formed), management feels, after having sought expert advice, that these claims have no chance of success, or that a.s.r. can successfully mount a defence against them, or that the outcome of the proceedings is unlikely to result in a signifi cant loss for a.s.r.
Investment obligations and guarantees Where property developments are concerned, ASR Vastgoed Vermogensbeheer has assumed investment obligations for an amount of € 403 million (2011: € 350 million) and has issued guarantees to third parties for a total amount of € 330 million. a.s.r. has issued guarantees to third parties for a total amount of € 504 million (2011: € 517 million) for real estate development projects and the acquisition of property. Those guarantees were issued by principals for the execution of projects for the benefi t of clients.
Lease commitments The table below breaks down the commitments for non-cancellable operating leases as at 31 December: Other commitments have been entered into primarily for service and ICT contract related to an amounting of € 37 million.
Unless stated otherwise, all amounts presented in these fi nancial statements are in millions of euros.
178 a.s.r. 2012 annual report Financial Statements 4. Receivables from group companies Receivables from group companies are payable on demand. This amount includes the receivable with respect to non-qualifying plan assets (see chapter 19) administrated by ASR Levensverzekering N.V. amounting to € 1,984 million (2011: € 1,795 million).
5. Deferred tax assets The deferred tax assets relate primarily to employee benefi ts of € 34 million (2011: € 68 million) off set by the equalization reserve of € 14 million. The unutilized tax losses as at 31 December 2011 amounting to € 207 million have been fully utilized in 2012.
6. Cash and cash equivalents Cash and cash equivalents are stated at face value. They are fully and freely available to the company.
3. Loans and deposits 2012 2011 1. Subsidiaries, joint ventures and associates 2012 2011
Change in DPF component - -3 2. Loans to group companies 2012 2011
The statutory reserve relates to the revaluation of investments in group companies. Expected claims for additional benefi ts under insurance contracts with DPF are included in the Other reserves amounting to € 3 million (2011: € 3 million). Share capital can be broken down as follows: Other equity instruments The other equity instruments relate to four different hybrid Tier 1 instruments that are classifi ed as equity (see chapter 16.3).
Result carried over from previous fi nancial year - - - - 141 -141 - - -
Change in reserves required by law - - - 2 - - 2 - 2
9. Employee benefi ts Employee benefi ts can be broken down as follows (see chapter 19 for further details): 10. Provisions The table below shows movements in provisions: Provisions primarily relate to provisions for: • staff restructuring; and • retained disability risk.
The timing of the outfl ow of resources related to these provisions is uncertain because of the unpredictability of the outcome and time required for the settlement of disputes.
Financial Statements a.s.r. 2012 annual report 181 12. Other liabilities 43.2 Notes to the company income statement
A statement of joint and several liability under section 403, Book 2 of the Netherlands Civil Code has been issued by ASR Nederland N.V. for the companies identifi ed in the other information part 7.3.
Examining and auditing the fi nancial statements under the articles of association and other group company audits under the articles of association 2,243 2,428
184 a.s.r. 2012 annual report Other information 7.1 Independent auditor’s report
Report on the fi nancial statements We have audited the accompanying fi nancial statements 2012 of ASR Nederland N.V., Utrecht. The fi nancial statements include the consolidated fi nancial statements and the company fi nancial statements. The consolidated fi nancial statements comprise the consolidated balance sheet as at 31 December 2012, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated changes in equity and the consolidated statement of cash fl ows for the year then ended, and notes, comprising a summary of the signifi cant accounting policies and other explanatory information. The company fi nancial statements comprise the company balance sheet as at 31 December 2012, the company income statement for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information.
Auditor’s responsibility Our responsibility is to express an opinion on these fi nancial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free from material misstatement.
Opinion with respect to the consolidated fi nancial statements In our opinion, the consolidated fi nancial statements give a true and fair view of the fi nancial position of ASR Nederland N.V. as at 31 December 2012 and of its result and its cash fl ows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code.
a.s.r. 2012 annual report 185Other information 7.2 Events after the reporting date
186 a.s.r. 2012 annual report Other information 7.3 List of principal group companies and associates
ASR Nederland Vastgoed Maatschappij N.V.1 100.00 100.00 Utrecht Life / Non-Life
For notes to equity interests in associates and joint ventures, see chapter 10.
7.4 Other equity interests 7.5 Provisions of the Articles of Association regarding profit appropriation
Article 21 of the Articles of Association reads as follows: 1. The Company may distribute any profi t to shareholders and other persons entitled to profi ts only if its net assets exceed the sum of the paid and called-up portion of its capital plus the reserves that must be maintained by law.
2. Annually the annual general meeting of shareholder determines either on the recommendation of the management board and with the approval of the supervisory board or on its own initiative, which part of the profi t will be retained or distributed.
6. When calculating the profi t, the shares held by the Company on which pursuant to paragraph 5 no distribution to the Company is made shall be disregarded.
The Executive Board will propose to the Annual General Meeting of Shareholders to distribute € 88 million in dividend on ordinary shares for 2012.
Cash fl ow hedge A hedge of the exposure to variability in cash fl ows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction.
Core capital Equity capital and disclosed reserves available at group level, based on the defi nition of the Tier 1 ratio (core equity capital expressed as a percentage of total risk-weighted assets).
Derivative Afi nancial instrument with all three of the following characteristics: (a) its value changes in response to the change in a specifi ed interest rate, fi nancial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-fi nancial variable that the variable is not specifi c to a party to the contract (sometimes called the ‘underlying’); (b) it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and
Discounted cash fl ow method A valuation technique whereby expected future cash fl ows are discounted at a rate that expresses the time value of money and a risk premium that refl ects the extra return that investors demand in order to be compensated for the risk that the cash fl ows might not materialize.
Embedded value The present value of future profi ts plus adjusted net asset value.
Employee benefi ts All forms of consideration given by an entity in exchange for service rendered by employees.
IFRS Acronym of International Financial Reporting Standards (previously International Accounting Standards, IAS). 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 fi nancial position and performance.
Option A fi nancial instrument that conveys the right to buy (call option) or sell (put option) a security at a reference price during a specifi ed time frame.
Private equity An asset class consisting of equity securities of companies that are not publicly traded on a stock exchange. 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 fi nd a buyer.
Provision A liability of uncertain timing or amount. Provisions are recognized as liabilities if it is probable that an outfl ow of resources embodying economic benefi ts will be required to settle the obligations (assuming that a reliable estimate can be made).
Securities lending This refers to the lending of securities by one party to another, which agrees to deliver back the securities on a specifi ed future date. The borrower usually provides the lender with collateral. Securities lending allows the owner of the securities to generate extra income.
VPL Early retirement and life cycle “VUT (Vervroegd UitTreden), Prepensioen en Levensloop”
WFT The Dutch Act on Financial Supervision which regulates the supervision of fi nancial institutions in the Netherlands (Wet op het fi nancieel toezicht)
Investor Relations ir@asr.nl Up-to-date information for investors can be found on www.asr.nl/EN/ABOUT-ASR > investor relations
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