Chapter 1 - a.s.r. at a glance 1.1 Profile and key figures 8 1.2 Message from the CEO 12 1.4 Strategy and positioning 19 1.5 Brand policy and distribution model 20
Chapter 4 - Executive Board Responsibility Statement 4.1 Executive Board Responsibility Statement 77
Chapter 7 - Other information 7.1 Independent auditor’s report 220 7.2 Events after the balance sheet date 225 7.3 Other equity interests 225 7.4 Provisions of the Articles of Association regarding profit appropriation 225 7.5 Profit appropriation 226 7.7 List of acronyms 230
Appendix 1 – Governance principles 231 Appendix 2 – GRI-index 250 Contact details and publication 286 2014 annual report
This Annual Report covers the period from 1 January 2014 to 31 December 2014. Where the data in this report does not match the 2013 Annual Report, this is indicated in the text. The Annual Report is based on factual information from internal sources. The provided quantitative and qualitative information concerns a.s.r. as a whole, except where stated that information applies to one specific business unit or a division of organization.
This Annual Report has been prepared based on the G3.1 sustainability reporting guidelines of the Global Reporting Initiative (GRI) as well. These guidelines are leading benchmark for sustainability reporting. a.s.r.’s sustainability report is prepared according to the level B of the G3.1 guidelines. Appendix 2 contains a GRI-index table, indicating where in the Annual Report the reader can find GRI disclosures. Also, additional information is provided that has not been included in the Annual Report itself. The information contained in the GRI-index table has not been audited.
Besides insurance products, the a.s.r. product range includes savings, bank savings and investment products. In addition, a.s.r. invests in real estate and in property development. Having generated € 3,787 million in gross written premiums in 2014 and servicing some estimated 1,7 million customers (a.s.r, De Amersfoortse and Ditzo), a.s.r. is the fourth largest insurance company in the Netherlands.
The Non-life segment comprises all types of non-life insurance policies that a.s.r. offers to consumers and businesses. These policies insure risks related to the home, household contents, buildings and motor vehicles, travel and leisure, liability, legal assistance, occupational disability and medical expenses. The policies are offered under the following labels: a.s.r., De Amersfoortse, Ditzo and Europeesche Verzekeringen, through both the intermediary and the direct channels.
The Life segment comprises all insurance policies that involve asset-building, asset reduction, asset protection, term life insurance for consumers and business owners, and funeral expenses. Products are offered under the a.s.r., De Amersfoortse and Ardanta labels. The vast majority of these policies are distributed via the intermediary channel. Funeral insurance, immediate annuities, term life insurance and pension insurance can also be taken out online.
a.s.r.’s operations are structured into the product lines non-life, life, pensions, banking, occupational disability, health, funeral, travel and leisure, real estate development, corporate departments and support services. Each of these divisions has its own Management Team, whose chair reports to a member of the Executive Board.
In terms of legal structure, a.s.r. consists of the parent company ASR Nederland N.V. and a number of operating companies and the service companies. An overview of the main legal entities is shown on page 156 and 157 of the financial statement.
Our business continues to be built on a robust foundation. This is reflected in our profit for the year of € 381 million, a 36% increase on 2013. Our guiding principle is that we choose value over volume, which has resulted in a sound margin on premium income and a robust solvency ratio. a.s.r.’s DNB Solvency I ratio continues to be strong, rising to 285% at year-end 2014. Return on equity stood at 12.4%. Based on this solid performance, we will submit a motion to the Annual General Meeting of Shareholders for a dividend distribution of € 138.9 million to our shareholder.
The occupational disability insurance business managed to shore up its position as market leader despite difficult conditions. The introduction of a new occupational disability insurance policy for self-employed persons clearly meets a need for the target group: adequate cover for the risk of occupational disability at a fair price.
13a.s.r. 2014 annual report a.s.r. at a glance and make contact with a specific group of 35,000 customers who hold non-accruing or low-accruing unit-linked policies. At year-end 2014, we had reached more than 80% of this customer group. A relatively small group of 6,000 customers now remains; we are committed to trying to rally them into action.
The success of the ASR Dutch Prime Retail Fund was another financial milestone. After a fourth placement in 2014, the Fund’s total externally placed assets rose to over € 530 million. A fifth placement was undertaken early in 2015.
Our sustainable investment policy earned us the highest rating awarded by the Fair Insurance Guide twice in 2014. In a survey conducted by the Dutch Association of Investors for Sustainable Development (VBDO), a.s.r. achieved a top three position for the fourth year in a row. Development and sustainable employability also form the pillars of our HR policy. Although we are now offering a less generous pay-and benefits package, we are in fact stepping up our investments in employee training and development.
We will continue to safeguard our financial health by looking after our solvency levels, increasing cost flexibility and reducing costs where we can. And we will keep embracing our mission to improve our customer services every single day. What we want is for our customers to have a positive experience. We want them to share in the good feeling about a.s.r. that exists among our employees and everyone who believes in our organization.
In 2014, a.s.r. continued the new strategy it initiated in 2012 of being a socially minded and accepted insurance company offering easy-to-understand products at a fair price. This cannot be achieved without a robust financial base and cost-effective operations and the overall goal of providing excellent customer service.
a.s.r. spent a lot of energy encouraging unit-linked policyholders to come forward in 2014 too, focusing in particular on the most vulnerable group of customers who hold non-accruing policies. At yearend 2014, a.s.r. had managed to reach over 80% of all customers holding a non-accruing policy and encouraged them to come forward. Although a.s.r. will continue trying to reach all affected customers, this is proving to be a challenge. Despite all efforts, the last group is increasingly difficult to reach and spur into action.
a.s.r.’s transition is also reflected in the sustainable renovation of the office building located at Archimedeslaan in Utrecht. Two highlights were celebrated in 2014. The first renovated part of the building where the employees’ workstations are located was put into use and the new conference centre opened its doors at the end of the year. As a result, a.s.r. now has over 1,000 new-generation workstations that meet every requirement of the New World of Work, as well as a multifunctional conference centre with 11 conference rooms seating between eight and 250 persons. The second stage of the renovation was completed early in 2015; this included the new cafeteria and the semipublic space with a bar and brasserie, which will be opened up to the public. The fact that the building was named 2014’s best office building in the Netherlands shows that the renovation did not just make an impression on a.s.r.’s visitors, employees and neighbours. The judges of Intermediair.nl ruled that the a.s.r. building is unique in that it is perfectly in line with the organization’s philosophy of transparency, sustainability and austerity.
Lastly, there were political developments involving a.s.r.’s imminent privatization with a view to the sales process of VIVAT/REAAL (formerly Reaal), another nationalized insurance company. Early in 2014, Dutch Finance Minister Dijsselbloem proposed to postpone a.s.r.’s privatization and offer a.s.r. the opportunity to submit a bid for SNS Reaal’s insurance operations. He did so in a letter to the Dutch Parliament, in which he wrote that the idea is to refloat a.s.r., especially now that NLFI, the shareholder, has issued a recommendation stating that a.s.r. is ready to be privatized. At the same time, Minister Dijsselbloem suggested postponing a.s.r.’s privatization because he felt that the 1.3 Highlights of 2014
16a.s.r. 2014 annual report a.s.r. at a glance time was not right. In his reasoning, he referred to the IPO of other businesses, including Nationale Nederlanden, and his belief that a.s.r. should have a chance to bid for VIVAT/REAAL. To this end, the Minister allowed a.s.r. to attract external investors that could help to facilitate a potential bid for VIVAT/REAAL because he argued that a merger between a.s.r. and VIVAT/REAAL should be effected without financial back-up from the government. Minister Dijsselbloem’s plan received support in a parliamentary debate. The process to sell VIVAT/REAAL was initiated and a.s.r. started to seriously explore whether or not to submit a bid. There turned out to be great interest from investors. a.s.r. spoke to about 30 international players that wanted to explore a potential joint bid for VIVAT/REAAL.
Sound and sustainable results The figures for 2014 reflect the positive developments in the results achieved by a.s.r. The combined ratio in the Non-life business stayed below 100% throughout 2014 for all product lines. Profit for the year was up from 2013. The solvency ratio continued to be robust in 2014. The occupational disability and non-life businesses managed to grow their market share and customers continued to be satisfied with a.s.r.’s products and services in 2014, as reflected in a stable NPS.
Buy-outs and contracts in the Pensions business a.s.r. will start to underwrite the pension liabilities of Stichting Chevron Pensioenfonds as of 1 January 2015. The pension assets to be transferred within the scope of this buy-out are worth € 370 million. The existing pension entitlements of more than 1,800 members, who are employees and former employees of the Dutch operations of US oil company Chevron, will be administrated by a.s.r. pensions with effect from 1 January.
Acquisition of Van Kampen Groep a.s.r. announced in December that it was to acquire all shares in Van Kampen Groep (VKG), based in Hoorn, as of 1 January 2015. VKG keeps records for more than 3,000 financial advisers in the Netherlands and works in partnership with over 150 financial institutions. It has 161 people on its payroll.
ASR Dutch Prime Retail Fund a.s.r. vastgoed vermogensbeheer, the real estate investment management business, completed the fourth placement of the ASR Dutch Prime Retail Fund. Aviva Investors Global Real Estate MultiManager invested over € 25 million, which brought the total capital raised since December 2011 to over € 530 million. At year-end 2014, a.s.r. still had a share of 56% in the fund.
Balance sheet optimization a.s.r. raised € 500 million in new capital on the financial markets through a hybrid bond loan. By doing so, a.s.r. took an important and successful step towards further optimizing the balance sheet, particularly with a view to Solvency II. Most of the subscriptions for the loan are from Dutch and German long-term investors. The loan also attracted great interest from the UK, France and Switzerland.
Below is a list of key initiatives that show how the a.s.r. brands help customers and what ‘helping by taking action’ actually means: • Doorgaan.nl. Doorgaan.nl is a crowdfunding platform for businesses asking the public to join De Amersfoortse in investing in them. The number of projects financed in 2014 was 13, about half of the initial number. The website attracted more than 500,000 unique visitors in 2014 and 2,000 investors came forward. The crowd and De Amersfoortse together invested some € 500,000 in the featured businesses.
• Samenheldenbouwen.nl. Ardanta launched a special website allowing customers to check whether their funeral expenses policy is still adequate. Ardanta donated € 1 to the Dutch Heart Foundation for every policy checked. Ardanta wants to use this campaign to educate visitors about the value of their funeral insurance and to save lives at the same time. In addition to the donation to charity, customers who have checked their policy also receive an offer to sign up for a free resuscitation workshop. Ardanta had donated € 23,500 to the Dutch Heart Foundation by the end of the year.
• Zorgmee. Zorgmee, which translates as ‘care too’, is the name of Ditzo’s relief campaign. The campaign (see www.ditzo.nl/zorgmee) draws attention to helping people who need the most care. Ditzo customers who want to help others can choose to increase their monthly health insurance premiums. Ditzo doubles the amount of the increase and invests the money to benefit three target groups, i.e. young people, families and the elderly. The decision on how the money is spent is taken in dialogue with specialists and customers.
4. a.s.r. vastgoed ontwikkeling is ambitious. De Nieuwe Haagsche Passage in The Hague was completed in September. a.s.r. vastgoed ontwikkeling will develop about 200 homes near Utrecht central station. In Leidsche Rijn, near Utrecht, a.s.r. vastgoed ontwikkeling and Vesteda Project Development are developing an area with about 150 stores, hospitality outlets and commercial services, 10,000 m² of office space and more than 700 apartments. A multi-storey car park with 2,000 parking spaces will also be built. The work got off to a start in June.
In the process of a.s.r.’s development into a customer-oriented and transparent insurer, any awards and prizes received are recognition of the positive changes within the business. What follows is a selection of awards, prizes and other honours given to a.s.r. in 2014 or announced in 2014: • a.s.r.’s liability insurance policy for private persons (Dutch acronym: AVP) received high ratings in the MoneyView comparison shopping test. Having been awarded five stars for ‘Quality’, the policy was referred to as unique in the market.
• MoneyView continued to rate De Amersfoortse’s occupational disability insurance as a five-star policy on account of its flexibility.
• a.s.r. managed to retain the Customer-Oriented Insurance Quality Mark after undergoing a new audit. The Dutch Insurance Review Agency was positive about a.s.r.’s focus on customer interests, accessibility, expertise and quality.
• As shown in the 2013 survey on Treating Customers Fairly that was published by the AFM in August, a.s.r. scored 3.6 out of 5 on customer focus in its services, products and processes, which is slightly better than average. This score is an improvement upon last year (3.3) and higher than the average in the financial sector (3.5).
- Echo Award. Ditzo received this international award for the best marketing campaigns in the world, which is presented annually by the Direct Marketing Association.
- Online Video Award 2014. The Marketingfacts platform named the Kijk kanker de wereld uit video the most strikingly effective Dutch video of the decade.
- Esprix Awards. Ditzo won both a silver and a bronze award at this annual marketing awards ceremony.
a.s.r. chooses to be an all-round insurance company with products and services that are primarily designed for the Dutch market. The Dutch insurance market is saturated and fiercely competitive. In this market, a.s.r. has opted for value over volume; we want to achieve cost reductions by preventing waste through continuous efficiency improvements under the motto ‘first time right’. a.s.r. has deliberately chosen a multi-line model, offering a comprehensive range of insurance products to customers. In doing so, a.s.r. focuses on standardizing processes and products, increasing the level of Straight Through Processing and, where appropriate, outsourcing services to specialist partners. a.s.r. has chosen to introduce outsourcing in controlled stages.
a.s.r. is confident that it can prove its right to exist by thinking in terms of customer interests and customer perception. This is something that all employees work towards each day. And it is our employees, with their professionalism and customer focus, who give the service of a.s.r. a face and determine its quality. a.s.r.’s products and services are at the base. Clarity and simplicity combined with efficient business processes and a robust financial position are essential. Customers can rest assured that their risks are covered by an insurer that operates sensibly and avoids waste, listens to them and puts itself in their shoes.
Customers tell us that they want transparent products, clear communication and personalized service. a.s.r. has made it its top priority to meet these needs. This means that activities and objectives are assessed for whether or not they benefit our customers. New products are presented to customer panels and their feedback is incorporated into the product development process. Ultimately, we should see this reflected in the appreciation rating that customers give a.s.r. in terms of the Net Promoter Score (NPS).
Featuring the a.s.r., De Amersfoortse, Ditzo, Europeesche Verzekeringen and Ardanta brands, a.s.r. offers a wide range of financial products: life insurance, non-life insurance, income protection insurance, group and individual pension products, health insurance, travel and leisure insurance, and funeral insurance.
a.s.r. is the primary label for private individuals. Its core value is helping people by taking action. Life and non-life insurance policies, mortgages and savings and investment products are primarily sold through the intermediary channel, but customers can also approach a.s.r. directly if they want. This hybrid model has been designed to allow customers to make their own arrangements and solicit advice when they need it. Customers can always contact a.s.r., for instance by calling or sending an email about easily resolvable or administrative issues, or one of our intermediaries to ask for more personal and tailored advice. a.s.r. puts customers’ interests first in developing insurance packages too. They are based on customers’ life events, such as buying a house or children leaving home. This makes insurance personal and lays the foundation for different pricing methods. The a.s.r. label also comprises commercial lines. In addition, a.s.r. operates and develops real estate.
• Customers • Employees and development • Contacts with Works Council • Commercial development and premium income • Developments in premium income/cost ratio • Risk management and risk appetite • Own risk and solvency assessment (ORSA) • Strategy, including future exit to private market • Financial performance (quarterly, interim and annual results) • Solvency • Contacts with regulators • Contacts with shareholder • Investment plan • Dividend proposal • Sustainability and role in society • Multi-year budget • Integrity reports • Audit reports • Governance • Complaint reports • ICT-projects
• Treating Customers Fairly and AFM survey • MH17 air disaster • HR and talent development • Less generous pay-and-benefits package • Amendment and harmonization of pension plan • Unit-linked policies • Acquisition of Van Kampen Groep • Team dynamics in Executive Board (including new CFO) • Privatization and VIVAT/REAAL • Solvency II • Renovation of Archimedeslaan offices
In addition to recurring topics, the Executive Board also discussed a number of specific themes in its routine meetings in 2014, as well as scheduling many extra meetings to address these specific themes. A number of routine topics and additional themes are highlighted below.
Treating Customers Fairly and AFM survey Helping customers is what lies at the heart of our business. Everyone at a.s.r. knows this and puts this principle into practice every day. Treating Customers Fairly (TCF) frequently comes up during internal sessions and is often covered in internal communications. Various reports, including the TCF Dashboard, complaint reports and the Net Promoter Score, are used to gain an understanding of developments in, and the performance on, TCF on a regular basis. A lot of attention is also paid to knowledge development by sharing and discussing best practices.
The TCF Dashboard, which is defined annually by the Netherlands Authority for the Financial Markets (AFM), yields highly useful information that helps to further improve a.s.r.’s customer focus. This survey by the regulator annually benchmarks the extent to which Dutch financial institutions focus on customer interests in their products, services and processes. a.s.r. achieved a score of 3.6 out of 5 for 2013 on the Dashboard (2012: 3.3), higher than the average in the financial sector (3.5). a.s.r. scored well above average on claims handling, complaints management and customer contacts in particular. Nonetheless, the Executive Board will keep a sharp focus on TCF while a.s.r. is continuously working to increase its customer focus.
HR and talent development a.s.r.’s employees are the driving force of the organization. They are helping customers deal with unexpected and sometimes difficult circumstances, working every day to improve products and processes, dealing with customer queries quickly and efficiently, and thinking about and working towards the socially relevant insurer that a.s.r. aspires to be. The Executive Board discussed the talent development programme on various occasions in 2014. The Executive Board considers it is important that all employees and the group of trainees in particular are offered opportunities for investing in their own expertise and professionalism. In this context, it was decided in 2014 to launch the In Motion (in beweging) programme to increase our people’s mobility.
Adjustment of pay-and-benefits package a.s.r. wants to offer fair remuneration; it has chosen to benchmark its remuneration against the second quartile of the average remuneration level in the Netherlands across all industries (i.e. not just the financial sector). In the context of bringing the remuneration in line with the market, the Executive Board worked on amending the pay-and-benefits package; the amendments included eliminating variable pay and the mortgage interest discount on new mortgages (the latter with effect from 1 January 2015), and amending the pension plan. With these changes, a.s.r. has scaled back its pay-and-benefits package from about 15% above average to the median of this benchmark group over the past few years. The members of Executive Board have not been entitled to variable pay since 2011. This was motivated by the statutory provisions governing the bonus prohibition for state-aided enterprises. Now that variable pay has been eliminated, performance appraisals will take on a different dimension for nearly all employees. Together with HR, the Executive Board has fleshed out how to conduct a performance appraisal interview and how to set targets effectively.
Improving and maintaining the integrity and robustness of a.s.r. is key to the new remuneration policy, which was introduced in 2014, and the focus is squarely on the long-term interests of all our stakeholders. The aim of the remuneration policy is to motivate employees to work for the interests of customers and other stakeholders within the parameters of the duty of care.
The Executive Board also focuses specifically on the development of senior management. One of the ways of doing so is the annual senior management survey, in which context the individual members of senior management are first discussed within the Executive Board and then jointly with the Supervisory Board. The discussions focus on personal growth, combined with new opportunities within a.s.r. As part of this policy, three managing directors took on new roles in 2014, two left a.s.r. and one was recruited externally.
In 2014, the outcomes of the survey were discussed with all senior managers in their respective discipline. Based on these outcomes, a special training programme was developed for each target group. The simplified set-up of the survey offers greater transparency and a greater focus on development and mobility.
A lot of time and energy went into this process in 2014 and we saw great interest on the part of potential investors. The Executive Board is confident that prudent and well-substantiated arguments in every stage of this process have contributed to the robustness and soundness of a.s.r. as an organization and to its strategy, and that this is clear to internal and external stakeholders alike. The Executive Board is very grateful to the shareholder for offering a.s.r. the opportunity in 2014 to take part in the bidding process for VIVAT/REAAL.
The Executive Board looked extensively at a.s.r.’s potential return to private hands in 2014. The Executive Board knows what the Dutch State’s views are on this issue. As NLFI established in May 2014, a.s.r. has been successful at building a track record where its ability to deliver is concerned. As a result, NLFI feels that a.s.r. is ready for an IPO (as one of the possible privatization options). At the same time, NLFI concluded, based on a number of general market conditions and more structural issues in the Dutch insurance market, that mid-2014 was not an opportune time for a.s.r. to be privatized. After we had decided not to issue a binding bid for VIVAT/REAAL, we went back to preparing for the privatization in dialogue with the shareholder NLFI. The privatization process will start as soon as the Minister of Finance has taken a decision and informed the Dutch Parliament of the time schedule and procedure leading up to a.s.r.’s return to private hands. We are confident about this process, not least because of the great interest that many investors have shown in a.s.r.
Solvency II a.s.r. sets great store by robustness because it clearly tells the stakeholders that a.s.r. will be able to fulfil its obligations at any time, even in the more distant future. Robustness is one of the three strategic pillars that a.s.r.’s risk appetite is founded on. The Executive Board updated the risk appetite in 2014, which marked the next step towards compliance with the Solvency II requirements. Risk limits
Team dynamics in Executive Board (including new CFO) The composition of the Executive Board changed with the appointment of Chris Figee as our new CFO on 1 May 2014. The Executive Board explicitly discussed the resulting change in our a.s.r.’s dynamics on a number of occasions in 2014. Individual profiles of Executive Board members were prepared with the help of an external agency, as were team profiles of the ‘old’ and the ‘new’ team. The impact on team dynamics was discussed in the presence of both former CFO Roel Wijmenga and new CFO Chris Figee. The Executive Board regularly holds separate meetings to assess team dynamics, as well as effectiveness and decisiveness.
The executives and non-executives of the first four entities are the same as those of ASR Nederland N.V. This is not the case for the other three entities.
a.s.r. attaches great value to a good relationship with the supervisory authorities. It is in frequent contact with both AFM and the Dutch Central Bank (DNB). Outside of the routine contacts, the Executive Board discussed the arguments in the bidding process for VIVAT/REAAL with DNB in 2014 and information was provided in a number of sessions within the scope of the DNB survey of the viability of the insurance sector. a.s.r. was in frequent contact with AFM about the status of offering solutions to unit-linked policyholders. The Executive Board also considers it important that the entire organization complies with the principles defined in the Dutch Banking Code and the Governance Principles (Dutch Insurance Code).
Strategic acquisition of Van Kampen Groep The Executive Board monitors developments in the market with great interest and is open to strategic acquisitions and consolidation opportunities. In this context, agreement was reached in December 2014 on the acquisition of 100% of the shares in Van Kampen Groep Holding B.V., based in Hoorn, as of 1 January 2015. Van Kampen Groep runs the back office of about 3,000 affiliated intermediaries. a.s.r.’s investment will allow Van Kampen Groep to broaden its service offering and fund its strong growth. a.s.r. sees the acquisition as an investment in the strategically important intermediary distribution channel.
Closing remark from the Executive Board The Executive Board is grateful to all employees for their unrelenting commitment to helping customers every single day and to making a.s.r. the valued and socially relevant insurance company that it aspires to be. The Executive Board also wants to express its appreciation to the Supervisory Board and the shareholder for their constructive input. The sessions and discussions about such issues as a.s.r.’s planned privatization and the opportunity to bid for VIVAT/REAAL were intensive and of great added value for our business. But most of all we owe a debt of gratitude to our customers who have chosen our products and services. Helping them is our reason for being. And they help us to develop a.s.r. into the socially relevant insurance company that we want to be.
2014 annual report Report of the Executive Board 2.2 Financial performance 2.2.1 ASR Nederland N.V.
• Increase in profit for the year to € 381 million (2013: € 281 million). - Non-life segment: improvement in combined ratio to 94.9% thanks to policy aimed at claims prevention and control.
• Operating expenses from ordinary activities down 7%, dropping from € 535 million to € 499 million. Operating expenses (including additional non-recurring expense items) down to € 541 million
Gross written premiums, Non-life segment 2,359 2,392 Gross written premiums, Life segment 1,543 1,666 Elimination of own pension contract -115 -135 Total gross written premiums 3,787 3,923
1 Operating expenses from ordinary activities comprise total operating expenses exclusive of incidental items such as costs associated with preparing for the privatization of a.s.r. and investments in growth and strategic projects.
Total equity (including revaluation of real estate) 3,833 1 3,799 Total equity (IFRS) 3,027 3,015
Developments in 2014 The insurance market is saturated; it has been fiercely competitive for a number of years and 2014 was no exception. Although consumer spending continues to fall, consumers are slightly more positive about insurance services than they have been for a long time. Insurance companies developed a greater focus on online services in 2014 and put more effort into approaching customers through social media channels.
Premium income from the Non-life segment was virtually stable; this segment’s combined ratio was structurally below 100% for all product lines. The Vernieuwde Voordeelpakket, a package of non-life policies for private individuals, is a favourite among consumers. Sales of this package have increased significantly. In the commercial market, the number of large claims fell as a result of the policy a.s.r. has pursued over recent years.
The life insurance market, which is contracting, continues to demand attention. The organizational structure of the life business is being adapted to developments in this market. One of the implications is that 50% of jobs in the life business will eventually be lost. This has been a difficult decision, but it needed to be taken to have our costs keep pace with the rate of contraction in this portfolio.
With a view to strengthening the balance sheet and capital position even more, a.s.r. issued a hybrid bond loan of € 500 million in 2014. a.s.r. is now not only well on its way to meeting the Solvency II requirements, but this loan has also helped to optimize the capital structure and created the conditions for reducing the interest expense.
The HR policy, in which development and sustainable employability have been defined as priorities, was fine-tuned in 2014. A less generous pay-and-benefits package was introduced in 2014, which included eliminating variable pay for most employees with effect from 1 July. The pension plan was amended as well. These measures were taken in combination with a step-up in investments in employee training and development.
Profit for the year Profit for 2014 stood at € 381 million (2013: € 281 million), which reflects the fact that a.s.r. had a good year in 2014. This increase was mostly attributable to a drop in operating expenses from ordinary activities and an improvement in underwriting result achieved in the Non-life segment.
In the Other segment, the loss for 2013 of € 91 million was reduced to a loss for 2014 (including eliminations) of € 25 million, an improvement by € 66 million. The improved performance was attributable in particular to an improvement in earnings from the real estate development business, other incidental income items and higher investment income. The increase was partially cancelled out by higher operating expenses.
Operating expenses Total operating expenses continued to fall in 2014, landing at € 541 million. The drop was brought about despite various investments in growth and strategic projects as well as higher costs associated with preparing for a.s.r.’s privatization. Operating expenses from ordinary activities fell by 7%, dropping from € 535 million to € 499 million. This cost reduction was achieved thanks to continuous focus on efficiency, causing the number of FTEs to drop. The base of internal staff dropped from 3,789 FTEs in 2013 to 3,513 FTEs, a 7% fall.
At 0.4%, the rate of growth in IFRS-based equity was limited, rising from € 3,015 million at 31 December 2013 to € 3,027 million at year-end 2014. Making allowance for the unrealized revaluation of investment property of € 806 million (2013: € 784 million), total equity stood at € 3,833 million (2013: € 3,799 million).
The € 34 million rise in total equity was due to various items. Routine movements included the addition of profit for the year of € 381 million and movements in unrealized revaluations. These positive effects were largely cancelled out by unrealized actuarial gains and losses. The lower discount rate for the a.s.r. pension contract (IAS19) reduced total equity by € 527 million in 2014. In addition, the dividend of
32a.s.r. 2014 annual report Report of the Executive Board € 99 million that was promised for 2013 was distributed in 2014.
Outlook for 2015 a.s.r. has the ambition to return to the private market. The Dutch State has been a.s.r.’s sole shareholder since 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 office. a.s.r. never received state aid.
• Increase in profit for the year to € 148 million (2013: € 5 million). • Combined ratio at 94.9% (2013: 104.6%). • Gross written premiums virtually stable at € 2,359 million (2013: € 2,392 million). • Operating expenses down 10% to € 215 million (2013: € 240 million).
1 Including the additional WGA-ER expense item of € 137 million.
Profile The Non-life segment comprises all types of P&C insurance policies that a.s.r. offers to consumers and businesses. These policies insure risks related to motor vehicles, fire, travel and leisure, liability, legal assistance, occupational disability and medical expenses. The policies are offered under the following labels: a.s.r., De Amersfoortse, Ditzo and Europeesche Verzekeringen, via both the intermediary and the direct channels.
Combined ratio The combined ratio improved to 94.9% (2013: 104.6%). The combined ratio is below 100% in all product lines. The active claims prevention policy, including measures aimed at controlling claims and proactive portfolio management, brought about further increases in the underwriting result in 2014, particularly in the occupational disability, motor vehicles, fire and other P&C insurance portfolio.
Gross written premiums rose in the occupational disability insurance market, in which a.s.r.’s De Amersfoortse label has led the market for years. The increase was mostly the result of single premium and regular premium hikes. Despite the fact that we took measures to improve returns earlier, customers also recognize and appreciate our clear focus on treating them fairly.
Developments in 2014 Sales volumes of non-life products for private individuals were up thanks to the success of the Vernieuwde Voordeel Pakket (VVP) a private non-life insurance discount product that was introduced in 2013. The pricing of car insurance in the VVP discount package was improved. SMEs were offered better prices on their fire and third-party liability policies, and discounts were granted on motor vehicles insurance for vans. The intermediary portal for commercial P&C products (fire, traffic and liability) was improved.
The occupational disability insurance market has become fiercely competitive and is highly pricedriven; new policies in this market are mainly comprised of renewals. a.s.r. sees opportunities in this
35a.s.r. 2014 annual report Report of the Executive Board market by increasing accessibility to occupational disability insurance for self-employed persons with a new product especially developed for them. The product is reasonably priced and has a limited maximum indemnity period of two or five years.
As part of the drive to reduce partial occupational disability claims (WGA-ER), great efforts were made in 2014 to improve the collaboration with the Social Security Benefits Administration Agency (UWV), particularly where information exchange was concerned. a.s.r. consulted with this agency directly and through the Dutch Association of Insurers; these consultations resulted in a greater level of mutual understanding and more constructive teamwork.
A lot was invested in 2014 in creating the capacity to process the mandatory pooling of fixed and flexible partial occupational disability risks (WGA-ER) as of 1 January 2016. This broadening of the market demands great flexibility from insurers, especially because they hardly have any experience with insuring flexi-workers and the information about the sickness and occupational disability risk associated with this group is sketchy and unreliable. This makes the development of an accurate premium model for this group a challenging exercise. The Dutch Minister of Social Affairs & Employment has decided to postpone the introduction of this section of the new absenteeism and occupational disability law by one year; it will now take effect on 1 January 2017.
Health insurance policies are increasingly being taken out online. To reduce their premiums, consumers tend to choose a higher deductible and a less generous care package with no or little top-up insurance. a.s.r. managed to grow its total health insurance portfolio in this market too; Ditzo achieved growth for the third consecutive year. Rather than producing TV and radio commercials, the strategy chosen in 2013 was continued by opting for a different approach and focusing on ‘helping by taking action’ with the Zorgmee (Care Too) campaign. Ditzo believes that everyone has the right to affordable healthcare and should be able to choose their preferred healthcare provider. To achieve this, Ditzo offers consumers the option to not only arrange for their own healthcare, but to care for others as well. Ditzo customers – and other insurers’ policyholders too – can opt to pay a monthly contribution that goes towards specific care initiatives for young people, families and the elderly. The money is paid to providers offering concrete solutions in the way of prevention and follow-up, to benefit groups that are in danger of being left out as a result of the changes in the healthcare system over the year to come. Ditzo doubles the amount contributed and reports on how the money is spent.
In addition, the health insurance business wants to market itself more explicitly as a healthcare business rather than as a provider of health insurance alone. It aims to achieve this by engaging in more dialogue than ever with healthcare providers, consumers and special-interest groups as well as by taking initiatives such as Care Too.
The combined ratio in the Non-life segment improved to 94.9% (2013: 104.6%). The combined ratio is below 100% in all product lines. The active claims prevention policy, including measures aimed at controlling claims and proactive portfolio management, brought about further increases in the underwriting result for 2014. This caused the underwriting results to rise, particularly in the occupational disability insurance business and in the motor vehicles, fire and other P&C portfolio. The combined ratio in the occupational disability insurance business improved to 91.4% (2013: 118.0%). This was mainly attributable to the high level of expertise of our people in the areas of risk selection, acceptance, prevention and reintegration, and claims handling. The combined ratio in the health insurance business was stable at 98.9% (2013: 98.8%). Similar to previous years, the health insurance business did not distribute any dividend to ASR Nederland N.V. in 2014. Instead, earnings were used to limit premium increases for customers in 2015. The combined ratio in the motor vehicles, fire and other P&C insurance portfolio decreased to 95.0% (2013: 98.9%). The improvement in earnings was mainly attributable to the high level of expertise of our people in the areas of portfolio management, acceptance and claims handling. Thanks, in part, to the prevention policy and risk reassessments, the average amount of large – or top – claims was down on last year. The number of top claims was the same as the relatively low number filed in 2013. The mild weather in the first few months of 2014 contributed to the reduction in claims compared with last year.
In the health insurance business, the focus in 2015 will be on further improvements in customer services; the positioning of Ditzo as the consumer label and of De Amersfoortse as the insurance company for business owners will be fleshed out further. Both labels go by the principle that their customers should have the right to choose their preferred healthcare provider.
At present, there is a lack of focus on sustainability in contracting care. The health insurance business is considering this issue and exploring its options for prioritizing sustainability aspects in contracting care. The Contracted Care 2020 policy paper will be prepared in 2015. This policy paper will be written in collaboration with healthcare providers and will have due regard for mutual interests and objectives.
• Fall in profit for the year down to € 258 million (2013: € 367 million). • Operating expenses down 11% to € 178 million (2013: € 199 million). • Gross written premiums down 7% to € 1,543 million in line with market developments
• New production (APE) up to € 140 million (2013: € 65 million).
Regular written premiums 1,308 1,421 Single premiums 235 245 Gross insurance premiums 1,543 1,666
Profit/(loss) for the year 259 367 Profit/(loss) for the year attributable to non-controlling interests -1 -
Market developments The market for life insurance continues to contract; there is a shift from unit-linked policies and asset-building and asset reduction products to tax-efficient banking products, in which life insurers have only a limited role to play. Developments in the mortgage market have also slowed down the term life insurance business. More and more providers looking to grow their earnings and market share are starting to focus on this market, as a result of which it is increasingly being squeezed.
The Dutch funeral insurance market is contracting. Ardanta has invested in new distribution channels since 2013. Although there is a trend towards customers taking out policies online, intermediaries still have an important role to play. In this market, the two distribution channels mix well and actually reinforce each other.
Gross written premiums In the Life segment, premium income fell from € 1,666 million to € 1,543 million (down 7%). Premium income from single premiums (€ 235 million) dropped by 4% and that from regular written premiums by 8% (€ 1,308 million). The drop occurred in the pension, life and funeral portfolios. The increase in new production to € 140 million (2013: € 65 million) was fully attributable to the bolstered position of the pension business. In addition to new policies stemming from renewals of existing pension contracts, 2014 also saw a few pension fund buy-outs.
There was a sharp rise in the number of new production in 2014. The increase was attributable to the renewal of existing contracts as well as to newly signed pension contracts taken out by customers opting for the Werknemers Pensioen pension proposition that was introduced at the end of 2013. More than 700 employers, mostly SMEs, have now taken out this contract. In addition, a.s.r. assumed the pension obligations of a few pension funds through buy-outs in 2014; the premium income from the pension contract with Chevron will be reflected in premium income for 2015. These buy-outs tie in with a.s.r.’s strategy to raise its profile in the pension market.
At € 109 million, a 2% drop from 2013, gross written premiums from the funeral insurance business were more or less stable, despite attrition in the portfolio. The share of online distribution in the funeral insurance business is on the increase. Nearly four in ten policies are now taken out online (2013: two in ten). The increase was due, in part, to online media initiatives by a.s.r., including the ‘doodgaanendoorgaan.nl’ website, which offers practical information on funeral arrangements. This website has welcomed over 250,000 visitors since it was launched late last year.
Developments in 2014 De Amersfoortse successfully introduced Werknemers Pensioen, an employee pension product. Since its introduction in October 2013, 700 contracts have been signed with employers. a.s.r also managed to retain existing customers, thanks to both pension contract renewals and the new Werknemers Pensioen product. The Brand New Day IORP nearly doubled in size in 2014. It has now signed just short of 1,000 pension contracts with employers.
The Dutch Payroll Tax Act was amended on 1 January 2015; some of the changes were that the cap on tax-facilitated accrual rates was lowered and that the threshold for the tax-exempt amount was changed. Another change was the introduction of a cap on pensionable earnings of € 100,000. All pension plans were required to meet these new requirements on 1 January 2015. Also, the statutory retirement age has gradually been raised to 67 with effect from 1 January 2013.
a.s.r. will make an offer that meets the new requirements to all its pension plan customers. In addition to incorporating the changes in tax regulations, a.s.r. will also give them the option to convert their pension plan to the new statutory retirement age of 67 free of charge.
To provide even better services, Ardanta implemented a webcam advisory tool, which is used for personal consultations with customers. It has proven to be a great success. The NPS for the webcam consultation was +33. The webcam tooling has also been made available to independent intermediaries, so that they can use it to provide efficient advice to their customers too.
a.s.r. will investigate a new pension option, i.e. the general pension fund (Dutch acronym: APF). An APF allows multiple pension plans to be administrated alongside each other, which saves on costs and helps to meet the strict governance requirements at the same time. An APF might be the answer to offering more affordable pension plans, particularly for relatively small pension funds that are unable to operate independently.
a.s.r. continues to be interested in opportunities for buy-outs in the pension market. After the announcement in December 2014 of the successful acquisition of Chevron pension fund for deferred members as of 1 January 2015, a.s.r. will continue to explore serious opportunities for acquiring pension funds in 2015 too.
In 2015, the first life portfolio will be migrated to a new system, which will make the records more efficient, reduce costs per policy and make the policy costs more flexible. The other portfolios will be migrated over the years to come.
The funeral insurance market is expected to stabilize in 2015. Ardanta has 2 million customers in this market, who together hold 4 million policies; in many cases, the average insured amount is lower than the cost of a funeral. Research has shown that there are three categories of policyholders in this business. A third will never need the policy because they have sufficient savings. A third have taken out a policy, but the insured amount does not cover the cost of a funeral (about € 7,500 on average). A third need the policy because they do not have the financial resources to pay for a funeral. Ardanta will approach its customers in a targeted effort to ask them whether their policy is in line with what they actually want.
Loss for the year In the Other segment, the loss for the year improved from €-91 million to €-25 million. The loss reduction was mainly attributable to the real estate development business, where further de-risking resulted in fewer allocations to loss provisions. An incidental income item of € 59 million as a result of the amendment of the own pension scheme in accordance with IAS19 also boosted earnings. These positive developments were partially cancelled out by an increase in operating expenses, which were up in 2014 due, for instance, to preparations for a.s.r.’s privatization and investments in growth and strategic projects.
Developments in 2014 a.s.r. bank again saw its savings deposits rise in 2014 despite low interest rates. The 16% increase in the portfolio to € 1,032 million (2013: € 889 million) was chiefly attributable to deposits in annuity savings accounts. Customers appreciate the fact that a.s.r. bank offers a full online platform for them to take out and manage their annuity savings account, which is accessible around the clock.
The real estate development business continued its de-risking policy in 2014 too, for instance by scaling back, postponing and terminating various developments. Total assets dropped from € 201 million to € 143 million in 2014, a 29% fall. Over the past two years, total assets have been reduced by 50%.
In keeping with the strategy of the past few years, the real estate development business will continue to take important steps to reduce risk exposures in its portfolio. Going forward, property developments will primarily be undertaken in city centres. The real estate development business has therefore strengthened its strategic focus and expertise in this area.
The exposure to financials rose from € 4.6 billion to € 4.9 billion in the reporting period, mainly due to higher exchange rates. Within the financial portfolio, the exposure to Tier 1 paper fell significantly in favour of Tier 2 instruments. The share of covered bonds increased. The exposure to non-financials rose by 12% to € 3.8 billion.
2014 annual report Report of the Executive Board a.s.r. vastgoed vermogensbeheer a.s.r. vastgoed vermogensbeheer, the real estate investment management business, invests for its clients in retail properties, residential units and agricultural land. The real estate investment management business seeks stable development of the value of real estate for users, investors and society at large, through active fund, asset and property management.
A number of developments that were completed in 2014 were included in the residential and retail portfolios. These pipeline acquisitions are in line with the strategy of the real estate investment management business to strengthen the quality of the residential and retail portfolios in accordance with the fund strategies.
a.s.r.’s diversified property portfolio is made up of a broad range of retail outlets and offices in prime locations, well-maintained middle-class homes (mainly in the Randstad conurbation) and high-quality rural real estate across the country.
a.s.r. continued its sound and prudent capital policy in 2014, the aim being to maintain a strong and robust capital position that contributes to the corporate targets. a.s.r.’s capital position is governed by various rules and limits that were instituted to absorb losses and to guarantee financial robustness. Compliance with the set rules and limits is monitored and enforced by internal management and control models. a.s.r. seeks to actively monitor capital risks and to streamline the capital position within the parameters defined by regulators and stakeholders. One of the priorities in this regard is securing an A rating at group level.
In addition to capital management based on Solvency II, the standard regime for European insurance companies, a.s.r. has fine-tuned the Solvency II regime and developed its own partial methodology (ECAP). The ECAP methodology, which quantifies a.s.r.’s integral risk in terms of economic capital, is a minor departure from the Solvency II standard model in that it uses self-developed methods for measuring a number of risks. This makes the ECAP methodology a better fit for a number of specific risks that a.s.r. incurs; it provides a more complete understanding of these risks and of the economic capital that is required to mitigate them. Besides the regimes mentioned above, the ECAP methodology also forms part of a.s.r.’s overall capital management. The self-developed ECAP methodology has been cascaded throughout the organization and is a standard element of the risk management framework.
a.s.r.’s robust financial position in terms of market value is guaranteed by the routine and integrated management of its capital position, based on Solvency I, the standard Solvency II model and ECAP alike. Treasury & Capital Management is responsible for implementing the capital management policy. This guarantees the independent position and the segregation of duties, and is in keeping with the a.s.r. governance structure. Treasury & Capital Management reports on capital management issues to the risk committee structure that was created especially for this purpose on a regular basis.
Equity, including changes in the value of real estate, was up 1%, rising from € 3,799 million to € 3,833 million. Profit for the year, unrealized changes in the value of equities and real estate, and capital optimization in the second half of 2014 contributed to the increase in equity. By contrast, unrealized actuarial losses caused a drop, as did the dividend distributed for 2013 and interest paid on hybrid instruments. The fair market value of investment property exceeded its carrying amount by € 806 million, a € 22 million rise on 2013. Disregarding these changes in value, equity was up to a limited extent, rising from € 3,015 million to € 3,027 million.
The effect of market risks on the solvency ratio was as follows (in %-p): Type of market risk Scenario 2014 2013
Total diversified Equities -20% -18% -21% Interest rate incl. UFR -1% 34% 30% Interest rate incl. UFR +1% -23% -29% Interest rate excl. UFR -1% -59% -17% Interest rate excl. UFR +1% 27% -1% Credit spread +0.75bps -16% -23%
R ev al ua tio n o f re al e st at e
47a.s.r. 2014 annual report Report of the Executive Board a.s.r.’s interest rate risk policy seeks to manage the interest rate sensitivity of the balance sheet based on an economic curve. Because of the large difference between the economic curve and the curve inclusive of UFR, the difference between the solvency position inclusive and exclusive of UFR will increase in the event of an interest rate shock. a.s.r. upheld the policy for hedging the interest rate risk based on an economic curve in 2014 subject to the condition that the effect of an upward interest rate shock of 1 percentage point on the Solvency II ratio (inclusive of UFR) cannot exceed 10 percentage points. The Solvency II ratio is calculated based on the curve inclusive of UFR. As a result, the extremely low interest rate climate has caused the sensitivity of the solvency position exclusive of UFR to increase in the event of a drop in interest rates.
a.s.r. also contracted a senior bank loan of € 250 million for the holding company in 2014. This liquidity was used mainly for general operational purposes, including the funding of a pension reserve that will be used to cover price inflation going forward. Combined with the financing options that are in place, a.s.r. currently has ample cash reserves to carry on its operations.
The Standard & Poor’s ratings were as follows at year-end 2014: Standard & Poor’s ratings Type Rating Outlook Date
ASR Levensverzekering N.V. CCR A Stable 21 August 2012 ASR Levensverzekering N.V. FSR A Stable 21 August 2012 ASR Schadeverzekering N.V. CCR A Stable 21 August 2012 ASR Schadeverzekering N.V. FSR A Stable 21 August 2012 ASR Nederland N.V. (holdco) CCR BBB+ Stable 12 May 2014
For Standard & Poor’s rating report, please visit the a.s.r. website: www.asrnl.com.
Risk management is an integral part of our daily business activities. a.s.r. applies an integrated approach to managing risks, ensuring that our strategic objectives (customer interests, financial solidity and efficiency of processes) are realized. This integrated approach ensures that value will be created by identifying the right balance between risk and return, while ensuring that obligations towards our stakeholders are met. Risk management supports a.s.r. in the identification, measurement and management of risks and monitors whether adequate and immediate actions are taken in the event of changes in our risk profile.
The notes to the financial statements contain a detailed description of the risk governance, the risk profile and the related trends in 2014 (see page 124).
Risk management in 2014 a.s.r. has managed the risk profile of a.s.r. group, its legal entities and its business lines in order to ensure that the risk profile remains within the risk appetite and the underlying risk tolerances and risk limits. The risk appetite is defined for financial and non-financial risks and describes the level of risk a.s.r. is willing to accept. The risk appetite statements were updated by the Executive Board and endorsed by the Supervisory Board in 2014. The risk profile is reported in the risk committees on a quarterly basis. The non-financial risk profile is reported in the Non-Financial Risk Committee (NFRC) and the financial risk profile is reported in the Financial Risk Committee (FRC). The integrated risk profile is reported in the group risk committee. In case of breaches, the committees are mandated to decide on corrective actions. In this way the risk governance ensures the effective monitoring of the risk profile and timely action if needed.
a.s.r. has conducted its own risk and solvency assessment (ORSA) at both group and legal entity level. The ORSA is a yearly process that measures the impact of adverse external developments or internally identified risks and threats to a.s.r.’s solvency position. Various strategic risks are transposed into scenarios that simulate the impact of the occurrence of these risks on the balance sheet, the solvency position and the income statement. Management actions are defined in order to mitigate the impact of the potential risks modelled in the various scenarios.
In 2014 a.s.r. also performed an update of the recovery plan. The goal of the recovery plan is to ensure that a.s.r. has effective measures in place to deal with potential severe financial stress, resulting from a wide range of causes and various circumstances. The recovery plan enables a.s.r. to improve the chances of successful intervention in such extreme scenarios and ensures that a.s.r. is better prepared for financial crisis situations.
a.s.r. has improved its system of internal control in 2014. The enterprise-wide internal control framework has been largely implemented in the business lines. Operational risks have been identified and controls were assessed and tested from an Enterprise Risk Management perspective. The implementation of the company-wide internal control framework has contributed to raising the
49a.s.r. 2014 annual report Report of the Executive Board awareness of operational risks. Internal control has become a tool of management and it continues to enhance the effectiveness of operational processes.
To be able to mitigate model risk, a.s.r. expressed the ambition in 2014 that at the end of 2015 the majority of Solvency II metrics such as the Solvency Capital Requirement and Technical Provisions should be established using internally validated financial and/or actuarial models. To be able to meet this ambition, a.s.r. has set up a model validation policy as well as a governance structure. Both model owners and model validation have worked out a detailed planning and secured the resources necessary.
A robust solvency position takes priority over profit, premium income and direct investment income. The FRC assesses the solvency position and the financial risk profile on a monthly basis. Action is taken where appropriate to ensure that the financial risk profile stays within the parameters that have been defined in the a.s.r. risk appetite. At year-end 2014 a.s.r. has sufficient capital to meet the limits as formulated in the a.s.r. risk appetite.
2014 annual report Report of the Executive Board a.s.r. further improved its Management in Control system in 2014. This enterprise-wide internal control framework contains the key risks for a.s.r.’s most important operational processes. The framework has been largely implemented in all business lines. Operational risks have been identified and controls have been assessed and tested. Where needed, plans were designed to further increase the effectiveness of operational processes. The centralized Enterprise Risk Management department periodically reviews the quality of a.s.r.’s Management in Control framework. The NFRC decides if additional actions need to be taken to ensure that non-financial risks are managed appropriately.
A Control Risk Self-Assessment (CRSA) is conducted annually to identify the most important strategic risks for a.s.r. group and its business lines. Key risks threatening the achievement of the organization’s strategic objectives are identified in the CRSA, including actions that need to be taken to mitigate these risks. These mitigating actions are defined such that they can be implemented within a one-year timeframe. The CRSA report and the mitigating actions are authorized by the management teams of the business lines and the Executive Board. Every year, senior management of each business line signs a Management in Control Statement (MCS), which is based on the CRSA findings and the results of their Management in Control process. Progress on mitigating actions to the risks identified in the CRSA is monitored on a quarterly basis in the Business Risk Committees and reported to the NFRC.
Fundamental changes in the insurance market Changes in client behaviour and in the distribution channels, the diminishing insurance market, the current economic situation (low interest rates) and changing legislation will require a.s.r. to adapt to these developments. In addition, the current market is characterized by fierce competition and by growing client attention to prices. This pressure can manifest itself in an increase in non-life policy cancellations, loss of retention in the life business, a drop in sales of new insurance contracts and limited scalability of departments. It will be an increasing challenge to make timely adjustments to the product portfolio and the distribution channels and to realize the intended cost reductions with the decrease in premiums. These challenges put a.s.r.’s margins (profitability and solvency) and premium income under pressure.
Unit-linked policies Court rulings and decisions by arbitration boards may have an industry-wide impact, as well as trigger widespread media attention, evoking negative sentiments among policyholders. This may increase the risks with regard to a.s.r.’s reputation. Although firm compensation agreements have been made in the current unit-linked dossier with the client associations to compensate policyholders, the risk of new claims remains. This risk may manifest itself as a result of an increasing claim culture in Dutch society and the new court rulings in the current legal disputes of other insurance companies. This risk is monitored constantly. During 2014, the technical provisions were not increased nor was solvency charged for additional claim risk.
Uncertain financial markets and economic climate Because of weak economic growth in the eurozone, there is a high risk of long-lasting low economic growth, low inflation or deflation, low interest rates, high unemployment and lower investment returns. In the longer term, these lower investment results could erode a.s.r.’s profitability and solvency position. a.s.r. considers a scenario of stagflation to be possible as well. In a stagflation scenario, the inflation rate is high, the economic growth rate slows down and unemployment remains high. In this situation, the regulatory reported solvency and liquidity position of a.s.r. would come under pressure.
Impact of supervision, laws and regulations The Dutch market is characterized by a strong increase in regulation and the introduction of new
Information security risk The information security risk has increased due to new technological developments, such as cloud computing, bring-your-own device, social networks and online transactions with customers. In order to prevent cyber-attacks and information security risks, a.s.r. needs to be sufficiently aware of potential threats. a.s.r. runs the risk that new technological developments require different expertise and different mitigating measures. The risk that confidential information becomes, intentionally or unintentionally, available to third parties, is a serious risk for a.s.r. and its customers and could cause significant reputational damage. A high degree of awareness about dealing with confidential information concerning our customers, employees, financials and strategy and the safeguarding of our assets is of utmost importance.
• Group Risk Management monitors, on a quarterly basis, the readiness of a.s.r. for the introduction of the Solvency II Directive on 1 January 2016. Results of this assessment are reported to the Audit & Risk Committee.
• In 2014 a.s.r. implemented the preparatory phase Quantitative Reporting Templates (QRTs) as well as the narrative report. In 2015, a.s.r. will report according to the preparatory phase requirements for all a.s.r. and relevant legal entities.
• a.s.r. applies shadow accounting in its accounting. As a result of shadow accounting and the additional interest rate hedges, the revaluation of those hedges is recognized as part of the IFRS technical provisions. As a consequence, a.s.r. still passes both the IFRS and WFT LAT without additional provisioning.
• Solvency increased during 2014 and remains strong. The UFR has a significant impact, but even without UFR the solvency position is still sufficient.
• During 2014 a.s.r., together with a consortium, had the opportunity to investigate and prepare a possible acquisition of VIVAT/REAAL insurance. Risk Management was involved during this process to assess the risks and opportunities of such a transaction and the possible impact on solvency.
a.s.r. has identified five areas of priority within its sustainability policy: These areas are insurance, people, investment, environment and society. a.s.r. maintains close contact with a broad group of external stakeholders, including customers, regulators (AFM and DNB), a.s.r.’s shareholder, politicians and ministers, trade bodies and NGOs.
55a.s.r. 2014 annual report Corporate social responsibility interests in their products, services and processes. a.s.r. achieved a score of 3.6 out of 5 for 2013 on the Dashboard, better than a year earlier (2012: 3.3) and higher than the average in the financial sector (3.5). a.s.r. scored well above average on claims handling, complaints management and customer contacts.
a.s.r. added a number of sustainability criteria for product development to the PARP in 2014. The criteria included in the phases of the PARP process are: Phase 1: Innovation Phase 2/3: Customer research, business case and proposition development Phase 4: Proposition review
This is how sustainability was officially introduced as a criterion in the product development process and the product review process.
The PARP Board is chaired by the Marketing Director. People with the knowledge and skills required in a product development process have been given specific responsibility for the various sub-steps. Treating customers fairly is central to every step of the process, and Risk Management and Compliance have each been given special responsibility. No product can be launched without the approval of these corporate functions. Other departments involved in this process are Product Management & Processes, the Business Actuarial Function, Sales, Legal Affairs, IT&C, Control, the Customer Contact Centre, Audit and Intermediary Distribution.
• Documents that are assigned a red label do not put across the message well or well enough. These documents need to be completely rewritten and tested again.
Customer-Oriented Insurance Quality Mark The Customer-Oriented Insurance Quality Mark is a measure of the quality of the level of service and customer focus of insurance companies. Customers of insurers holding the quality mark can trust that they receive easy-to-understand information, insurance products that are appropriate to their circumstances and the best possible service. The quality mark allows insurance companies to demonstrate that they truly have customer focus and that they are audited for being customer-friendly. The a.s.r., De Amersfoortse, Ditzo and Europeesche Verzekeringen labels have all been awarded the quality mark.
Complaints management The Complaints Management Team monitors the implementation of the standard complaints policy and manages the Complaints department accordingly. Complaints are handled at the level of the product and business lines. The key objectives of complaints management within a.s.r. are as follows: • a.s.r. is open to complaints, which is why it is easy for customers to file a complaint. • a.s.r. communicates clearly about its views and about the resolution of the complaint.
Contacting Complaints Management The websites of all a.s.r.’s labels have a complaints form that customers and other stakeholders can use to file a complaint. Complaints can also be phoned in or filed by letter, email and social media. Irrespective of how a complaint has been filed, it is always dealt with in accordance with the complaints handling procedure.
Complaints handling as a skill Complaints help a.s.r. to learn from mistakes and to understand customers better. Every customer who filed a complaint about a.s.r. in 2014 was assigned a dedicated complaints handler. Complaints handlers have the power, knowledge and skills to handle complaints in accordance with the complaints handling procedure. In 2014, a lot of effort went into professionalizing the role of complaints handler and strides were made, particularly in the area of interview techniques, by offering customized courses.
a.s.r. also continues to focus on hiring, promoting and retaining women in management positions. The Executive Board is actively driving this issue forward with initiatives such as extra places for women on trainee programmes and a special focus on hiring women in management positions.
a.s.r.’s fraud prevention policy is structured based on the three-lines-of-defence model. Security, which is part of the Integrity department, is responsible for the integrated approach to fraud control within a.s.r. and for addressing fraud and unethical conduct displayed by employees and intermediaries. The management of the business lines is responsible for fraud coordination at entity level, for which purpose they make use of fraud contact persons. Audit is the third line of defence.
a.s.r. seeks to create a high level of integrity awareness and an environment in which employees feel free to report any suspicious circumstances or incidents directly to Security and the business lines. This is reflected in such policies as the whistle-blowing procedure and the tool for reporting incidents online.
The results of the engagement scan are used to review the past period, but also and more particularly to determine how employee engagement can be strengthened going forward. Within this context, managers and their HR advisers evaluate the engagement scan, they attend a workshop to prepare for team meetings and the results are discussed with the teams.
Career counselling a.s.r. is a dynamic organization; employees move with the internal – and external – job market, meaning that they are employable on a sustainable basis. The Career Centre provides career counsellors who help employees identify what their talents and skills are. Questions that employees are invited to ask themselves are ‘who am I?’, ‘what do I really want?’ and ‘where do my strengths lie?’. All a.s.r. employees can make use of the services of the Career Centre. They can choose between individual and group coaching sessions. The Career Centre also teaches job interview and presentation skills, and offers workshops on how to network and use social media such as LinkedIn.
Adjustment of pay-and-benefits package a.s.r. eliminated variable pay on 1 July 2014. Since that date, employees have been entitled to fixed pay only, except for a small group of 139 sales employees who fall under the a.s.r. CBA job classification and pay structure for front-office positions. This group qualifies for a target-related pay component of up to 20%.
In the context of scaling back the pay-and-benefits package, variable pay was substituted by fixed pay to a limited extent only as of 1 July 2014. The increase in fixed pay was based on pay scales, with ranges between 2% (gross)(pensionable) and a fixed allowance of 4.4% (non-pensionable) for junior staff, to a maximum 7.7% (gross)(non-pensionable) and a fixed allowance of 13.9% for a small group of senior staff. All increases are in line with an agreement with the trade unions for employees governed by the Collective Bargaining Agreement (CBA).
The members of the Executive Board had already not been entitled to variable pay since 2011. This was motivated by the statutory provisions governing the bonus prohibition for state-aided enterprises.
As it turned out, it was not feasible to introduce a new system as early as in 2015, both from a technical and organizational perspective. In order to get a head-start, a number of functional changes (i.e. simplifications) will be implemented this year. In this context, the performance appraisal cycles for employees and managers will be synchronized to run from 1 March to 1 March.
New job classification system: HR is working on a new job classification system that will accommodate every role within a.s.r. The current system consists of more than 1,000 different job descriptions, which are highly detailed, mostly task-driven and leave limited scope for ambition and deliverables. a.s.r.’s new job classification system will be made up of nine groups of roles and about 32 subgroups. This makes the system simple and transparent as well as allowing for comparison between roles and the demands associated with them. The changes in the job classification system will not affect employees’ actual duties, pay scale and salary.
Development portal and changes to education and training policy: HR will revamp the ‘Mijn Ontwikkeling’ development portal and amend the education and training policy. By entering employees’ course history, HR can approach employees proactively and offer them courses. The quality of the offering will improve and costs will be saved by pooling all course requests in the development portal and working with preferred suppliers.
Oath or affirmation: As a sustainable insurer, a.s.r. wants all its employees to act in an ethical manner. With effect from 1 April 2015, everyone working in the financial sector will be asked to take an oath
Dutch Financial Supervision Act: Starting 1 January 2016, a set group of front-office staff are required to meet the requirements of the new professional competence framework of the Dutch Financial Supervision Act, meaning that they need to have earned professional qualifications and demonstrate that they are taking continuing education courses. HR helps employees and their managers to duly meet the requirements by providing information and reports, and organizing information sessions and courses.
Engagement: The annual engagement scan, which measures the level to which employees feel committed to a.s.r., will be performed again in 2015. Three types of reports will be generated, i.e. organization-wide, per business line and per team. The scan will cover employee engagement, trust, team dynamics and treating customers fairly. The outcome of the scan forms the starting point for any actions designed to increase employee engagement that are deemed necessary.
Outlook The new term of office of the Works Council and its committees took effect on 1 March 2015. This is the perfect time to put the vision of employee representation described above into practice. Obviously, matters will depend, in part, on what a.s.r.’s future will shape up to be.
a.s.r. formalized its Socially Responsible Investment (SRI) policy in 2007. Since then the policy has evolved over time to capture the progress of the market and changes in society. The a.s.r. SRI policy describes the ethical and sustainability criteria that are applied to all a.s.r. investments, covering internal investments in government bonds and corporates (through equities and corporate bonds), as well as externally managed portfolios. The full a.s.r. SRI policy has been posted on www.asrnl.com.
Screening process Vigeo (www.vigeo.com/csr-rating-agency), an external and independent screening agency accredited by Arista, screens companies for their SRI policy. The Arista Standard sets guidelines and rules to assess evidence of transparency, quality, accountability and verifiability of the processes involved in Responsible Investing research. In addition, Forum Ethibel ( html) offers independent and external certification including an audit of SRI principles in a.s.r.’s investment portfolio and the engagement process on a semi-annual basis.
3.1.3.2 ESG Integration for best-in-class investments Best-in-class investing is part of the a.s.r. selection process of companies based on best practices and best products according to environmental, social and governance (ESG) criteria. We favour companies that excel in the area of ESG policy and implementation. They are classified as pioneering, best-inclass and sustainable companies using a relative, sector-based ranking for six domains of analysis: Human Resources, Environment, Market Ethics, Good Governance, Social Impact, and Human Rights.
Because of ESG integration a.s.r. invests more in companies that perform better on the ESG criteria within their respective sectors. This is why the a.s.r. investment portfolio has a more sustainable profile than the relevant investment benchmark. A detailed description of these criteria has been posted on the a.s.r. corporate website (www.asrnl.com).
2014 annual report Corporate social responsibility 3.1.3.3 Engagement a.s.r. believes in engagement through constructive dialogue with the companies a.s.r. (potentially) invests in with the aim of increasing both shareholder value and social benefit in the long term. As (potential) owners, we want the companies we invest in to address ESG risks as well as opportunities.
For a.s.r., there are three types of engagement: • Engagement for the purposes of monitoring. In 2014, we engaged in dialogue with around 20 companies, i.e. mostly our largest holdings. These companies represent nearly 35% of the internally managed equities portfolio. During each company meeting, a.s.r. puts the corporate social responsibility policy of these businesses on the executive agenda and addresses potentially controversial activities. a.s.r. was also invited by a number of companies it invests in to elaborate on our views and requirements in the area of sustainability.
3.1.3.5 Voting policy The right to vote is an essential part of a well-functioning corporate governance system. We exercised this right whenever relevant. a.s.r.’s voting policy (www.asrnl.com) has been developed in accordance with the Dutch Corporate Governance Code and a.s.r.’s SRI policy. This policy is applied to all internally managed and exchange-traded equities. In 2014, we voted at nearly 83% of shareholder meetings held by our equity investments.
The voting accountability report provides a semi-annual review of how a.s.r. exercised its voting rights at shareholder meetings. The full report for 2014 is also available from www.asrnl.com.
• The UN Global Compact (UNGC), signed in 2011. By signing these principles, a.s.r. has undertaken to embrace, support and implement within its sphere of influence a number of principles relating to human rights, labour standards, the environment and the fight against corruption. The report is available on the a.s.r. corporate website and on the UNGC website (www.unglobalcompact.org/ participant/15923-ASR-Nederland-N-V-)
• a.s.r. also abides by the Sustainable Investment Code of the Dutch Association of Insurers, which came into effect on 1 January 2012. The Code stipulates that the investment policies of members of the Association are required to take into account the ESG aspects of the entities in which they invest.
• In 2014, a.s.r. signed the Anti-Corruption Call for Action initiated by the United Nations Global Compact, in which the financial community asks governments to strength their anti-corruption policies, laws and enforcement mechanisms to create a level playing field and incentivize good behaviour.
For the fourth consecutive year, a.s.r. was ranked third in the annual survey conducted by the Dutch Association of Investors for Sustainable Development (VDBO) among 30 insurers in the Netherlands. This assessment includes policy, implementation, transparency of investments and governance (management and supervision of the investments).
ISAE 3402 type II assurance certification Under Section 4.16 of the Dutch Financial Supervision Act, financial institutions are required to demonstrate that they are in control of their outsourced processes. This implies that a financial institution will always ask its suppliers to submit a Service Organization Control (SOC) report before they can provide services to this institution. ISAE3402 is the international standard for SOC reports. The ISAE3402 report serves to demonstrate that the financial institution is in control of any processes it has outsourced.
Real estate a.s.r. vastgoed vermogensbeheer a.s.r. vastgoed vermogensbeheer, the real estate investment management business, invests for its clients in retail properties, residential units, offices, agricultural land and country estates. Sustainability is firmly embedded in its business processes.
a.s.r. vastgoed vermogensbeheer has teamed up with the sector to make the property market more sustainable. This ambition has been formalized in the objectives of the Dutch Association of Institutional Property Investors (IVBN), which looks after the shared interests of large pension funds, insurance companies, asset managers and property funds (whether listed or not). a.s.r. vastgoed vermogensbeheer is involved in defining these sustainability objectives and remains committed to achieving these objectives. Dick Gort, CEO of a.s.r. vastgoed vermogensbeheer, is a member of the Board of IVBN and chairs its sustainability task force.
Energy All of a.s.r. vastgoed vermogensbeheer‘s residential properties have been awarded energy performance ratings and 60% have at least a C rating. This outperforms the ratio of C-rated homes within the entire Dutch housing stock by 10 percentage points.
a.s.r. vastgoed vermogensbeheer has defined the following energy-related objectives: • Reduce and manage housing costs for tenants by offering energy-efficient homes; • Retain and where possible improve comfort levels for tenants (energy performance ratings); • Invest in energy-conserving initiatives that are financially and commercially viable.
In 2013, a.s.r. vastgoed vermogensbeheer conducted a pilot project with tenants of retail units to join hands in the area of sustainability. During this project, a.s.r. account managers engaged in a dialogue with individual tenants with the purpose of agreeing on shared sustainability targets. It was concluded in 2014 that retailers are currently not very interested in investing in sustainability.
New tenancy agreements do, in fact, include standard arrangements on sustainability issues. The sustainability targets concern the follow aspects: • Maximizing the efficient and frugal consumption of energy and water; • Encouraging the use of environmentally friendly and sustainable materials; • Maximizing waste separation; • Encouraging shop staff to use sustainable means of transport for travelling to work.
GRESB Survey The Global Real Estate Survey Benchmark (GRESB) is a benchmark that looks at the sustainability performance of more than 600 real estate investment managers worldwide. a.s.r. vastgoed vermogensbeheer aims to improve the transparency and awareness of our sustainability targets by taking part in the GRESB every year. After having joined the GRESB in 2013, the business increased its focus on the GRESB by forming a task force in January 2015. The ambition for 2016 is to achieve the highest classification, i.e. that of ‘Green Star’. For more information about this benchmark, see www.gresb.com.
a.s.r. vastgoed ontwikkeling a.s.r. vastgoed ontwikkeling, the real estate development business, has the ambition to help create a pleasant living environment for people. It achieves this not only by developing sustainable properties, but also by creating new green spaces (through the ‘Land for Land’ programme) and supporting local community initiatives in the towns and areas where it operates.
The BREEAM certificate looks not just at the level of energy savings, but also focuses on elements such as use of materials, health and location. Various developments in progress and completed developments have now been awarded a BREEAM certificate, including a shopping centre in Waddinxveen, which was the first mall in the Netherlands to earn the qualifications Very Good (***) for its design quality and Excellent (****) for its completion. Other developments to be awarded the completion certificate include De Monarch in The Hague and the Amsterdam Law Courts in the IJDock district of Amsterdam.
GPR The BREEAM label is a quality mark that is particularly suited to commercial real estate. a.s.r. vastgoed ontwikkeling uses the recognized municipal practice guideline for buildings (GPR) for residential developments. Apart from energy efficiency, the GPR label also looks at environmental impact, healthy living issues in the home and ergonomics.
2014 annual report Corporate social responsibility 3.1.4 a.s.r and the environment a.s.r. wants to treat nature and the environment with due care and lower its environmental impact, which is why it uses resources, energy and water efficiently. Furthermore, a.s.r. is actively getting to grips with waste management, mobility, energy reduction and carbon emissions, and for this purpose has developed a special-purpose environmental management system. The ESG criteria have been fully integrated into a.s.r.’s investment policy.
Thermal energy storage To conserve energy in the Utrecht head office, a.s.r. uses 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 air conditioning system meets the cold water and the air loses its heat to the groundwater, which warms up. The reverse applies in the winter.
The use of this system clearly reduces the level of energy consumption. • Electricity: consumption in 2014 was 10,391,564kWh compared with 12,361,197kWh in 2013, a decrease of some 15.9% 1. • Natural gas: consumption in 2014 was 604,256m³ versus 989,156m³ in the same period of 2013, a decrease of some 38.9% 1.
Multi-year energy efficiency plan In 2008, a.s.r. signed the government’s third multi-year energy efficiency plan (MYP3), in which it was agreed that organizations would commit to the ambition to reduce their energy consumption by 2% every year, ultimately culminating in a 30% improvement by 2020 from the 2005 baseline. The energy saving can be achieved through a combination of technical, organizational and behavioural actions. The key step for a.s.r. is to concentrate the entire staff base into a single building. Another is the installation of about 700 solar panels on the roof of the building at Archimedeslaan in 2015.
Geothermal energy Geothermal energy is energy generated and stored in the earth. By signing up to the United Nations treaty, a.s.r. has agreed to use its network to generate renewable energy (locally). Geothermal energy is a form of renewable energy. It is being explored whether this energy can be used to heat the office buildings and to make them virtually carbon-neutral in the process. Utrecht University launched a study in 2014, which will be continued in 2015. After the study has been completed, a final decision will be made.
Energy in 2015 By the end of 2015, a.s.r. wants to have reduced its energy consumption to no more than 50% of its consumption in 2005. The first solar panels will be fitted in 2015; this will result in a saving of at least 120,000kWh per year. In partnership with the Utrecht Provincial Executive, ways will be explored for using the LTEO as effectively as possible.
Waste One of a.s.r.’s priorities is to reduce and recycle waste volumes as much as possible. a.s.r. achieved a 2.7% reduction in carbon emissions in 2014, the equivalent of 208.4 tonnes of carbon dioxide. a.s.r.’s waste is processed by Sita, a waste-processing company. Sita has calculated that a.s.r. recycles 40% of its waste. The total volume of waste in 2014 was 272,865 kg. For a breakdown of waste flows, see the GRI-index on page 282.
The choice of lease car, for example, has been limited to cars with an A or B energy performance rating and a mobility budget has been introduced as an alternative to a lease car. Furthermore, an initial study of the current lease policy was launched. HR, Business Support and CIC (purchasing) are exploring options for ‘greening’ of the car fleet; the carpool scheme is regularly brought to the employees’ attention and employees from Utrecht and Amersfoort are no longer permitted to park near the building if they live within a 12-kilometre cycling distance from these offices. a.s.r. also facilitated the purchase of an economical bus pass in 2014. There are a number of further schemes to encourage bicycle use, including a tax break on new bicycle purchases, the Rijnsweerd bike hire scheme, an a.s.r. e-bike with charging points in the bike shed and a mobile bicycle repairman.
The commuter mileage to Archimedeslaan (Utrecht) totalled 25,187,235 kilometres in 2014 compared with 26,915,743 kilometres in 2013. This is a decrease of 6.42%. The number of kilometres clocked up in air travel in 2014 (i.e. 704,106 km) fell by about 10% compared to the figure for 2013 (785,949 km).
Other initiatives to encourage mobility in 2014 were: • 14 new charging stations for electric cars • extra charging stations for e-bikes in the bike shed • new showers and extra lockers for bicyclists • a screen in the central reception area with up-to-date departure and arrival times for buses and trains
In its purchasing process, a.s.r. makes allowance for the impact on society, whether it be social, environmental or economic. The implementation of the socially responsible procurement policy focuses on the following aspects: 1. a.s.r. informs suppliers in advance that environmental and social weighting factors form part of the selection process; 2. a.s.r. has adopted a set of environmental and social criteria that are used (these are categoryspecific ); 3. a.s.r. challenges its suppliers to come up with alternatives that constitute a better match for today’s environmental and social criteria.
FIRA sustainability platform a.s.r.’s key suppliers have been asked to register in the FIRA database and so to accredit their corporate social responsibility policy. A total of 86 a.s.r. suppliers have now been verified.
a.s.r. has launched a project to encourage its 60 key suppliers to undergo the verification and accreditation process. About one-third of the 60 key suppliers have registered at present. a.s.r. encourages these suppliers to aspire to the ‘Bronze’ level and to raise their social influence to an even higher level. a.s.r. is still in dialogue with a number of other suppliers. Six suppliers have said that they do not want to be registered in the FIRA database. They will be notified that this will be an issue during the next contract negotiations. Together with Rabobank Nederland, ABN AMRO and other partners, a.s.r. has launched an initiative for a number of large players to join hands to be able to increase the pressure on suppliers that are unwilling to register in the FIRA database. Round tables are being held with FIRA on this issue, at which the FIRA partners discuss, among other things, how shared suppliers can best be approached.
Supplier code of conduct a.s.r. is committed to respecting human rights. Within its sphere of influence, a.s.r. seeks to support the protection of internationally recognized human rights. a.s.r. also attempts to ascertain that it does not become an accessory to any infringements of these rights.
72a.s.r. 2014 annual report Corporate social responsibility a.s.r. requires any (potential) suppliers to support these principles. a.s.r. demands from its (potential) suppliers that they proactively care for the environment and that they endorse a.s.r.’s position on the environment, human rights and human dignity. With this in mind, any (potential) supplier will notify a.s.r. immediately of any signs that their organization or one of their (potential) suppliers do not observe the a.s.r. supplier code of conduct.
In addition to sustainable business practices, to a.s.r., social responsibility also involves investing in a broad range of community initiatives. Although this sometimes entails a financial impulse, it mostly takes the form of encouraging employees to volunteer. a.s.r. gives practical application to its motto ‘helping by taking action’ through the a.s.r. foundation, among other initiatives.
Stimulansplan incentive plan To encourage volunteering in the private sphere, employees can apply for an individual incentive on the condition that they join a project as a volunteer. No financial donations are made if an application involves sponsorship only. Employees can submit a proposal under the incentive plan once every calendar year.
Knowledge-sharing Money Week As a member of the Dutch Association of Insurers and the Dutch Banking Association, a.s.r. actively partakes in Money Week. The goal is to teach primary school pupils financial literacy. Teaching children the value of money at a young age lays the foundation for financial self-reliance in adulthood. In 2014, during the fourth edition of Money Week, more than 30 a.s.r. employees, including CEO Jos Baeten, taught guest classes to ten, eleven and twelve-year-olds. The goal for 2015 is to have the CEO/Executive Board and the members of senior management take part once again and to at least keep the number of participating employees at the same level.
Reading proficiency activities The a.s.r. foundation has set up a number of activities that involve employees reading to pupils, for instance in primary schools or daycare centres. In 2015, a Reading Breakfast will be organized on 21 January and a book that is meant to be read out aloud will be put together with Feyenoord football club.
Employee vitality Together with HR, the a.s.r. foundation undertakes activities that contribute to the sustainable employability and vitality of a.s.r.’s employees. In 2014, for instance, the Stap je fit collective exercise programme was organized; this allowed employees to raise money for charity for exercising a little more every day. Hundreds of employees participated in this programme.
More than 20 teams, varying in size, combined a team-building exercise with giving back to the community. They donated their time and got to work for all manner of organizations, including Utrechts Landschap (nature conservation), C-Fordt Maarssen (art, culture and recreation), Resto VanHarte (restaurants for the prevention of social isolation) and various care farms. There were also projects that employees could sign up to individually: some colleagues taught guest classes at primary schools during Money Week and bicycle enthusiasts took part in the Giro Classico, a ride organized by the Province of Utrecht in support of the Wilhelmina Children’s Hospital. Other colleagues who like to run participated in the Singelloop run that benefited the Dutch Arthritis Foundation.
In this chapter on corporate social responsibility, a.s.r. seeks to present a transparent picture of its activities and objectives in the area of sustainability. This chapter also contributes to the level of sustainability awareness within a.s.r.
Principles and scope The sustainability report has been integrated into the Annual Report of ASR Nederland N.V. a.s.r. reports on its efforts and the achievement of objectives in 2014. a.s.r. also describes its plans and vision for the future.
Reporting process The information contained in this report relates to all a.s.r. brands and operations. Corporate Communications is responsible for the content.
a.s.r. has used Smartstream since 1998 and SAP Business Financial since 2004 to generate and prepare consolidated financial reports. The financial statements are prepared by Accounting, Reporting & Control based on the financial information submitted by the responsible product lines within a.s.r.
Supervision The Supervisory Board addressed the following issues: Routine topics Specific issues
• Financial performance (quarterly, interim and annual results) • Solvency • Investment plan • Dividend proposal • Multi-year budget • Risk management and risk appetite • Own risk and solvency assessment (ORSA) • Strategy and future exit to private market • Treating Customers Fairly (TCF) • Integrity reports • Audit reports • Governance • Performance targets of identified staff • ICT-projects
Financial performance The Supervisory Board met every quarter to discuss the financial performance, covering standing issues such as developments in earnings, premium income, returns and solvency.
The progress of cost cuts and improvements in claims management was discussed extensively. The combined ratios of all product lines in the Non-life segment were below 100%, meaning that a.s.r. met the target of restoring its profitability. The solvency ratio is more than adequate. Although the improved commercial performance is gradually manifesting itself, the Supervisory Board considers it important to give priority to value over volume – despite the fact that the market can be challenging at times due to factors such as saturated sub-markets and low interest rates.
At year end, the Supervisory Board approved the multi-year budget 2015-2017; the supervisory directors qualified the budget for the coming years as ambitious and realistic.
Risk management and solvency At the beginning of the year, the Supervisory Board approved the risk appetite for both ASR Nederland N.V. and the supervised entities.
In addition, developments in the non-life, health and pension insurance markets were specific topics of discussion. These sessions took the form of ‘deep dives’; presentations by senior managers gave the Supervisory Board members an in-depth perspective on current and future market developments. This in-depth approach was also used to discuss developments in and the status of organizational changes in the life, pensions and IT&C businesses. As a result, the Supervisory Board gained a good understanding of how a.s.r. translates the strategy into organizational changes that help it to move with the changing market and applies it in practice. In the life business, for instance, a broad debate was held about the fact that fewer and fewer new policies are being sold and that sub-portfolios are contracting, which makes the principle of scalability of costs in value models a key issue at present that is also being assessed by the Dutch Central Bank (DNB), the auditor and the certifying actuary. The Supervisory Board welcomes the fact that a.s.r. started to implement sustainable changes and improvements early, so that a.s.r. has been able to demonstrate for a number of consecutive years now that it can control costs in such a way that they keep pace with premium income.
In addition to the TCF Dashboard, the Supervisory Board also discussed other reports and disclosures. They are designed to give its members an understanding of the results achieved on quality mark requirements and the NPS scores. The members of the Supervisory Board are happy about the progress that was made on treating customers fairly; they will continue to weigh customer interests when forming their opinion and making decisions on key issues in the year to come.
The executives and non-executives of the first four entities are the same as those of ASR Nederland N.V. This is not the case for the other three entities (see Section 5.1.3, Management and supervision, Procedures, Appointment and reappointment of executive and supervisory directors, page 85).
The arrangements for the replacement of variable pay and the other changes to the pay-andbenefits package apply to all employees, including higher and senior management. In line with the arrangements for employees covered by the Collective Bargaining Agreement (CBA), this will similarly scale back the remuneration of higher and senior management. In this context, arrangements have been made about the conversion of variable pay (for more information page 59). The members of the Executive Board have not been entitled to variable pay since 2011. This was motivated by the statutory provisions governing the bonus prohibition for state-aided enterprises.
In addition, the decision was taken to amend the pension plan so as to simplify its administration and manage its cost level and cost variability in the long term. The amendments, which apply to active members, former employees and retired employees alike, were implemented in 2014. The pension plan for active members has now been brought into line with the amended tax regulations and the
Audit & Risk Committee In addition to its supervisory responsibility for ASR Nederland N.V., the Committee has also, from 1 January 2014 onwards, overseen the supervised entities ASR Levensverzekering N.V., ASR Schadeverzekering N.V., N.V. Amersfoortse Algemene Verzekering Maatschappij and Europeesche Verzekering Maatschappij N.V. The standing agenda items included the financial (quarterly) results and the audit, compliance and risk reports. Other topics of discussion were entity-specific issues, including the impact of the changing markets for various entities.
After the close of every quarter, the Committee met to discuss the financial results based on detailed audit reports and analyses. The full reporting year 2014 was discussed on the basis of the annual report, the financial statements and the actuarial report. The Committee issued positive opinions on these matters to the Supervisory Board.
During the year, the Committee met twice outside meetings with the audit, compliance and risk management functions in their role of countervailing powers. In 2014, the Committee also adopted the Actuarial Charter, which formalizes the duties, responsibilities and governance of the Actuarial Function of ASR Nederland N.V.
Other topics of discussion in 2014 included the reinsurance programme and the positive effects of the diversification options within a.s.r. on the scale of the programme and the internal control structure
In the Committee’s opinion, a.s.r.’s financial foundation is robust. The solvency ratio is extremely sturdy, both under Solvency I and Solvency II. Sensitivities to fluctuations in the yield curve and changes in possible future stress scenarios within the various investment categories are firmly under control. This strong financial foundation allows a.s.r. to continue to adapt the organization to the changing insurance market in a responsible manner.
The Supervisory Board received all details of the topics of discussion at the same time as the Committee. The written report of the meeting of the Audit & Risk Committee was provided to the Supervisory Board before the start of the next Supervisory Board meeting. The chair of the Committee gave an account of the key issues discussed and the findings and recommendations of the Committee at the beginning of each Supervisory Board meeting.
Finally, acting for the Supervisory Board, the Audit & Risk Committee supervised the performance and independence of the external auditor. The Audit & Risk Committee also spoke about the implications of the changes in the law governing the accounting profession and the continued performance of the audit engagement by the current external auditor over the coming financial years. Making allowance for a.s.r.’s imminent privatization, the Committee advised the Supervisory Board to renew the audit engagement with the current external auditor up to and including the reporting year 2015 and to switch auditors after that reporting year, with the qualification that the switch could be made earlier if so warranted by the outcome of the privatization process.
In September, one of the members of the Committee organized a training day on emotional capital. The sessions were attended by senior managers from a.s.r., DNB and AFM. The sessions were perceived as extremely instructive and the trainees enjoyed their day.
1 Jos Baeten 2 Karin Bergstein 3 Chris Figee 4 Michel Verwoest 85a.s.r.
2014 annual report Report of the Supervisory Board 5.1.3 Management and supervision
J.P.M. (Jos) Baeten (CEO) Jos Baeten (born 1958) is the Chairman of the Executive Board and Chief Executive Officer (CEO) of a.s.r. His areas of responsibility are Human Resources, Corporate Communications, Marketing, Business Support, Strategy, CSR, Audit, Integrity and Legal.
Additional positions Jos Baeten is a member of the general meeting of the Dutch Association of Insurers and Chairman of the Supervisory Committee of Stichting Rotterdamse Schouwburg (Rotterdam Theatre). He also 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. Until November, Jos served as Chairman of the Supervisory Committee of Gemiva-SVG Groep, an organization providing support to the disabled.
86a.s.r. 2014 annual report Report of the Supervisory Board which gained her a seat on the Executive Board of ING Bank Nederland. She previously also served as CEO of ING Car Lease International. Karin Bergstein was appointed to the Executive Board of a.s.r. in September 2011.
C. (Kick) van der Pol, Ph.D. (1949) Chairman of the Supervisory Board Member of the Selection, Appointment & Remuneration Committee
First appointed on: 15 December 2008 Current term of office: 15 June 2014 to 15 June 2018
First appointed on: 7 December 2010 Current term of office: 7 December 2014 to 7 December 2018
Cor van den Bos 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 Supervisory Board of CED, 1 Cor van den Bos 2 Kick van der Pol 3 Annet Aris 4 Margot Scheltema
M.A. (Margot) Scheltema (1954) Member of the Audit & Risk Committee
First appointed on: 15 December 2008 Current term of office: 15 June 2012 to 15 June 2016
The Supervisory Board performs a self-assessment annually. In 2014, the assessment was performed under the guidance of an external expert. Use was made of written input and evaluation interviews
The overall impression that emerged from this self-assessment was entirely positive. A number of suggestions for improvement were made and they are being implemented.
Contacts with the Works Council Three Supervisory Board members attended a routine consultative meeting of the Works Council. The supervisory directors greatly appreciate how the Works Council approaches major developments that are impactful for a.s.r. Making allowance for the interests of both a.s.r. as a whole and those of the employees, the Works Council thoroughly prepares for the wide range of issues it is presented with, discusses them in constructive dialogue with the executive, and issues well-balanced and considered opinions and recommendations.
Besides routine consultative meetings, the Works Council’s executive committee maintains regular contact with the member of the Supervisory Board who was appointed on the nomination of the Works Council. Two tripartite sessions between the Supervisory Board, the Executive Board and the Works Council were held in 2014 to discuss current affairs. The Supervisory Board was also represented in the annual meeting between the Works Council and the shareholder.
Contacts with shareholder With effect from 29 September 2011, the shareholder has been represented by Stichting Administratiekantoor Beheer Financiële Instellingen (NLFI), a trust office. In 2014, contacts with NLFI extended beyond the scheduled AGM and EGM; contacts were initiated at various other times as well.
In 2014, a consultative body was formed to maintain a dialogue between a representation of the Board of NLFI and the Supervisory Board of a.s.r. This body frequently consulted about the need and options for consolidation, including the bidding process for VIVAT/REAAL and attracting private investors. A joint steering group of representatives of the Executive Board of a.s.r. and NLFI management reported to this consultative body.
The four supervisory directors of ASR Nederland N.V. were appointed as supervisory directors of ASR Levensverzekering N.V., ASR Schadeverzekering N.V., N.V. Amersfoortse Algemene Verzekering Maatschappij and Europeesche Verzekering Maatschappij N.V. on 1 January 2014. The four members of the Executive Board were appointed as executive directors under the Articles of Association of these four legal entities as of the same date. The composition of the Supervisory Board of ASR Basis Ziektekostenverzekeringen N.V. and ASR Aanvullende Ziektekostenverzekeringen N.V. changed on 1 January 2014 as well. Kick van der Pol, Annet Aris, Jos Baeten and Michel Verwoest were appointed as supervisory directors.
General The Dutch State became the sole shareholder in 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, specific 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 supervises the policy pursued by the Executive Board and the general course of affairs at the company and its group entities, and advises the Executive Board.
Governance Principles for Insurers and the Dutch Banking Code The new Dutch Banking Code governing banks authorized in the Netherlands came into effect on 1 January 2015. This Code, which was drafted by the Dutch Banking Association, contains principles for governance and governance oversight, risk management, audits and remuneration policy. The latest version of the Governance Principles for Insurers, or the Dutch Insurance Code, dates from 1 July 2013.
Appendix 1 of this report provides details on how ASR Nederland N.V. complies with the Dutch Insurance Code.
• Risk Management reviews the targets of a.s.r. and the individual targets of identified staff for their compatibility with a.s.r.’s risk profile on an annual basis (financial risk management). This department forms an opinion as to whether the agreed targets meet the organizational risk profile.
• The appraisal and remuneration criteria need to comply with the provisions stipulated in various national and international rules and regulations.1
Governance The Supervisory Board is responsible for implementing and evaluating the remuneration policy for the members of the Executive Board as adopted by the AGM. It approves the remuneration policy for senior management and monitors its implementation by the Executive Board. The Supervisory Board also assesses the principles of the remuneration policy for other employees. The Executive Board is responsible for adopting, implementing and evaluating the remuneration policy for other employees. Pursuant to European directives (CRD IV), governance and risk management procedures are required 1 These include the Dutch Regulation on Sound Remuneration Policies 2014, the Dutch Corporate Governance
Code, the Governance Principles for Insurers and the Dutch Banking Code, as well as the Dutch Minimum Wage and Minimum Holiday Allowance Act and equal treatment rules.
93a.s.r. 2014 annual report Report of the Supervisory Board to be in place for employees qualifying as identified staff. The remuneration policy for this group of employees is subject to the approval of the Supervisory Board. The Supervisory Board monitors the implementation of this policy by the Executive Board. The group of identified staff includes the members of the Executive Board and senior management as a minimum.
The agreements with employees falling in groups 1, 2 and 3 have been formalized in their individual employment contracts.
Groups 4 and 5 are governed by the industry-wide collective bargaining agreement (CBA) for back-office positions and for front-office 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-benefits package • CBA job classification and pay structure for back-office positions • CBA job classification and pay structure for front-office positions
Key features of remuneration system up to 1 July 2014 Until 1 July 2014, remuneration was made up of fixed and variable pay.
Fixed pay The fixed pay awarded to the members of the Executive Board comprises a fixed amount per month, including holiday allowance. The pay is indexed in accordance with the CBA for the insurance industry.
Variable pay 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 financial performance of a.s.r. measured in terms of financial results and customer appreciation at entity level and at group level. At the beginning of every calendar year, employees and their managers agree on individual targets
Pension The principal features of the pension plan in 2014 were as follows: • Indexed average-pay scheme (indexing became conditional as of 1 January 2013) • Retirement age: 65 years • Accrual rate for old-age pension: 1.9% for all salary groups • Pensionable earnings: fixed annual pay on 1 January of any year • Partner’s pension: 70% of projected old-age pension • Orphan’s pension: 14% of projected old-age pension • Employee contribution: 6% of pensionable earnings • Flexible elements: early retirement, deferred retirement, exchange, high/low part-time • a.s.r. does not allow for the award of discretionary pension.
Based on experience gained in recent years, the members of the Supervisory Board have every confidence that the Executive Board and the employees alike will continue to apply themselves in 2015 to adapting a.s.r. to the changing market and treating customers fairly every single day, thereby helping a.s.r. to develop into a truly socially relevant insurer.
98a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Deferred acquisition costs 6.8 213 241 Property, plant and equipment 6.9 140 97
Investments on behalf of policyholders 6.12 8,333 8,049 Loans and receivables 6.12 9,231 8,489
Liabilities arising from insurance contracts 6.16 28,223 23,928 Liabilities arising from insurance contracts on behalf
As of 1 January 2014, new IFRS standards have become effective. The most significant changes result in reclassifications in the balance sheet, due to changes in the definition of control of investees (IFRS 10) and the introduction of joint operations (IFRS 11). Investment funds held primarily on behalf of policyholders are being fully consolidated, as a.s.r. is deemed to have control over these investment funds. A limited number of joint arrangements have been defined as joint operations. Due to the retrospective treatment the comparative figures for 2013 have been restated accordingly (see chapter 6.2.1 for a more detailed description of the changes).
Insurance claims and benefits 6.27 -5,214 -5,122 Insurance claims and benefits recovered from reinsurers 6.27 100 110 Net insurance claims and benefits -5,114 -5,012
Attributable to: - Non-controlling interests -2 -5 - Holders of other equity instruments 108 44 - Tax on interest of other equity instruments -27 -11 Profit attributable to holders of equity instruments 381 281
100a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Remeasurements of post-employment benefit obligation 6.17 -704 156 Income tax on items that will not be reclassified 177 -39 Total items that will not be reclassified to profit and loss -527 117
Segregated investment pools -25 -34 Share of other comprehensive income of associates and joint ventures -6 -3 Unrealized change in value of cash flow hedges 1 2 Tax relating to components of other comprehensive
Attributable to: - Attributable to non-controlling interests -2 -5 - Holders of other equity instruments 108 44 - Tax on interest of other equity instruments -27 -11 Total comprehensive income attributable to holders of equity instruments 10 478
101a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Sh ar e p re m iu m r es er ve
E q ui ty a tt ri b ut ab le t o sh ar eh o ld er s
Profit carried over from previous financial year - - - - 228 -228 - - - Discretionary interest on other equity instruments - - - - -44 - -44 - - -44 Tax relating to interest on other equity instruments - - - - 11 - 11 - - 11
Profit carried over from previous financial year - - - - 182 -182 - - - Discretionary interest on other equity instruments - - - - -108 - -108 - - -108 Tax relating to interest on other equity instruments - - - - 27 - 27 - - 27 Issue of other equity instruments - - - - - - - 497 - 497 Redemption of other equity instruments - - - - - - - -311 - -311 Cost of issue of other equity instruments - - - - -2 - -2 - - -2
Other reserves amounting to € 800 million (2013: € 701 million) consist primarily of retained earnings. Unrealized gains and losses include shadow accounting adjustments (see accounting policy J, chapter 6.2.2). For more detailed information on the unrealized gains and losses, see chapter 6.15.2.
The change in other equity instruments of € 186 million is due to issuance of new fixed rate undated subordinated securities and buy-back of Hybride Tier 1 instruments. The discretionary interest on other equity instruments amounting to -€ 108 million also includes discretionary interest on redemption relating to the buy-back of the Hybride Tier 1 instruments (see chapter 6.15.4).
Net (increase) / decrease in investment property -94 72 Net (increase) / decrease in investments -1,666 376 Net (increase) / decrease in investments on behalf of policyholders -284 168 Net (increase) / decrease in derivatives -2,529 1,316 Net (increase) / decrease in amounts due from and to customers -135 -1,251 Net (increase) / decrease in amounts due from and to credit institutions 2,483 -1,332 Net (increase) / decrease in trade and other receivables 81 8 Net (increase) / decrease in reinsurance contracts -12 38 Net increase / (decrease) in liabilities arising from insurance contracts 2,888 -892 Net increase / (decrease) in liabilities arising from insurance contracts on behalf of policyholders 787 32 Net (increase) / decrease in other operating assets and liabilities -269 191
Cash flows from investing activities Investments in associates and joint ventures -10 -4 Purchases of property, plant and equipment -57 -50 Purchase of intangible assets - -8 Cash flows from investing activities -67 -62 6.1.5 Consolidated statement of cash flows
Cash flows from financing activities Proceeds from issues of borrowings 29 27 Repayment of borrowings -8 -57 Dividend paid -99 -88 Discretionary interest to holders of equity instruments -108 -44 Issue of other equity instruments 497 Redemption of other equity instruments -311 Costs of issue of other equity instruments -2 Cash flows from financing activities -2 -162
Change in accounting policy as of 1 January 2014 The following changes in the EU-endorsed IFRS standards and IFRIC interpretations are effective from 1 January 2014. These changes have no material effect on the total equity attributable to shareholders or profit for the year of a.s.r.: • IFRS 10 Consolidated financial statements: New consolidation standard that establishes principles for the preparation and presentation of consolidated financial statements when a reporting entity controls one or more investees. The most significant change results from the change in the definition of control. Hereby a number of investment funds held primarily on behalf of policyholders which are administered by a.s.r. are fully consolidated since a.s.r. is deemed to have control over these investment funds.
• IFRS 11 Joint arrangements: This standard describes the accounting for joint arrangements and the classification into two types – joint operations and joint ventures. The most significant change is due to the introduction of the definition of a joint operation. A limited number of joint arrangements are reclassified from joint ventures to joint operations. For the joint operations a.s.r.’s share in the assets, liabilities, revenues and expenses are recognized in accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.
• IAS 27 Separate financial 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.
• IAS 36 Impairment of assets: Amendments to IAS 36 clarifies disclosures requirements for the recoverable amount disclosures for non-financial assets.
• IAS 39 Financial instruments: Recognition and Measurement: Amendments to IAS 39 addresses accounting for a novation of derivatives and the continuation of hedge accounting.
Due to the retrospective treatment the comparative figures in the balance sheet as at 31 December 2013 have been restated accordingly. The detailed impacts of the changes to the balance sheet as at 31 December 2013 are as follows:
105a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Only the line-items that have been affected by the changes in accounting policy are presented in the above table. For this reason the totals in the above table are not the sum of the items listed.
These changes have also been recognized in the relevant notes to the condensed consolidated interim financial statements. The consolidation of investment funds held primarily on behalf of policyholders which are administered by a.s.r., has also resulted in the following changes: • The fair value model is used for the investment property backing insurance liabilities that pay a return linked directly to the fair value of, or returns from, the investment property where the investment property is partly held as investments on behalf of policyholders. The investment property fair value model follows the accounting principles for the investments on behalf of policyholders.
These changes have been recognized in the relevant notes to the financial statements.
• Annual Improvements to IFRSs 2011–2013 Cycle: The Annual Improvements is a collection of nonurgent amendments to IFRSs, in response to issues addressed during the 2011–2013 cycle.
A. Statement of compliance The consolidated financial 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).
C. Fair value of assets and liabilities The fair value is the price that a.s.r. would receive to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the transaction date or reporting date in the principal market for the asset or liability, or in the most advantageous market for the asset or liability and assuming the highest and best use for non-financial assets.
Fair value hierarchy The following three hierarchical levels are used to determine the fair value of financial instruments and non-financial instruments when accounting for assets and liabilities at fair value and disclosing the comparative fair value of assets and liabilities:
Level 2. Fair value based on observable market data Determining fair value on the basis of Level 2 involves the use of valuation techniques that use inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is derived from prices of identical or similar assets and liabilities). These observable inputs are obtained from a broker or third party pricing service and include: • quoted prices in active markets for similar (not identical) 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 interestrates and yield curves observable at commonly quoted intervals, volatility, early redemptions spreads, loss ratio, credit risks and default percentages.
This category primarily includes: • financial instruments: unlisted fixed-interest preference shares and interest-rate contracts; • financial instruments: loans and receivables1 (non-recurring); • other non-financial assets and liabilities1 (non-recurring).
Financial instruments: unlisted fixed-interest preference shares and interest-rate contracts This category includes unlisted fixed-interest preference shares and interest-rate contracts. The valuation techniques for financial instruments use present value calculations and in the case of derivatives, include forward pricing and swap models. The observable market data contains yield curves based on company ratings and characteristics of the unlisted fixed-interest preference shares.
Financial instruments: Loans and receivables The fair value of the loans and receivables is based on the discounted cash flow method. It is obtained by calculating the present value based on expected future cash flows and assuming an interestrate curve used in the market that includes an additional spread based on the risk profile of the counterparty. The valuation method used to determine the fair value of a.s.r.’s mortgage portfolio has been refined. As of 2014, a.s.r. bases the spread on the interest-rate curve for discounting the mortgage portfolio cashflows on consumer rates.
Other non-financial assets and liabilities For other non-financial 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 on initial recognition, assuming that the transactions have taken place on an arm’s length basis. Valuation techniques using present value calculations are applied using current interest-rates where the payment terms are longer than one year.
1 Not measured at fair value on the balance sheet (non-recurring) for which the fair value is disclosed.
108a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
This category primarily includes: • financial instruments: private equity investments (or private equity partners); • investment property and buildings for own use2 (disclosure); Financial instruments: private equity investments.
109a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
When applying the DCF method for rural valuations, the significant inputs are the discount rate and market lease values. These inputs are verified with the following market observable data (that are adjusted to reflect the state and condition, location, development potential etc. of the specific property): • market value per acre per region in accordance with the ‘rural land price monitor’; • 10 year discount rate as published by the Dutch Central Bank.
Income capitalization method Under the income capitalization method, a property’s fair value is estimated based on the normalised net operating income generated by the property, which is divided by the capitalization rate (the investor’s rate of return). The difference between gross and net rental income includes the same expense categories as those for the DCF method with the exception that certain expenses are not measured over time, but included on the basis of a time weighted average, such as the average lease up costs. Under the income capitalization method, rents above or below the market rent are capitalized separately.
The significant inputs for retail valuations, are the reversionary yield and the market or reviewed rental value. These inputs are generally verified with the following observable data (that are adjusted to reflect the state and condition, location, development potential etc. of the specific property): • market rent per square metre, for renewals; • reviewed rent per square metre (based on the rent reviews performed in accordance with Section 303, Book 7 of the Netherlands Civil Code).
Goodwill has an indefinite useful life and is not amortized. a.s.r. performs an impairment test annually, or more frequently if events or circumstances so warrant, to ascertain whether goodwill has been subject to impairment. As part of this, the carrying amount of the cash-generating unit to which the goodwill has been allocated is compared with its recoverable amount.
110a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The recoverable amount is the higher of a cash-generating unit’s fair value less costs to sell and value in use. The value in use of a cash-generating unit is the present value of the future cash flows expected to be derived from it. If the recoverable amount is lower than its carrying amount, the difference is directly charged to the income statement as an impairment loss.
Value of Business Acquired The Value of Business Acquired (VOBA) represents the difference between the fair value and the carrying amount of insurance portfolios that have been acquired, either directly from another insurer or through the acquisition of a subsidiary. VOBA is recognized as an intangible asset with a finite useful life and amortized over the term of the current insurance contracts at acquisition date, in conjunction with the corresponding obligations. With regard to VOBA, allowance is made for the outcome of the annual compulsory liability adequacy test (LAT) for insurance contracts (see accounting policy J). With effect from 2014, given the structural market developments in the life portfolios, the LAT related to the VOBA is performed at the level of the life insurance contracts and the life insurance contracts on behalf of policyholders. Before 2014 the LAT was performed at the level of the total life insurance portfolio. Amortization charges related to VOBA are included in net claims and benefits.
The following categories of investment property are recognized by a.s.r. based primarily on the techniques used in determining the fair value of the investment property:
111a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
If, at a later stage, the fair value of the financial assets available for sale should increase and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit and loss, the impairment loss is reversed through the income statement. Impairment losses on equities are not reversed, and any increases in fair value are recorded in equity.
G. Investments on behalf of policyholders Investments made for the account and risk of policyholders mainly concern unit-linked insurance contracts. In addition, they concern group contracts with unguaranteed segregated pools (discretionary self-insurance). These investments are carried at fair value. Any realized and unrealized value changes of the investments are recognized in the income statement as gains or losses on investments on behalf of policyholders.
113a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
An individually assessed asset is considered as 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 flows, including amounts realized from guarantees and securities furnished, discounted at the financial asset’s original effective interest-rate.
Loans and receivables that are not individually significant are grouped on the basis of similar credit risk characteristics.
I. Derivatives and hedge accounting Derivatives are primarily used by a.s.r. for hedging interest-rate and exchange rate risks, for hedging future transactions and the exposure to market risks.
J. Liabilities arising from insurance contracts General This includes liabilities arising from insurance contracts issued by a.s.r. that transfer significant insurance risks from the policyholder to a.s.r. These contracts may also transfer financial risk.
Liabilities arising from non-life insurance contracts These liabilities comprise a provision for claims payments, a provision for current risks, and a provision for unearned premiums. The provision for claims payments is based on estimates of claims payable. Claims payable relate to unpaid claims and claims handling costs, as well as claims incurred but not reported.
Loss obligations in respect of occupational disability are discounted. The recognized provisions are sufficient to cover the cost of claims and claims handling fees. a.s.r. discounts obligations for losses only for claims with determinable and fixed payment terms.
The provision for current risks is based on the estimate of future claims taking into account future premiums.
Additional provisions are generally recognized for realized gains or losses on financial 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 financial assets include fixed-income financial assets available for sale, specific financial assets designated at fair value through profit and loss, and specific derivatives designated as held for trading (swaptions and interest-rate swaps). The realized gains or losses are amortized based on the remaining maturity period of the disposed financial assets. The realized gains or losses and the amortization thereof are included in net insurance claims and benefits.
Where the Property & Casualty (motor, fire and liability) and Health liabilities business is concerned, the LAT is performed using statistical analyses. Any identified losses are used as a basis for estimating future claims arising from an insurance contract from the portfolio on the balance sheet date. This is the best estimate. An appropriate risk margin is added. The risk margin is determined for each homogeneous risk group using the Cost of Capital (CoC) method that is also used for life. For non-life a CoC rate of 6% (2013: 6%) is used, except for disability - Similar to Life Techniques (SLT) where the life CoC rate of 5% (2013: 4%) is used. The total of best estimate and risk margin is compared to the technical provision recorded in the balance sheet.
Best estimate The best estimate of an insurance contract is the net present value of the projected cash flows of benefits and expenses, less the net present value of premiums. These cash flows are estimated using realistic (‘best estimate’) assumptions in relation to mortality, longevity, lapse rate, expense and inflation. 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. The best estimate includes the intrinsic value and the time value of options and guarantees (TVOG: Time Value of Financial Options and Guarantees) and is calculated using stochastic techniques
Risk margin The risk margin is determined for each homogeneous risk group using the CoC method. For life a CoC rate of 5% (2013: 4%) is used. a.s.r. uses the latest standard Solvency II model, to quantify the risks. The risks that are incorporated in the risk margin are: mortality, longevity, disability, lapse, catastrophe, expense and operational risk. A projection of expected future risks is made and 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.
117a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
See the ‘Wet op het financieel toezicht’ (The Dutch Act on Financial Supervision which regulates the supervision of financial institutions in the Netherlands) for further explanation on surrender value floors and prudential filters.
K. Liabilities arising from insurance contracts on behalf of policyholders Liabilities arising from insurance contracts for the account and risk of policyholders mainly concern unit-linked contracts. An investment unit is a share in an investment fund that a.s.r. acquires on behalf of the policyholders using net premiums paid by the policyholders. The gain upon maturity of the contract is equal to the current value of the investment units of the fund in question. The current value of an investment unit (unit value) reflects the fair value of the financial assets held by a.s.r.’s investment funds divided by the number of units.
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 also include a provision for compensation of possible high cost of the unit linked insurance contracts, as agreed in 2008 with the consumer organizations. The additional compensation related to the unit linked insurance contracts for the past has been included in the insurance liability and is therefore included in the investment portfolio. In addition, there is still a provision for compensation for claimants and compassionate and supportive policy ‘flankerend beleid’. The provision also contains an amount for future additional expenses for the implementation and conversion of systems related to the compensation and surrenders of the related insurance contracts.
118a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The financing cost related to employee benefits is recognized in interest expense. The current service costs are included in operating expenses.
M. Basis for consolidation - subsidiaries The consolidated financial statements include the financial statements of ASR Nederland N.V. and its subsidiaries. Subsidiaries are those entities over which a.s.r. has control. Control exists when a.s.r. is exposed, or has rights, to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. 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.
119a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
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 classified into the following categories: Accident & Health, Property & Casualty (motor, fire and liability) and Other.
Life insurance contracts Life insurance contracts (in cash) include savings-linked mortgages, annuities, term insurance policies, savings contracts and funeral insurance contracts. In addition to non-participating life insurance contracts, the insurance portfolio also includes: • individual and group participating contracts; • individual contracts with discretionary participation features (see accounting policy J); • group contracts with segregated pools with return on investment guarantees.
There is a clear difference between the risk and return profiles of these three segments.
T. Property, plant and equipment Property held for own use, buildings under construction for own use and operating assets are recognized at cost, less accumulated depreciation (except for land, which is not depreciated) and/ or any accumulated impairment losses. Cost corresponds with the cash paid or the fair value of the consideration given to acquire the asset.
Buildings are depreciated using the straight-line method based on expected useful life, taking into account their residual value from the time when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. The useful life of buildings is assessed for every individual component (component approach) each year. Property is classified into the following components: land, shell, outer layer, systems, fittings and fixtures (both rough finish and detailed finish).
121a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
W. Other assets Other assets include accrued investment and interest income, property developments, tax assets and accrued assets.
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 accounting policy M).
AA. Insurance premiums Non-life insurance premiums Non-life insurance premiums are accounted for in the period in which they are earned. As indicated in accounting policy J, invoiced but not yet earned premiums are included under liabilities arising from insurance contracts.
Life insurance premiums Life insurance premiums relating to life insurance contracts are recognized as income when received from policyholders. Liabilities arising from insurance contracts are recognized based on estimated future benefits and expenses, and charged to the income statement. These expenses are recorded within ‘technical insurance claims and benefits’. Therefore, in accordance with the matching principle, the profits are realized over the estimated term of the contracts. In accordance with this matching, the acquisition costs are capitalized, deferred and then amortized. For a detailed explanation of the capitalized deferred acquisition costs, see accounting policy S.
CC. Realized gains and losses Realized gains and losses include proceeds from the disposal of investment property, financial assets available for sale, associates and joint ventures.
FF. Fee and commission income Fee and commission income relates mainly to reinsurance, asset management and other services. These items are generally recognized as income in the period in which the services are performed.
GG. Insurance claims and benefits This item includes changes in liabilities arising from insurance contracts (see accounting policy J) and the related benefits. Expenses associated with contracts on behalf of policyholders relate to changes in liabilities arising from insurance contracts on behalf of policyholders, including the benefits charged to the liabilities.
KK. Income tax expense Income tax is based on profit before tax, after any adjustments for previous periods and changes in deferred tax assets and liabilities using the tax rates and tax laws that have been enacted or substantially enacted by the end of the reporting period. Income tax is recognized in the period in which the income was achieved.
Deferred taxes in respect of revalued assets and liabilities, whose value adjustments were directly credited or charged to equity, are taken to equity and, upon realization, included in the income statement together with the value adjustments.tion depends on the purpose for which the investments were acquired.
6.3 Risk management Risk management is an integral part of our daily business activities. a.s.r applies an integrated approach in managing risks, ensuring that our strategic goals (customer interests, financial solidity and efficiency of processes) are maintained. This integrated approach ensures that value will be created by identifying the right balance between risk and return, while ensuring that obligations towards our stakeholders are met. Risk management supports a.s.r. in the identification, measurement and management of risks and monitors if adequate and immediate actions are taken in the event of changes in a.s.r’s risk profile.
• The Economic Capital model (ECAP) of a.s.r. is an integral and essential part of the steering mechanism for value management. The dynamic investment policy is based on the ECAP solvency ratio and specific risk budgets.
• Various value metrics (MCEV, ECAP (our own model), SCR, Solvency I, VANB, RaRoRaC) are used as steering information for strategic management decisions throughout the organization.
125a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
• a.s.r. has developed mature scenario analyses and stress testing techniques, such as an Own Risk and Solvency Assessment (ORSA), Recovery planning and Strategic Asset Allocation studies. These techniques measure the impact of environmental or internally identified risks and threats on the a.s.r. Solvency position.
Market risk • The interest-rate risk hedging has improved over the maturity buckets by restructuring the portfolio swaps and swaptions. • The risks of equities, property and credit bonds have remained fairly stable in 2014.
Insurance risk – Life • a.s.r. periodically assesses whether the technical provisions are sufficient to cover insurance liabilities. These provisions were adequate at year-end 2014. • The underlying assumptions for assessing the provision are periodically adjusted to economic and non-economic developments. In 2014 a.s.r. recognized future maintenance expenses in the best estimate liability for the duration of the underlying portfolio and the assumed benefits of scalability are partially recognized.
As in previous year, a.s.r. has identified strategic risks for all business lines and a.s.r. group in its Control Risk Self-Assessment (CRSA) over 2014. Controls for mitigating these risks were determined.
Supervisor (EIOPA) to test the resilience of insurance regarding market risks under a combination of historical and hypothetical scenarios.
127a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
6.3.2.1 Strategy (including risk appetite) a.s.r.’s risk strategy is to ensure that risk taking decisions are made within the boundaries of the risk appetite, as determined by the Executive Board and approved by the Supervisory Board.
The primarily objective of risk management is to support a.s.r. in achieving the required balance between risk and return ensuring strategic goals will be realized. The risk appetite describes the level of risk a.s.r. is prepared to take. The risk appetite has been further refined. Statements at group level have been enhanced, statements at legal entity level have been developed and risk tolerances, limits and targets have been set for all statements Risks are actively managed to ensure that the risks will stay within the defined limits.
• The risk appetite is linked to the strategic pillars and indicates a.s.r.’s willingness to take risks. • A pragmatic approach at both group, legal entity and business unit level to develop a vision with respect to risk which forms the basis of the day-to-day decision making process. The risk appetite is based on the three strategic pillars of a.s.r., customer interests, financial solidity and efficiency of processes. The risk appetite of a.s.r. is established at both group and legal entity level and contains boundaries for executing a.s.r.’s strategy. Five risk appetite pillars have been identified, which are viewed as key elements for the realization of our strategy. These five pillars are: Capital: Adequate solvency takes priority over profit Adequate capital buffers and financial power to facilitate future developments and continuously meeting our obligations towards policy holders, supervisors and rating agencies. Ensuring the capital buffer is sufficient to maintain an ‘A’ rating.
128a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Liquidity: Adequate liquidity Maintaining financial flexibility through solid liquidity. The liquidity position must ensure that a.s.r. is always able to meet its payment obligations, also in a situation of stress.
6.3.2.2 Risk governance a.s.r. has a risk governance framework which comprises the duties and the responsibilities of the risk management organization and the risk committee structure. The independent role of risk management and its responsibility as an assurance function are anchored throughout the organization. The objective of the risk committees is to manage the risk profile for a.s.r. group and its business lines.
129a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
• The third line is responsible for providing independent assurance and oversees and assesses the functioning and the effectiveness of the first two lines of defence. The third line is formed by a.s.r.’s Internal Audit department.
Group Risk Management The risk management organization is independently positioned within a.s.r. The Chief Risk Officer (CRO) is responsible for all risk management related activities and reports directly to the CFO. The CRO can report matters directly to the CEO at his own discretion and has a direct and independent reporting line to the Audit and Risk Committee, a sub-committee of the Supervisory Board. Group Risk Management consists of the following sub-departments: • Enterprise Risk Management • Financial Risk Management
Enterprise Risk Management Enterprise Risk Management is responsible for the strategic risk and operational (including IT) risk management at a.s.r. The responsibilities with regard to strategic risk management include the development of risk policies, the annual update of the risk strategy (risk appetite), the monitoring of the non-financial risk profile and risk priorities of a.s.r., the execution of ORSA process, the validation
Moreover, the actuarial function monitors the profitability of new business and determines if risks related to the profitability of new products are sufficiently addressed in the product development process.
Risk committee structure The objective of the risk committees is to manage the risk profile for a.s.r. group, its legal entities and its business lines in order to ensure that the risk profile remains within the risk appetite and the underlying risk tolerances and risk limits. When triggers are hit, a.s.r.’s risk committees can decide to increase the frequency of their meetings.
Committee a.s.r. Risk Committee The a.s.r. Risk Committee is a sub-committee of the Executive Board and monitors a.s.r.’s overall risk profile on a quarterly basis. Every year, the Risk Committee approves the risk appetite statements, limits and targets for a.s.r. The a.s.r. Risk Committee also monitors the management of a.s.r.’s risk priorities’. a.s.r.’s Executive Board members all participate in the a.s.r. Risk Committee which is chaired by the CEO. The involvement of the Executive Board ensures that risk decisions are being addressed at the appropriate level within the organization. In addition to the Executive Board, the Chief Risk Officer, Director of Audit, Director of Integrity and Director Financial Markets are members of the Committee.
Non-Financial Risk Committee The Non-Financial Risk Committee (NFRC) is mandated by the Executive Board to approve upon nonfinancial risk policies. The NFRC monitors that non-financial risks are adequately managed, determines non-financial risk limits at group level and monitors that the risk profile stays within the agreed risk limits. If the risk profile exceeds the limits, the NFRC takes mitigating actions. The NFRC reports to the a.s.r. Risk Committee. The Chairman of the NFRC is the COO of the SME insurance market (who is also a member of the Executive Board) and members of the Committee include Managing Directors of P&C, Health, Disability, Travel, Pensions, ICT and Directors of Audit and Integrity and the Head of Enterprise Risk Management.
Central Investment Committee In addition to the risk committee structure, the Central Investment Committee (CIC) monitors tactical decisions and the execution of the investment policy. It takes investment decisions within the boundaries of the strategic asset allocation as agreed upon in the FRC. The CIC bears particular responsibility for investment decisions exceeding the mandate of the investment department. The CIC is chaired by the COO of the Retail insurance market (member of the Executive Board).
Model Validation Committee The model validation committee (MVC) is responsible for the execution and update of our model validation policy and for the approval of existing or new validated models before taken into use. The model validation committee receives all required information for the validation of models (for instance model documentation and validation reports), which information is being prepared by the validation board that assures the quality of the validation process. The chairman of the MVC is the Chief Risk Officer. Members of the MVC are the Director Financial Markets, the Director Finance, the head of Financial Risk Management, the head of Investor Relations & Rating, the head of Fixed Income & Treasury, the Manager Treasury and representatives of the actuarial function.
Product Approval Committtee The Product Approval Committee (PARP) is responsible for the decision-making process around the introduction of new products and adjustments in existing products. The Director Marketing is the chairman of the PARP. Other members of the PARP Board are the Directors of all business lines, the Chief Risk Officer and the Director Integrity. Group Risk Management and the Compliance function have the right of veto in the PARP.
6.3.2.5 Risk culture Risk awareness is an important topic at a.s.r to emphasize the human aspect in the mitigation of risks. Risk Management carried out several actions in 2014 in order to raise the risk awareness. These actions focused on ‘hard’ elements/controls (risk governance, annual refinement of the risk appetite, monitoring risk appetite in the risk committees and risk assessments) and ‘soft’ elements/controls (education, newsletters and communication via intranet).
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
Counterparty default risk Counterparty default risk reflects possible losses due to unexpected default or deterioration in the credit rating of counterparties and debtors.
133a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Interest-rate (incl UFR) -1% 34% 30% Interest-rate (incl UFR) +1% -23% -29% Interest-rate (excl UFR) -1% -59% -17% Interest-rate (excl UFR) +1% 27% -1% Spread +75 bps -16% -23%
In the calculation of the interest-rate sensitivity of the solvency ratio including UFR, the UFR is kept constant. The shock on the discounting curve for the liabilities is mitigated for maturities longer than 20 year through the application of the UFR. As a result, the assets are more sensitive than the liabilities including UFR. The solvency ratio including UFR increases with 34% when the interest-rates drop 1%.
134a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
6.3.4.1 Interest-rate risk Interest-rate risk is the risk that the value of assets, liabilities or financial instruments will change due to fluctuations in interest-rates. Many insurance products are exposed to interest-rate risk; the value of the products is closely related to the applicable interest-rate curve. The interest-rate risk of insurance products depends on the term to maturity, interest-rate guarantees and profit-sharing features. Life insurance contracts are particularly sensitive to interest-rate risk (see chapter 6.3.6).
Interest-rate risk is managed by aligning fixed-income investments to the profile of the liabilities. Among other instruments, swaptions and interest-rate swaps are used for hedging the specific interest-rate risk arising from interest-rate guarantees and profit-sharing features in life insurance products. There is an interest-rate risk policy in place for the group as well as for the registered insurance companies. All interest-rate sensitive balance sheet items are in scope, including the post employee benefit obligations of the group (see chapter 6.17.1). In principle, ECAP interest-rate risk is
135a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
minimized; this measure abstracts from UFR. Additionally, there is a restriction in place which limits the sensitivity of the Solvency II ratio (including UFR) to interest-rates.
Sensitivity of regulatory solvency (incl. UFR) to interest-rate changes: Interest-rates -1% Interest-rates +1%
Sensitivity of regulatory solvency (excl. UFR) to interest-rate changes: Interest-rates -1% Interest-rates +1%
6.3.4.2 Equity risk The equity risk depends on the total exposure to equities. In order to maintain a good understanding of the actual equity risk, a.s.r. has made a number of adjustments to the IFRS classification for risk purposes. For example, bond funds classified in the statement of financial position under equities are not included here.
The sensitivity of the regulatory solvency ratio to changes in equity prices is monitored on a monthly basis. Option contracts and the tax exemption of the participating interests are taken into account when calculating sensitivities.
Sensitivity of regulatory solvency to changes in equity prices: Change in equity prices 31 December 2014 Percentage 31 December 2013 Percentage 6.3.4.3 Property risk The property risk depends on the total exposure to property. In order to gain a total understanding of the actual property risk, a.s.r. includes property for own use and development property amounting to € 100 million (2013: € 125 million) in the analysis of its property risk. In addition, revaluations to the carrying amount of € 1,074 million have been included (2013: € 1,046 million). The fair value of property and property-related assets was € 3,070 million at year-end 2014 (2013: € 3,028 million), including property for own use.
The property portfolio is diversified across the rural, residential, office and retail sectors in the Netherlands. The allocation to offices is limited and partly concerns offices for own use. The core profile of the commercial property portfolio is durable and in general ensures a relatively stable development of the value of the portfolio. For example, the retail portfolio mainly consists of ‘A-locaties’. Active management allows a.s.r. to benefit from the rent potential and to keep the vacancy rates low as much as possible. a.s.r. is the largest private owner of rural estate in the Netherlands and this property portfolio is well diversified regionally within the Netherlands.
The sensitivity of regulatory solvency to changes in property value is monitored on a monthly basis.
6.3.4.4 Currency risk Currency risk arises from the sensitivity of assets and liabilities to changes in the level or volatility of foreign exchange rates.
The foreign currency position is monitored on a quarterly basis. The total net exposure in foreign currency is € 477 million (2013: € 389 million). The table shows the currencies with largest exposures.
6.3.4.5 Spread risk Spread risk arises from the sensitivity of the value of assets and liabilities to changes in the level of credit spreads on the relevant risk-free interest-rates. Spread risk relates to several types of assets: • fixed-income investments; • deposits; • savings-linked mortgage loans.
138a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Market value changes in fixed Income portfolio are to a large extent attributable to changes in interest-rates and credit spreads. Falling interest-rates had more pronounced impact on the market value of the government portfolio due to its higher interest-rate sensitivity. All credit sectors benefited from tightening credit sectors in 2014. Reduction in the structured credits portfolio is due to a number of redemptions.
139a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The change in the market values of financial institutions bonds reflects both an increase in our exposure to Tier 2 securities at the expense of old style Tier 1 bonds in line with our strategic investment plan as well as substantial spread performance of these subsectors. All categories in the financial institutions portfolio benefited from falling interest-rates and tightening credit spreads.
Asset-backed securities (ABS) An ABS is a financial security backed by a portfolio of loans, leases or receivables against assets other than real estate and mortgage-backed securities. Half of this portfolio consists of a bond issued by a ring-fenced entity of a large UK water utility. The other half of this portfolio consists of various securities backed by several types of assets.
Mortgage-backed securities (MBS) MBS’s are a type of asset-backed security that is secured by a portfolio of mortgages. The MBS portfolio of a.s.r. consists of mainly AAA tranches in Dutch residential mortgage backed securities. The rest of the portfolio consists of investments in the most senior tranches of UK RMBS (around 3.5%) and some peripheral exposure, mostly in Spain (5.5%), all of which have started to redeem.
141a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
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 commissions and has therefore granted fewer loans as a result of restrictions in our loan policy. Furthermore the current value of the collateral already incorporates the effect of the ban on commissions. This value is subsequently used in our internal risk-rating model.
At year-end 2014, the outstanding amount of loans to intermediaries was € 75 million (2013: € 96 million) and cumulative impairments amounted to € 37 million (2013: € 53 million). The loans are generally secured by collateralizing an insurance portfolio. At year-end 2014, 16% (2013: 20%) of the loans were in arrears.
Savings-linked mortgage loans Savings-linked mortgages have been sold with savings-linked contracts carried in a.s.r.’s statement of financial position where 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 on the insurance contract and the interest on 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 € 2,702 million at year-end 2014 (2013: € 2,520 million).
a.s.r. has a cession-retrocession agreement with the counterparty for 5% of the portfolio, for which the risk is limited. Effectively, a.s.r. receives the underlying mortgage loans as collateral, mitigating the credit risk of the savings-linked mortgage loans.
The remaining 33% of the savings-linked mortgage loans portfolio by credit rating of the counterparty is shown below.
Savings-linked mortgage loans - other 31 December 2014 31 December 2013
142a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
6.3.4.6 Concentration risk In order to avoid concentrations in a single obligor, a.s.r. applies a limit on maximum exposure of € 700 million for issuers rated single A rating and higher and € 350 million for issuers rated BBB. The limits apply to the total investment portfolio. The exposure of assets treated in section 6.3.5 are not included, which is consistent with Solvency II. The CLFC monitors concentration risk on a quarterly basis. All exposures were within the limits at year-end 2014.
Assets that are in scope of spread risk are by definition not in scope of counterparty default risk and vice versa.
6.3.5.2 Derivatives OTC derivatives are primarily used by a.s.r. to manage the interest-rate risks incorporated in the insurance liabilities. Interest-rate derivatives are traded with a well-diversified and qualitative dealer panel with whom there is an established International Swaps and Derivatives Association (ISDA) contract and a Credit Support Annex (CSA) in place. These CSA’s include specific agreements on the exchange of collateral limiting market and counterparty risk.
An accumulated impairment loss for receivables of € 52 million was recognized in 2014 (2013: € 35 million).
Insurance risk is the risk that future insurance claims and benefits cannot be covered by premium and investment income. This risk is mitigated by diversification across a comprehensive range of insurance products. Insurance risk is divided into non-life and life risk. The non-life portfolio covers the property and casualty, disability and healthcare sectors. The life portfolio is a reasonable diversified consisting of products with either mortality risk or longevity risk.
• In life insurance and disability insurance these provisions are based on assumptions underlying the premium calculation. In the case of disability current information is taken into account. By applying shadow accounting, recent impact of movements in the riskfree yield curve and credit spreads on corporate bonds are recognized in the provisions. The adequacy of these provisions are reviewed at each reporting date using appropriate current principles.
144a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
fully disabled. Both are being stimulated by disability reassessments. Indications are that these are effective. A scenario analysis shows a pre-tax sensitivity of approximately € 20 million when applying conservative assumptions
6.3.6.1 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 mainly of the following categories.
Disability: • Disability: disability coverage in the portfolio includes both individual coverage for self-employed persons and (semi-)group coverage for employees. The latter group also qualifies for employees disability cover (WIA, including WGA-ER); • Sickness leave: coverage includes continued salary payments for the first two years of the individual’s incapacity for work; Health: • 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.
145a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Morbidity risk Morbidity risk is the risk associated with the uncertainty of claims as a result of higher than expected disability rates and levels in portfolios containing disability, medical expenses and accident insurance products. An additional uncertainty is that recovery or mortality rates might be lower than expected.
To limit risk concentration, reinsurance contracts are placed with various reinsurance companies. The reinsurance programme has remained largely the same as 2013 in terms of cover and limits. Minor changes have taken place based on the current risk appetite where necessary. In 2014, a.s.r. purchased excess of loss reinsurance for accident year 2015 for storm in excess of € 30 million with a limit of € 344 million (accident year 2014 € 325 million), offering slightly more protection.
Non-life insurance liabilities 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. A separate provision is formed for insurance contracts with increasing risk over the duration of the contract where premiums not related to the age of the policyholder are concerned. Changes in the provision for unearned premiums are recognized through profit and loss, which means that the income is recognized during the same risk period.
The balance sheet of a.s.r.’s basic health insurance (‘Basisverzekering’) include an estimate related to the expected settlement because of equalization (vereveningsmethodiek’). The estimate is made by internal actuaries per year based on the latest updated health information for the Netherlands. At the end of the first quarter, a.s.r. monitors if the assumptions used are correct. The final settlement is recognized three years after the end of the financial year.
Provision for claims 770 3,036 346 4,152 Provision for unearned premium 200 194 25 419 31 December 2013 P&C Disability Health Total
For the retained disability portfolio, a provision is formed for current risk exposure on contracts concluded in 2014 that run until 31 December 2015. This provision is based on the difference between premiums required for accounting and actuarial purposes.
Managing life insurance risk Life insurance risk is mitigated by pricing and underwriting policies. Pricing is based on profit capacity calculations. The necessary price to cover the risks is calculated. The risk are quantified on the basis of best estimate assumptions of mortality rates, surrenders, expenses and interest-rates.
The longevity risk is mostly offset by the opposite risk (i.e. mortality risk) in other parts of the life insurance portfolio (unit-linked, funeral, term insurance).
After deduction of capitalized acquisition costs if applicable, the provision for each life insurance contract equals at least the surrender value or the paid-up value of the contract. As a result no direct loss from lapses are recognized in the financial statements.
The level of retention in different reinsurance contracts is aligned to the size and the risk profile of the underlying portfolios. This includes taking account of the cost of reinsurance on the one hand and the risk that is retained on the other.
The life insurance portfolio contains individual and group insurance contracts. The products are sold as insurance products in cash and unit-linked contracts. With respect to products in cash, the investment risk is borne fully by the insurer whereas, in case of unit-linked products, the majority of the investment risk is for the policyholder’s account.
The provision at year-end 2014 can be broken down as follows (amounts in millions): Life insurance contracts Individual Group Total
Strategic risk Risk priorities The Executive Board of a.s.r. decides annually on the most important risk priorities. The definition of risk priorities is a bottom-up process. Risk priorities are based on the Control Risk Self Assessments and Management in Control framework of the business units. Risk Management reports the actual status of the risk priorities and progress of the defined actions to the a.s.r. Risk Committee on a quarterly basis.
Operational risk Management in control a.s.r. has developed a Management in Control framework that entails the most important risks for a.s.r.’s operating activities. It is a tool that is used to improve the efficiency and effectiveness of a.s.r.’s operating processes. This framework includes operational (including IT), financial reporting and compliance risks and controls and ensures the reliability, accuracy, timeliness, and quality of our internal and external reporting processes. Identified risks need to be managed within the stated risk appetite ambition. Key controls are periodically tested for operational effectiveness and reported to the Business Risk Committee and Non-Financial Risk Committee on a quarterly basis. Group Risk Management reviews the quality of the Management in Control Frameworks of all business lines on a continuous basis to ensure a sufficient level of internal control.
Information security Because of the importance of information security in an increasingly digital community, a.s.r. devotes special attention to the efficiency, effectiveness and integrity of ICT. The control of logical access to the key applications in the financial reporting process remains a high priority in order to enhance the integrity of applications and data. The logical access control procedure also prevents fraud by improving segregation of duties and by conducting regular checks of actual access levels within the applications. Proper understanding of information and security risks is essential, and this is why actions are carried out to create awareness among employees and business lines.
The group has entered into a limited number of cash flow hedges, for which it applies hedge accounting to hedge some of its interest-rate risk in the Other segment. These hedging transactions, only hedge risk on a limited number of separate property development contracts. Under IFRS, derivatives are measured at fair value in the balance sheet and any changes in the fair value are recognized through profit and loss. In the event that changes in the fair value of hedged risks are not recognized through profit and loss, an accounting mismatch occurs, making the results more volatile. In these cases, hedge accounting is applied to mitigate the accounting mismatch and volatility. For details on the notional amounts and the fair values of the derivatives for hedging purposes, see chapter 6.12.
Solvency II is the regulatory framework for European insurance companies that will replace the current Solvency I regime as of 1 January 2016. The introduction of the new regime is intended to harmonize the European insurance market, increase protection of policyholders and improve risk awareness in both the governance and management of insurance companies. Solvency II sets more sophisticated solvency requirements and will form an integral part of the risk management of insurance companies.
In anticipation of the implementation date of 1 January 2016 EIOPA has published Preparatory Guidelines, in particular regarding Pillar 2 topics such as System of Governance and Forward Looking Assessment of Own Risks and Pillar 3 Reporting guidelines. DNB has adopted these guidelines which apply to Dutch insurance companies as of 1 January 2014.
• In 2015, a.s.r. will implement the remaining Quantitative Reporting Templates (QRT’s) as published by EIOPA and is preparing to comply with qualitative Solvency II reporting requirements in 2016, as prescribed by the regulator.
• a.s.r. has developed mature scenario analyses and stress testing techniques, such as the Own Risk and Solvency Assessment (ORSA), Recovery planning and Strategic Asset Allocation studies. These techniques measure the impact of external or internal identified risks and threats to the a.s.r. solvency position. The 2014 ORSA results and the recovery plan over 2014 have again demonstrated the strong position of a.s.r. in terms of capitalization and a.s.r.’s ability to carry out our strategy, also in situations of increased financial stress.
154a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
In addition, a.s.r. uses an Economic Capital (ECAP) method that reflects its own risk profile more accurately. The ECAP method will be refined further. Both SCR and ECAP are reported on a semiannual basis and proxies are made on a monthly basis. Per year end 2014 a.s.r. has sufficient capital to meet the limits included in a.s.r. risk appetite.
6.4.1.2 Solvency The regulatory solvency capital of a.s.r. can be broken down as follows: December 2014 December 2013
Regulatory solvency available (incl UFR) 4,984 4,182 Regulatory solvency required 1,749 1,563 Regulatory solvency ratio (incl UFR) 285% 268%
Besides monitoring at group level, a.s.r. also monitors and manages the regulatory solvency at a registered insurance company level. DNB approval is required, prior to dividend payments or other repayments of equity by ASR Nederland N.V. and any of the registered group insurance companies.
The a.s.r. post-employee benefit plans are insured by ASR Levensverzekering N.V., a registered insurance company. The post employee benefit provision in excess of the insurance provisions is eliminated in determining the regulatory solvency available and the regulatory solvency required. As of 2014 the elimination of post-employment benefit plan also includes the separate account of ASR Levensverzekering N.V. related to the funding of future inflation indexation as mentioned in paragraph 6.17.1.
155a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
ASR Levensverzekering N.V. CCR A Stable 15 August 2014 ASR Levensverzekering N.V. FSR A Stable 15 August 2014 ASR Schadeverzekering N.V. CCR A Stable 15 August 2014 ASR Schadeverzekering N.V. FSR A Stable 15 August 2014
The a.s.r. group comprises a number of operating and holding companies. The legal structure and segments of the most significant a.s.r. group entities is as follows: The group distinguishes between the Non-life, Life and Other segments. The Non-life segment consist 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.
ASR NL Beleggingsbeheer N.V.3 1 Registered non-life insurance companies 2 Registered life insurance companies 3 Other Wft registered companies (included in segment Other)
The eliminations applied in the reconciliation of the segment information with the consolidated balance sheet and the consolidated income statement are separately presented in chapter 6.5.2 and 6.5.3.
The a.s.r. segment reporting shows the financial performance of each segment. The purpose of these reporting is to allocate all items in the balance sheet and income statement to the segments that hold full management responsibility for them.
Segment information has been prepared in accordance with the accounting principles used for the preparation of a.s.r.’s consolidated financial statements (as described in chapter 6.2).
Equity attributable to holders of equity instruments 898 2,632 -497 - 3,033
Share of profit/(loss) of associates and joint ventures - 5 -9 - -4
Share of profit/(loss) of associates and joint ventures - 14 - - 14
Insurance claims and benefits recovered from reinsurers 96 14 - - 110 Net insurance claims and benefits -1,827 -3,367 - 182 -5,012
6.5.4 Technical result 6.5.4.1 Technical result Non-life The technical result includes insurance premiums, allocated investment income less insurance costs (claims), distribution costs and operating expenses. Income from investments includes rentals, interest income, dividends and revaluations. Realized gains and losses relate to financial assets classified as available for sale and investment property, as well as gains and losses on financial assets recognized at fair value through profit and loss.
Gross premiums written 2,359 2,392 Change in provision for unearned premiums -4 1 Gross insurance premiums 2,355 2,393
Net insurance claims and benefits -1,574 -1,604 Change in liabilities arising from insurance contracts -85 -223 Fee and commission expense -345 -355 Technical result (underwriting) 221 60
Proceeds (loss) from sales of investments 28 56 Technical result 148 -37
Net insurance claims and benefits -2,255 -2,912 Change in liabilities arising from insurance contracts -1,366 -455 Fee and commission expense -48 -65 Technical result (underwriting) -2,136 -1,779
The gross written premiums declined 7% to € 1,543 million in 2014 and the profit before tax decreased to € 318 million (- 32%) mainly as a result of several non-recurring charges including the impairment of € 93 million on VOBA (Value of Business Acquired) (see chapter 6.7). The impairment on VOBA was necessary due to the decrease in profitability of the investment portfolios of life insurances. Excluding the non-recurring items the result increases due to improved results on investments and realised cost savings.
Technical result 6.5.6 Non-life ratios The Non-life segment combined ratio can be broken down as follows: Claims ratio 70.0% 78.3% Commission ratio 15.5% 15.8% Expense ratio 9.4% 10.5%
166a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Notes to the consolidated balance sheet 6.6 Fair value of assets and liabilities 6.6.1 Recurring fair value measurement of financial assets and liabilities
The breakdown of financial assets and liabilities measured at fair value (recurring basis) in accordance with the level of fair value hierarchy, is as follows:
Investments available for sale Short-term government securities - - - -
168a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Investments on behalf of policyholders Short-term government securities - - - -
Debt certificates covered by mortgage - - - Debt certificates covered by other assets - - - -
Fair value of financial assets on the basis of level 3 valuation technique Investments at fair value through profit and loss
Changes in value of investments, realized/unrealized gains and losses: - Fair value gains and losses (see chapter 6.24.3) 1 -16 - - - Realized gains and losses (see chapter 6.24.2) - - 5 5 - Recognized in Other comprehensive income (unrealized
Total revaluations of investments, held at year-end, recognized in the income statement 13 6 - -
The main non-observable market input for the private equity investments is the net asset value as published by the investee. An increase or decrease in the net asset value of the unlisted equities will have a direct proportional impact on the fair value of the investment.
170a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Amounts due to customers and due to banks presented as level 1 comprises primarily savings and cash collateral received. The accrued interest included in other liabilities follows the classification of the underlying assets.
6.6.3 Property (including land and buildings for own use) The breakdown of the Investment property and land and buildings for own use in accordance with the fair value hierarchy, as explained in accounting policy C, is as follows: Fair value based on quoted prices in an active market
Investment property - Cost model Retail - - 713 713 489
Land and buildings for own use - - 133 133 131
Land and buildings for own use - - 91 91 85
The property has a relatively fixed return with low vacancy levels as indicated in chapter 6.10.3. The property portfolio is well diversified and consists of residential, retail, offices and rural property, throughout the Netherlands. The retail portfolio focusses on high street locations with relative low vacancy levels. Investment property held at fair value and investments on behalf of policyholders (investment property) consist primarily of retail property.
The following table shows the movement in investment property measured at fair value (recurring basis) that are categorised within level 3.
Changes in value of investments, realized/unrealized gains and losses: - Fair value gains and losses -2 -8 - Realised gains and losses - - - Recognised in Other comprehensive income
Reclassification of investments from/to Level 3 valuation technique - Transfer between investments on behalf of policyholders and investment property -31 3
The table below discloses the sensitivities to non-observable market inputs for the property portfolio (excluding development investment property).
Land and buildings for own use 133 DCF 13,089,473 mean 9.8% -5% - 7 14
Value of Business Acquired (VOBA) VOBA mainly relates to the acquisition of Amersfoortse Stad Rotterdam. At year-end 2014, the remaining amortization period of VOBA is 16 years and the average amortization for the next 5 years will be € 17 million per year. In 2014, an impairment has been recognised of € 93 million relating to the Amersfoortse Stad Rotterdam unit-linked portfolio given the structural market developments in the life portfolios containing unit-linked policies.
Transferred to investment property -17 - -17 Cost price as at 31 December 267 157 424 385
Transferred from property, plant and equipment -8 Accumulated depreciation as at 31 December -347 -329
Reversal of impairments 16 6 Reversal of impairments on disposal 14 24 Transferred from property, plant and equipment -1 Impairments as at 31 December -154 -149
Investment property is leased to third parties and is diversified over the rural, residential, office and retail sectors in the Netherlands.
In 2014, a further tranche in ASR Dutch Prime Retail Fund (DPRF) was transferred by a.s.r. to institutional investors thereby further reducing a.s.r.’s property exposure from 58% to 56%.
Impairments amounting to € 34 million were recognized in 2014 (2013: € 58 million), mainly relating to residential and commercial property.
Proceeds from the sale of investment properties and rental incomes are recognized as investment income. For details, see chapter 6.24. In 2014, rentals amounted to € 133 million (2013: € 138 million).
Direct operating expenses arising from investment property amounted to € 24 million (2013: € 25 million). Given the low vacancy level, virtually all direct operating expenses relate to investment properties generating rental income. Direct operating expenses of investment property are classified
178a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Revaluation through profit and loss -2 -8 Exchange rate differences - Transfer between investments on behalf of policyholders and investment property -31 3
Total investment property 66 100 6.10.3 Vacant Investment properties The percentages of vacant investment properties are as follows: 6.11 Associates and joint ventures
Real estate development joint ventures ranging between 11% and 50% 27 27
Where the associate’s and the joint venture’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.
Financial assets and derivatives can be broken down as follows: Investments Available for sale (chapter 6.12.1) 22,849 19,571 Investments at fair value through profit and loss (chapter 6.12.2) 114 117
Loans and receivables (chapter 6.12.3) 9,231 8,489 Derivatives assets (chapter 6.12.4) 3,435 1,054 Derivatives liabilities (chapter 6.12.4) -387 -535 Cash and cash equivalents (chapter 6.12.5) 3,135 1,521
Investments on behalf of policyholders At fair value through profit and loss (chapter 6.12.2) 8,333 8,049
The table below gives a detailed overview of the types of financial assets held: Investments
Assets 6.12.1 Investments available for sale Investments available for sale can be broken down as follows: Government bonds 11,643 8,528 Corporate bonds 8,403 8,047 Mortgage-backed securities 375 367 Other asset-backed securities 156 236 Unlisted equities 174 125 Listed equities 1,987 2,145 Other investments 111 123
Realized gains through profit and loss 452 379 Revaluation recognized in equity 1,643 -502 (Reversals of) Impairments 7 32
The increase in other changes relates mainly to changes in accounting policies.
Impairment of investments available for sale The following table is a breakdown of impairments of investments available for sale: Increase in impairments through profit and loss -34 -21 Release of impairments through profit and loss 41 53 Reversal of impairments due to disposal 41 87 Translation differences and other adjustments 4 -25
The increase in translation differences and other adjustments relates mainly to exchange-rate differences on investments available for sale. Impairments recognized on government bonds are based on the existing impairment policy.
Changes in investments at fair value through profit and loss: Investments
A further breakdown of the investments at fair value through profit and loss and investments on behalf of policyholders is included in the fair value hierarchy tables (see chapter 6.6.1).
Equities and bonds are lent in exchange for a fee, with collateral obtained as security. At the end of 2014, the value of the securities lent was € 7,937 million (2013: 7,052 million) with the collateral furnished as security representing a value of € 9,805 million (2013: € 8,840 million) consisting of mortgage loans and corporate and government bonds.
The increase in the mortgage loans is primarily due to the increased sales of the ‘WelThuis Hypotheek’ in 2014.
The savings-linked mortgage loans amounting to € 2,702 million (2013: € 2,520 million) are included in the financial assets.
183a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The fair value of the loans and receivables is included in the fair value hierarchy tables (see chapter 6.6.2).
6.12.4 Derivatives Derivatives consist of derivatives held for trading purposes to hedge primarily interest-rate movement and to a limited extent derivatives held for cash flow hedging.
184a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
To mitigate interest-rate risk a.s.r. effectively entered into forward starting swaps by combining receiver and payer swaps. The notional amounts of both receiver and payer swaps are included in the total notional amounts.
All cash and cash equivalents are freely available, except cash related to cash collateral which is managed separately from other cash equivalents. The cash components include € 3,027 million (2013: € 677 million) related to cash collateral received on derivative instruments and securities lending. There are no cash components related to cash collateral given (2013: € 168 million).
Debt related to cash collateral on derivatives instruments is included in the amount due to banks (chapter 6.21).
The increase in the deferred taxes is primarily as a result of the amendments to the post-employment benefit plans (amounting € 150 million). The other changes in the deferred taxes are resulting from the net changes, as a result of acquisitions and value increased in the fair value of the derivatives and the related shadow accounting in the liabilities arising from insurance contracts, amounting to € 100 million.
Interest expenses incurred related to property developments amounting to € 1 million were capitalized in 2014 (2013: € 2 million) and included in property developments.
187a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Tax related to segregated investment pools 21 - - - 21
Tax related to segregated investment pools 15 - - - 15
6.15.3 Actuarial gains and losses The actuarial gains and losses related to the post-employment pension plans amount to € -634 million (2013: € -107 million). See chapter 6.17.1 for a summary of the movements in the defined benefit obligation through equity amounting to € -706 million (2013: € 152 million).
6.15.4 Other equity instruments In 2014, a.s.r. announced a combination of capital market transactions in order to further optimize the capital position. The implementation of the capital optimization consists of the following: • New issue of hybrid Tier 2 instruments 5% Fixed to Fixed Rate Undated Subordinated securities for an amount of € 497 million. • Buy-back offer of hybrid Tier 1 instruments at a fixed tender offer price amounting to € 278 million
Hybrid Tier 1 instrument variable interest (3-month Euribor + 2.3%) - 84 Per quarter with effect from 26 October 2009 Hybrid Tier 1 instrument 6.25% fixed interest - 12 Per quarter with effect from 30 September 2009 Hybrid Tier 1 instrument 10% fixed interest 187 382 Annually with effect from 26 October 2010 Hybrid Tier 1 instrument 7.25% fixed interest 17 37 Annually with effect from 30 September 2010 Hybrid Tier 2 instrument 5% fixed interest 497 - Annually with effect from 30 September 2015
The following amounts were distributed to holders of equity instruments: Hybrid Tier 1 instrument variable interest (3-month Euribor + 2.3%) 2,205 2,174 Hybrid Tier 1 instrument 6.25% fixed interest 771 771 Hybrid Tier 1 instrument 10% fixed interest 99,255 38,631 Hybrid Tier 1 instrument 7.25% fixed interest 6,254 2,731 Hybrid Tier 2 instrument 5% fixed interest - -
Discretionary interest payments are adjusted against equity upon payment. In 2014, the discretionary interest amounting to € 108 million, comprises € 45 million related to regular payments and € 63 million related to additional discretionary interest on redemption.
6.15.5 Non-controlling interests Movements in non-controlling interests can be broken down as follows: Share of total comprehensive income -2 -5
Provision for unearned premiums 419 414 10 5 Provision for claims (including IBNR) 4,152 3,826 409 402
Changes in liabilities arising from non-life insurance contracts can be broken down as follows: Gross Of which reinsurance
Provision for unearned premiums as at 31 December 419 414 10 5
Write-down recognized in profit and loss 20 24 Other changes - 1
Provision for discretionary profit-sharing, bonuses and discounts At 1 January 9 10 Profit-sharing, bonuses and discounts granted in the financial year -2 -1
At year-end 2014, the liabilities included guarantee provisions directly attributable to policyholders for a carrying amount of € 108 million (2013: € 139 million). Other changes primarily include the effect of the conversion of some insurance contracts amounting to - € 318 million (2013: - € 128 million) which are included in the liabilities arising from insurance contracts on behalf of policyholders.
191a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Gross claims (cumulative) as at 31 December 2014 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total
6.16.3 Liabilities arising from insurance contracts on behalf of policyholders Movements in liabilities arising from insurance contracts on behalf of policyholders can be broken down as follows: Premiums received 610 676 Interest added 122 106
Effect of fair value changes related to financial assets 781 672 Technical result -13 -31 Release of cost recovery -109 -130 Other changes 340 111
Liabilities arising from insurance contracts on behalf of policyholders also include liabilities where conversions and switches have occurred in the insurance contract administration. The insurance contract continues to be classified as an insurance contracts on behalf of policyholders. The insurance contract still meets the definition of an insurance contract on behalf of policyholder and therefore continues to be include in the insurance contracts on behalf of policyholders administration. However, as a result of the conversion and switches, liabilities arising from insurance contracts on behalf of policyholder amounting to € 1.151 million (2013: € 804 million) are not backed directly with investments on behalf of policyholders. The related investments are however, included in investments – available for sale.