ASR Nederland Postbus 2072 3500 HB Utrecht Archimedeslaan 10 3584 BA Utrecht www.asrnederland.nl59
Other information • Auditor’s report 125 - Report on the financial statements - Management’s responsibility - Auditor’s responsiblity - Opinion with respect to the consolidated financial statements - Opinion with respect to the company financial statements - Report on other legal and regulatory requirements 126 • Provisions in the Articles of Association concerning profit appropriaton 127 • Appropriation of result 127 • List of associates 2008 128 • Warning with respect to announcements regarding the future 132 • Places where documents may be inspected 132 • Glossary and abbreviations 133
Report of the Board of Directors of ASR Nederland N.V. • Report of the Supervisory Board of ASR Nederland N.V. 8 • Report of the Board of Directors of ASR Nederland N.V. 10
M. Bax Various board positions at Sara Lee Corporation until 2000, the last five years as head of M&A Europa. Founder and director of TopBrainstorm and currently a member of the Talent to the Top Monitoring Committee.
C.H. van den Bos From 2001 to August 2008 member of the Board of Management of SNS Reaal NV, responsible for all insurance activities.
M.A. Scheltema From 2004 to April 2009 Chief Financial Officer of Shell Nederland B.V. previously held from 1986 various international management positions at Shell.
The Supervisory Board has established two committees and appointed members of the Supervisory Board to them.
• Audit Committee. The members are C. van den Bos (chairman) and M. Scheltema. There will be at least five regular meetings each year. The CFO will attend the regular meetings. Besides its regular meetings, the Audit Committee will meet at least once each year with the external auditor in the absence of members of the Board of Directors. Each year the Audit Committee will draw up and publish a report on its deliberations and findings.
Future The Supervisory Board is acutely aware that 2008 was an exceptional year in several respects, one that confronted financial institutions with very turbulent market conditions and saw the recession become perceptible worldwide. The disintegration of Fortis, and the sale of Fortis Verzekeringen Nederland to the State of the Netherlands, made 2008 all the more drastic for ASR Nederland, the new name of Fortis Verzekeringen Nederland. In this situation the Supervisory Board considers that its duty, besides its primary task as a supervisory body, is to assist the Board of Directors with good counsel. It does so with complete independence and with due observance of all stakeholders of the company.
The net result in 2007, an exceptionally good year, was EUR 890 million. The investment result in 2007 was high as a result of the accelerated sale of a large slice of our share portfolio, among other things as part of protective measures against falling prices.
Operating costs and personnel Operating costs (administrative costs) rose by 5% to EUR 591 million, as presented in the combined technical result of Life and Non-life. This was mainly the result of ASR’s separation from Fortis. The other increase was caused by investments in the new direct distribution channel and by essential investments in modifications to IT systems, partly due to new legislation. Nevertheless, the net expense ratio at Life decreased to 13.4% (2007: 14.0%) and at Non-life to 15.8% (2007: 15.9%).
The separation from Fortis marked the start of an unbundling process that commenced in the fourth quarter. This mainly concerns head office departments and IT. Operationally, there was only limited interdependence. Therefore, the business impact of unbundling is not particularly large. Unbundling is progressing favourably and will be completed in 2009.
At balance sheet date the number of FTEs had decreased by 86 to from 4,626 to 4,540 compared with 2007. It proved difficult to fill vacancies in 2008 because of the prevailing market conditions.
Assets and buffer capital Total assets in 2008 - i.e. equity including the revaluation of real estate - decreased from EUR 3,487 million to EUR 1,757 million. The principal reason for the decrease was a negative revaluation of investments of EUR 1,148 million, besides the addition to the net loss of EUR 640 million.
Risk management ASR’s insurance activities are subject to various potential risks. The policy and organisational structure of ASR in the risk management field are structured to identify, analyse, measure, address and control these risks. Chapter 6, Risk management, contains more details.
This is the first time that we are presenting our results under our new name of ASR Nederland (hereinafter ‘ASR’). This fact alone indicates the scale of change we experienced in 2008. On 3 October 2008, we ceased to be part of Fortis. To avoid the Dutch parts of the group being hit by the difficulties surrounding the Fortis parent company, the State of the Netherlands purchased the four separate bank and insurance entities. This made us an independent company with the State of the Netherlands as our shareholder, although this does not mean that we received financial aid from the State by means of a capital injection or guarantee arrangement. At the time of preparation of this report, this was still not the case. The government has indicated that its shareholding will be of a temporary nature. Consequently, ownership of ASR will in due course be returned to the private sector, in such a way that ASR is operationally stable and financially solid and possesses a sufficiently robust capital base to operate in the long term based on continuity. We changed the name of our company to reflect the new situation. The name we chose embeds the long history of the company.
Profile ASR is active in the Netherlands and consists of general insurer ASR Verzekeringen and the four specialised insurers De Amersfoortse, Europeesche, Ardanta and Falcon Life. Distribution is effected via several channels: independent intermediaries, consultants working on commission, banks and directly via Ditzo. ASR offers private individuals and companies a wide array of life, non-life, medical and disability insurances, and also mortgage, savings and investment products.
Gross premiums Despite the difficult market conditions, gross premiums rose by 10% in 2008 to reach EUR 5,758 million. In the Life sector turnover was EUR 3,491 million, 12% higher than in 2007. At Non-life there was a 7% growth in gross premiums to EUR 2,268 million.
Net result ASR’s net result fell in 2008 to a loss of EUR 640 million. The result was adversely affected by more than EUR 1 billion principally by the following factors: turbulence in the financial markets (EUR 615 million), provisions created for guarantee obligations (EUR 186 million), falling stock-market prices and the strengthening of the provision for compensation for life insurance policies with an investment component (‘beleggingsverzekeringen’) (EUR 248 million) under agreements reached with consumer organisations.
Revised strategy and focus for 2009 Looking back, 2008 taught the financial sector some hard lessons. This also applies to ASR. We are unable to change the past. But we can change our future. This starts with the lessons that we can learn. With the knowledge that we have today, we would have tackled a number of matters differently. With hindsight we must concede, for example, that the pressure to achieve return and shareholder value called for more counterweight. Risk analyses will have to receive greater attention and lean less onesidedly towards models and extrapolations from the past. We will be more critical than in the past when it comes to investments with the combination of AAA ratings and high returns. The investment insurance affair strengthened our awareness that transparency and comprehensibility are essential for retaining customer trust. Complying with the prevailing legislation, rules and opinions proved to be inadequate in this respect.
M.N. Kok Member of the Board of Directors of ASR Nederland since 24 July 2006, due to step down as a director of ASR Nederland on 26 May 2009.
Net result for the period -633 906 629 Net result attributable to non-controlling interests -7 -17 -5 Net result attributable to shareholders -640 889 624
Investments in associates and joint ventures 16 162 185 211 Investments related to unit-linked contracts 7,487 10,234 9,504
Liabilities arising from insurance contracts 21 21,150 20,045 20,233 Liabilities related to unit-linked contracts 22 8,263 10,633 9,797
Result carried over from previous financial year 0 0 -624 0 0 624 0 0 0 Net result for the period 0 0 889 0 0 0 889 17 906
Result carried over from previous financial year 0 0 -889 0 0 889 0 0 0 Net result for the period 0 0 -640 0 0 0 -640 7 -633
Cash and cash equivalents as at 1 January 483 1,004 558
Result before taxation -845 1,017 808 Net realised (gains) losses on sales -141 -864 -248 Net unrealised gains (losses) 340 89 -8 Income from associates and joint ventures (netted with received dividends) 4 24 -2 Depreciation, amortisation and interest accrual 168 168 187
Assets and liabilities held for trading -174 -26 -39 Due from banks 72 234 18 Due from customers 179 283 435 Trade and other receivables 106 11 103 Due to banks 444 -483 1,690 Due to customers 43 3 -71 Liabilities arising from insurance and investment contracts 1,147 -39 -35 Net changes to all other operating assets and liabilities 117 171 -185 Income tax paid -10 -172 -220 Cash flow from operating activities 2,383 576 2,467
More information about ASR can be found at the website www.asrnederland.nl.
2 Financial reporting principles 2.1 General In accordance with the previous financial year, the consolidated financial statements of ASR were prepared in conformity with IFRS, including the International Accounting Standards (‘IAS’) and interpretations, as accepted within the European Union. Financial reporting principles not specifically mentioned are in conformity with the IFRS standards as accepted within the European Union.
2.3 Amendments to financial reporting principles The financial reporting principles applied to prepare the 2008 annual report are consistent with the principles applied to prepare the 2007 financial statements.
On 14 February 2008, IASB issued amendments with a view to improving reporting on special types of financial instruments with features that resemble ordinary shares but are currently classified as financial liabilities (approved by the European Union on 21 January 2009). The amendments affect IAS 32, Financial Instruments: Presentation, and IAS 1, Presentation of Financial Statements. These amendments will come into effect from the 2009 financial year (earlier application is allowed) and are not expected to have any material effect on ASR.
On the same date, IASB issued an amendment to IFRS 1, First-time application of International Financial Reporting Standards, and IAS 27, Consolidated and Separate Financial Statements (approved by the European Union on 23 January 2009), which are related to the cost price of an investment in a subsidiary in the separate financial reports of a parent company. This amendment will come into effect from the 2010 financial year (earlier application is allowed) and is not expected to have any material effect on ASR.
On 3 July 2008, the IFRIC (International Financial Reporting Interpretation Committee) issued IFRIC 15, Agreements for the Construction of Real Estate (not yet approved by the European Union). IFRSIC 15 standardises the presentation of proceeds from the sale of units by project developers across jurisdictions. IFRIC 15 will take effect from the 2009 financial year (earlier application is allowed) and is not expected to have any material effect on ASR.
The following IFRS standards and IFRIC interpretations also take effect from the 2009 financial year (all have been approved by the European Union): • IFRS 8, Operating Segments. This standard requires the identification of operating segments based on internal reports regularly reviewed by the chief operating decision-maker of the entity. This is not expected to have any influence on the way ASR publishes reports on segments.
• IAS 1, Presentation of Financial Statements, which impacts only on presentation, not on recognition and valuation rules. • IFRIC 13, Customer Loyalty Programmes. This interpretation deals with presentations by entities that reward customer loyalty and is not expected to have any material effect on ASR.
The principal activities of ASR are the offering of life and non-life products. Transactions or transfers between the business segments are subject to the usual commercial conditions that also apply to unassociated parties.
No geographical segmentation is applied because ASR operates mainly in the Dutch market.
2.5 Consolidation principles Subsidiaries The consolidated financial statements include the financial statements of ASR and its subsidiaries. Subsidiaries are companies in which ASR is able to control financial and operating policy, directly or indirectly, for the purpose of obtaining benefits from their activities (‘control’). Subsidiaries are consolidated from the date at which control effectively transfers to ASR. They are eliminated from consolidation from the date such control ends. Subsidiaries acquired solely with the intention of being resold are presented as ‘fixed assets held for sale’ (refer to chapter 2.23).
When assessing the control that ASR has over another company, the existence and effect of potential voting rights that are exercisable or convertible are taken into account.
The financial statements of associates are adapted if this is necessary to assure consistency with the ASR financial reporting principles.
Losses are recognised until such time as the balance sheet value of the investment is nil. Further losses are recognised only if ASR has a legal or constructive obligation or has made payments that concern the associate.
Foreign currency transactions by individual companies of ASR are recognised at the exchange rate on the date of the transaction. A distinction is made between monetary and non-monetary items.
Non-monetary items The translation of non-monetary items depends on whether they are recognised at historical cost or at fair value: • non-monetary items recognised at historical cost are translated using the historical exchange rate on transaction date; • non-monetary items recognised at fair value are translated using the exchange rate on the date of determination of fair value. The resulting exchange rate differences are recognised as a gain or loss under the exchange rate differences item. This does not apply in the event of a change to the fair value of the non-monetary items recognised as a component of equity.
Exchange rate differences on borrowed amounts and other foreign currency instruments, designated as hedges for those investments, are presented under equity. This does not apply to the hedging ineffectiveness presented directly in the income statement. On disposal of a foreign entity the exchange rate differences are presented in the income statement as part of the gains or losses on the sale.
Forward purchases and sales, other than those that must be completed within the period of time prescribed by regulation or market conventions, are presented as derived forward transactions until the time of settlement.
2.8 Offsetting Financial assets and liabilities are offset and the offset amount is reported in the balance sheet if there is a legally enforceable right to net the presented amounts and the intention exists to arrive at a settlement on a net basis or simultaneously to realise the net asset and to settle the liability. Assets are presented (as and when necessary) less an impairment.
Financial assets Financial assets are presented as assets held for trading, investments, receivables from banks and receivables from customers.
The valuation and the presentation of the results depend on the classification of the financial assets, i.e.: a. loans and receivables; b. investments held until maturity; c. financial assets held at fair value through profit or loss; d. financial assets available for sale.
This classification determines the measurement and presentation of the results in the following manner: a. Loans and receivables are measured on the date of their first recognition in the balance sheet at their fair value (including transaction costs). After initial measurement this occurs at amortised cost using the effective interest method. The regular amortisation is recognised in the income statement.
ASR Nederland N.V. 2008 26 ASR Nederland N.V. 2008 27 d. Financial assets available for sale are financial assets that are presented as (a) loans and receivables, (b) investments held until maturity, or (c) financial assets carried at fair value with value adjustments in the income statement. Financial assets available for sale are initially carried at fair value including transaction costs. Subsequently, they are carried at fair value with recognition of unrealised gains or losses on fair value movements under equity.
Types of financial assets Shares, participating securities and other non-fixed-interest securities: these are all non-derived financial assets that on first recognition are designated as being available for sale. Financial fixed assets available for sale are initially carried at fair value. Subsequently they are carried at fair value with adjustments under equity.
Bonds and other fixed-interest securities: with the exception of synthetic CDOs (Collateralised Debt Obligations), these investments are designated as available for sale. Initially, the instruments are carried at fair value. Subsequently, they are carried at fair value with movements under equity. The preference shares included under this heading that carry an entitlement solely to a fixed dividend are also carried at fair value with movements under equity. Synthetic CDOs are carried at fair value through profit or loss.
Investments in investment pools: these interests are initially carried at fair value and are subsequently carried at fair value with movements under equity.
Financial liabilities Financial liabilities are presented as liabilities held for trading, due to banks, due to customers, debt certificates, subordinated liabilities and other financing.
The valuation and presentation of the results depend on the IFRS classification of the financial liabilities, i.e.: 1. Financial liabilities held at fair value through profit or loss, and 2. Other financial liabilities.
ASR uses the following hierarchy to determine the fair value of financial instruments: • listed (prices quoted in an active market); • measured according to market information (valuation methods); • measured according to theoretical models (including valuation at cost price).
• off-balance sheet commitments and guarantees are explained in the financial statements. They are based on the fees currently charged to enter into similar agreements, taking into account the other conditions of the agreements and the creditworthiness of the counterparties; • for other financial assets and liabilities, such as short-term debts and receivables, it is assumed that the balance sheet value approximates the fair value.
2.11 Measurement of impaired assets An asset is impaired if its balance sheet value is higher than its realisable value. ASR examines all its assets at each balance sheet date for indicators that might necessitate impairment.
2.12 Cash and cash equivalents Contents Cash and cash equivalents consist of liquidities, freely available balances held with banks and other financial instruments with a due date less than three months from acquisition date. These are carried at face value.
Impairment An individual impairment of a loan is acknowledged if there are objective indications that ASR will be unable to collect all outstanding amounts in accordance with the contractual conditions. The amount of the impairment is the difference between balance sheet value and realisable value, either the present value of the expected cash flows or, alternatively, the value of the collateral, if the loan is covered by collateral, less the costs of realising this collateral.
An incurred but not reported (IBNR) impairment of a loan is presented if there are objective indications that losses are present in components of the portfolio of loans, without an impairment having been presented for the loans. The IBNR is estimated on the basis of historical patterns of losses in each segment. This reflects the current economic climate in which borrowers are operating, while allowance is made for a higher risk of payment problems, based on an analysis of the political and economic situation in certain countries.
If a specific loan is identified as uncollectible, and all legal and procedural remedies have been exhausted, the loan is deducted from the associated impairment losses; subsequent realisations are recognised under movements in the impairments in the income statement.
Assets and liabilities held for trading are recognised at the time of first recognition and thereafter at fair value through profit or loss. The results (realised and unrealised) are presented as ‘Other realised and unrealised gains and losses’. Interest received/ paid on assets/liabilities held for trading are presented as interest income/interest expense. Dividends received are presented as investment income.
2.16 Investment property Investment property is real estate that is held to realise rent revenues or an increase in value, or both. ASR can use certain investment properties for its own purposes. If the parts used by ASR can be sold or leased individually by means of a financial lease, these parts are presented as property, plant and equipment. If the parts used by ASR cannot be sold individually, the real estate is only treated as an investment property if ASR retains a negligible part for its own use.
The table below shows the maximum life of components: (Expressed in years) Components Home Office Shops Parking Land Not applicable Not applicable Not applicable Not applicable
ASR rents out its investment properties to third-party unassociated companies by means of various rental contracts that cannot be cancelled. Certain contracts contain renewal options for various periods of time. The rent revenues are recognised as investment income on a straight-line basis over the period to which they relate.
Projects (investment properties under development) Investment properties under development consist of projects being developed and projects in progress. Until a start has been made with the sale of the project, it is classified under projects under development. Acquisition costs are deferred only if a feasibility study indicates that there is sufficient certainty that the preparatory costs will result in sufficient economic benefits. Preparatory costs presented at any time as an expense no longer qualify for capitalisation. The investment properties under development are classified under property, plant and equipment as buildings under construction.
If the result of a construction contract can be estimated reliably, the contract revenues and costs associated with the construction contract are presented as income or expense, respectively. This takes place in proportion to the progress of the contract at balance sheet date. If the total construction costs are likely to be higher than the total contract revenues, the expected loss is presented immediately under expense.
2.17 Lease agreements ASR as lessee ASR mainly concludes operating leases for the rental of equipment and land and buildings. Payments resulting from such leasing transactions are presented in the income statement. If an operating lease is terminated before its expiry date, the payments that must be made to the lessor by way of a penalty are recognised as an expense in the reporting period in which termination occurs.
If a lease agreement transfers virtually all risks and remunerations attached to ownership of an asset, the lease is presented as a financial lease and the asset concerned is capitalised. At the start of the lease term the asset is recognised at the fair value of the leased asset or, if lower, at the current value of the minimum lease payments. The leased asset is written down over the expected period of its use or over the term of the lease if the latter is shorter. The corresponding lease liability, less financial costs, is recognised under loans. The interest element of the financial costs is recognised in the income statement as an expense over the term of the lease. This creates a constant regular interest rate on the remaining liabilities balance for each reporting period.
2.19 Reinsurance, trade and other receivables Reinsurance Reinsurance receivables consist mainly of balances owed by insurance and reinsurance companies for ceded insurance liabilities. Amounts receivable from reinsurers are estimated in a way compatible with the amounts attached to the reinsured policies and in conformity with the reinsurance contract.
Expenditure on repairs and maintenance is recognised in the income statement as an expense in the period the expenditure was incurred. Expenditure that improves or enlarges the benefits of real estate or fixed assets in a way that exceeds their original use is capitalised and then written down.
Information about financing costs for the financing of the construction of property, plant and equipment can be found in chapter 2.36, ‘Financing costs’.
2.21 Goodwill and other intangible assets Intangible assets An intangible asset is an identifiable non-monetary asset. The intangible asset is recognised at cost if it will produce future economic benefits and the cost of the asset can be determined reliably.
Goodwill Acquisitions of companies are presented using the acquisition method. Goodwill represents the positive difference between the cost price (fair value of the assets, liabilities and issued equity instruments) on the one hand and ASR’s share in the fair value of the assets, liabilities and provisional liabilities on the other. Goodwill from the acquisition of a subsidiary is recognised on the balance sheet as an intangible asset. Goodwill that arose on business combinations prior to 1 January 2005 has been deducted from the equity and will not be remeasured within the scope of IFRS . At acquisition date the goodwill is allocated to the cash flow generating units that are expected to obtain benefit from the synergy in the business combination. Goodwill is not written down, but it is examined for impairments. Goodwill from the acquisition of a non-controlling interest is presented as a component of the measurement of the non-controlling interest.
ASR measures goodwill each year, or more frequently if events or changed circumstances indicate that its balance sheet value might not be realisable. If this occurs the realisable value is determined for the cash flow generating unit to which goodwill has been allocated. If the realisable value of the unit is lower than its balance sheet value, an impairment is recognised immediately in the income statement.
When an impairment occurs ASR first reduces the balance sheet value of the goodwill allocated to the cash flow generating unit. This is followed by that of the other assets of the unit in proportion to the balance sheet value of each asset in the unit. Previously recognised impairments in respect of goodwill are not reversed.
ASR may obtain control over a subsidiary in various steps. If this occurs ASR treats each swap transaction separately. The costs of each transaction are compared with the fair value of each transaction to determine the amount of goodwill attached to the individual transaction. Before ASR obtains control over the entity the transaction may be regarded as an investment in a non-controlling interest and may be recognised using the equity method. As and when necessary, the fair value of the identifiable net assets of the party in which an interest has been acquired is determined by applying the equity method to the investment. This occurs on the date of each first transaction.
A discontinued business activity is a part of ASR that has been disposed of or is recognised as being held for sale and that satisfies the following criteria: • it represents a separate important activity or geographical location; • it is a part of a specific coordinated plan to dispose of a separate important sector or geographical business territory; or • it is a subsidiary acquired solely with the intention of being sold on.
No depreciation is applied to assets (or groups of assets) presented as being held for sale. They are carried at the lower of carrying amount and fair value less selling costs and are presented separately on the balance sheet.
Results of discontinued business activities are recognised separately in the income statement.
Subsequent changes to the fair value of derivatives held for trading are recognised in the income statement under ‘Other realised and unrealised gains and losses’.
Depending on the situation, the separated derivatives are presented as derivatives held for hedging or as derivatives held for trading.
At the start of the transaction ASR documents the relationship between hedging instruments and hedged positions. The same occurs with risk management objectives and policy concerning hedge transactions. ASR also documents the assessment, at the start of the hedge and continuously for each reporting date, as to how effective the hedging instrument was in compensating for movements in the fair value of cash flows from the hedged position, as well as its continued expected effectiveness in the future.
The fair value movement of a hedged position, which is allocable to the hedged risk and the fair value movement of the hedging instrument in a fair value hedge transaction, are recognised in the income statement. The fair value movement of interestbearing derivatives is recognised separately from the accrued interest.
If the hedge no longer satisfies the hedging criteria or is terminated, the adjustment of the balance sheet value of the hedged interest-bearing financial instrument resulting from hedge accounting is written off. This is done on the basis of a recalculated effective interest rate on the date of termination of the hedging transaction.
If the hedging of an expected transaction or defined benefit results in recognition of a non-financial asset or a non-financial liability, the gains and losses presented earlier under equity are transferred out of equity and included in the first valuation of that non-financial asset or that non-financial liability. Additionally, amounts recognised under equity are transferred to the income statement and recognised as an income or expense in the periods in which the hedged defined benefit or expected transaction influences the income statement.
This is also the case if the hedge no longer satisfies the criteria for hedge accounting or is discontinued in some other manner, but the expected transactions or defined benefits are expected to go ahead. If the expected transactions or defined benefits are not expected to go ahead, the amounts deferred under equity are transferred to the income statement.
Life insurance contracts with discretionary profit-sharing element Most life insurance contracts carry a guaranteed benefit. Some may also include a discretionary profit-sharing element. This element gives the contract holder the right to receive, over and above guaranteed benefits, additional benefits or bonuses: • that will probably form a substantial part of the total contractual benefits; • of which the amount and/or timing are contractually subject to an autonomous decision by the Board of Directors of ASR, and/or • are contractually based on: − the performance of a specific pool of contracts or a certain type of contract; − realised and/or unrealised investment returns on a specific pool of assets held by ASR, or − the profit of ASR, a fund of another entity that issues the contract.
Deposits of reinsurers in respect of matters ceded in reinsurance that transfer a substantial reinsurance risk are the same as the amount outstanding at balance sheet date.
Some of the unit-linked contracts provide a minimum guarantee concerning the level of the benefit at the end-date. For these guarantees an additional liability is recorded on the balance sheet, which depends on the current fund value and on the level of the guarantee. Determination of this liability takes account of actuarial assumptions for the future development of the fund and mortality.
The liability includes a provision in connection with compensation of costs incurred on these insurances. This provision equals the current value of the time-weighted part of the extra benefit expected at the closing date under the compensation arrangements.
2.27 Debt certificates, subordinated liabilities and other borrowings Debt certificates, subordinated debts and other borrowings are recognised at the time of occurrence at fair value without the direct transaction costs. After initial measurement they are carried at amortised cost and as and when necessary the difference between the net proceeds and the repayment price is recognised in the income statement over the period of the loan based on the effective interest method.
A defined benefit pension plan is one that gives the employee the assurance of a fixed benefit at pensionable age. This generally depends on several factors, such as age and length of service. Actuaries examine the related pension liabilities at least once a year and derive the pension assets from the statements provided by the asset manager.
The provision for defined benefit plans is the present value of the pension liabilities at balance sheet date less the fair value of the qualifying investments. This provision is adjusted for unrecognised results and costs concerning elapsed years of service. The provision for defined benefit plans is determined using internal and external actuarial models and calculations. The pension liabilities are calculated in accordance with the projected unit credit method. The use of assumptions for discount rates, percentage increase of future salaries and remuneration levels, mortality, trends in healthcare costs, consumer price index and expected investment return are inherent in these actuarial models. The assumptions are updated from year to year and are based on available market information and past investment returns.
The actuarial assumptions can differ considerably from actual results on account of changes in market conditions, economic trends, mortality trends and other assumptions. Each change in these assumptions can impact substantially on the size of the provision for defined benefit plans and the future pension expenses. Stichting Pensioenfonds Fortis ASR Verzekeringsgroep was liquidated on 1 January 2008. Administration of the pension plan was transferred to ASR Levensverzekering N.V., an insurance company that forms part of the group. Consequently, from 1 January 2008, the fund investments are no longer considered ‘qualifying fund investments of pension plans’.
Plans that provide benefits for a long service but are not pension plans are measured at the net present value using the projected unit credit method.
The employer’s contributions to pensions under defined contribution plans are recognised in the income statement as an expense in the year to which they relate.
2.29 Provisions, provisional liabilities and financial guarantees Provisions Provisions are liabilities with contingencies in terms of amount and time of payment. Provisions are recognised on the balance sheet if, as a result of past events, there is an existing commitment to transfer economic benefits, such as cash flows, and if it is possible to make a reliable estimate at the balance sheet date. Provisions are created for certain guarantee agreements for which ASR is responsible in the event of non-payment. Provisions are estimated on the basis of all relevant factors and information existing at the balance sheet date and are discounted at the risk-free interest rate.
2.30 Equity Share capital and company’s own shares Costs of issuing shares Costs that can be directly allocated to the issue of new shares, except those concerning a business combination, are deducted from equity after deduction of any related tax on profit.
2.31 Interest income and expense Interest income and expenses are recognised in the income statement for all interest-bearing instruments. It makes no difference whether they have been presented as held until maturity, available for sale, at fair value with value changes in the income statement or as derivatives. The accrual basis is used for presentation by applying the effective interest method based on actual purchase price including direct transaction costs. The earned par value coupon interest is presented under interest income on instruments at fixed or variable rates of interest. The amortisation of share premium or discount according to the effective interest method also falls under this category.
For contracts with a term less than one year (mainly non-life), the premiums are recognised as they were charged at the start of the contract. The premiums are presented in the income statement proportionally over the term of the relevant policy cover. The provision for unearned premiums represents the part of the premiums charged that relate to instalments for cover after the balance sheet date.
For derivatives the difference between the fair value excluding accrued interest (clean fair value) at the end of the current reporting period and the previous reporting period is presented under ‘Other realised and unrealised gains and losses’.
2.35 Transaction costs Transaction costs are presented in the initial measurement of financial assets and liabilities, except the financial assets and liabilities carried at fair value through profit of loss in the income statement. Subsequently, transaction costs incurred when entering into financial assets or liabilities with the effective interest method are recognised as interest income or expense in the income statement. Transaction costs are the extra costs directly allocable to the acquisition or disposal of a financial asset or a financial liability. These include the commissions and fees paid to agents, consultants, brokers and stockbrokers. The same occurs for levies by the regulatory and supervisory bodies and stock exchanges and for various types of transfer tax.
For a loan related to a certain asset, the effective interest rate for the loan is used. In other cases a weighted average of the paid interest rate is used.
2.37 Income tax expense Tax on profits is presented as an expense based on the tax laws applicable in each jurisdiction in the period in which the profits arise. The tax effects of deductible corporation tax losses are recognised as a deferred tax asset if a future taxable profit is likely to exist against which the losses can be offset.
Deferred tax liabilities and tax claims are determined at the tax rates at which these positions are likely to be settled.
A deferred tax liability is recognised for taxable temporary differences related to investments in subsidiaries, non-controlling interests and interests held in joint ventures. This method is used unless the time at which the temporary difference is settled can be determined and it is unlikely that the temporary difference will be settled in the near future.
Tax on profits and deferred taxes relating to remeasurement at fair value of associates available for sale and cash flow hedges incorporated directly as income or expense under equity are also recognised directly as an income or expense under equity. Subsequently they are presented together with the deferred profit or deferred loss in the income statement.
Acquisitions and divestments mean the buying or selling of legal persons over which ASR exercises influence, including but not confined to subsidiaries and other companies (associates and joint ventures). If material or substantial changes occur, the assets and liabilities resulting from the acquisitions and divestments are stated in this chapter.
The table below shows a breakdown of ASR’s share capital as at 31 December 2008: Authorised capital - Ordinary shares: 1,000,000 at a par value of EUR 500 500 Subscribed and paid-up capital - Ordinary shares: 200,000 at a par value of EUR 500 100 Unsubscribed shares 400
The States of the Netherlands became ASR’s sole shareholder on 3 October 2008. No further share capital changes occurred during the financial year.
4.1 Unrealised gains and losses included in Shareholders’ equity The table below shows the unrealised gains and losses recognised in equity in 2008, 2007 and 2006: Investments Revaluation Cash flow DPF component Total available for sale of associates hedge reserve
ASR enters into insurance contracts that, in addition to guaranteed participating benefit features of which the size and time of awarding fall solely under the responsibility of ASR. Depending upon contractual and legal terms and conditions, unrealised value changes in the fair value of the asset mix related to such contracts are recognised, after applying shadow accounting, in a separate discretionary participation feature component (DPF) as part of the unrealised gains and losses under equity.
ASR Nederland N.V. 2008 44 ASR Nederland N.V. 2008 45 4.2 Dividend Various ASR companies are subject to legal restrictions regarding the amount of dividends that they may distribute to their shareholders. The Netherlands Civil Code stipulates that dividends may only be distributed by Dutch companies insofar as the equity of the company exceeds the total of paid-up and called-up capital and the reserves required by law or under the articles of association. The freely distributable reserves are determined on the basis of the other reserves and the undistributed profit for the 2008 financial year as contained in the separate financial statements. Therefore, ASR had no freely distributable reserves at year-end 2008. Also refer to the notes to the separate balance sheet in the chapter headed ‘Separate financial statements 2008’.
6 Risk management 6.1 Introduction ASR has a cohesive risk management framework that covers all levels of the organisation. Within this framework ASR determines its risk strategy and controls risk-bearing activities. Aspects of the core policy, methods and processes are aligned to broadly-based supervision of risk management quality at group and business level. ASR is continually working on evaluating and improving its risk management framework to assure harmonisation with its long-term strategy. This is based on the company’s own best practices and generally accepted best practices. The figure below is a diagrammatic representation of the ASR governance framework.
Each component of the risk management framework is explained below, together with a quantitative and qualitative overview of the risks to which ASR is exposed.
6.2 Philosophy, strategy and principles for solid risk management 6.2.1 Risk philosophy ASR defines risk as variances from expected results that may potentially impact on the value, capital and income of ASR. The risks to which ASR is exposed consist of external and internal risk factors that stem from a wide array of business activities. Taking a risk is an essential element of the objective of ASR to create value. ASR endeavours to enter into risks that are transparent and that can be adequately controlled both at individual and at portfolio level. ASR exposes itself actively to risks if deemed efficient and profitable for the organisation. Risks that are not actively sought, but arise during the normal conduct of business, are limited to an acceptable level. Moreover, ASR considers it to be its duty to satisfy the expectations of its stakeholders by entering into risks in a controlled and transparent way.
6.2.2 Risk management principles Risk management at ASR is based on four guiding principles derived from the risk governance framework: Optimisation of risk-return in a controlled manner at a high quality level: ASR is a professional risk-taker, both actively and passively. Taking risks is inherent in the way that ASR creates value. To ensure that ASR creates added value, risk management has been organised at business level. Clarity about responsibility and liability: ASR acts in accordance with the principle of delegated authority. Individuals and business units are completely responsible for their decisions, with the proviso that the interests and stimuli must be compatible with the business objectives of ASR. Independent and resolute risk management functions: entering into a risk requires an impartial vision of the risk management functions. An independent and resolute risk management function, clearly segregated from business decisions, is essential to avoid conflicts of interest. This function assures the organisation of adequate risk management and ultimately ratifies ASR’s risk policy. Open risk culture to convey confidence: risk transparency and adaptability are essential elements of the ASR corporate culture. Formal processes have been put in place to stimulate the sharing of knowledge of risk management, with internal and external stakeholders.
6.2.3 Risk strategy ASR’s risk strategy describes which risks and how many risks ASR wishes to take in the pursuit of its business objectives. The strategy also describes how undesirable risks will be limited or avoided. Risk tolerance and willingness are fundamental aspects of the risk strategy. The risk strategy is not an isolated matter but is derived from the business strategy of ASR and is in line with its strategic objectives. The risk strategy is ultimately translated into the budgeting and capital management control processes of ASR.
The stance that ASR adopts to risks demonstrates how and to what extent the company is willing to take, limit or avoid certain risks. ASR has placed the risks to which it is exposed in the following categories: Core risks: risks to which ASR actively exposes itself, if it is efficient to do so for the group, provided that the risks are controllable on an individual basis and at portfolio level. ASR continuously strives to complete and refine its insight into risks so as to control them as effectively as possible. The most important subcategories of core risks for ASR are credit risk, market risk (ALM risk) and technical insurance risk. The technical insurance risk can be subdivided into non-life risks and life, accident and medical risks.
In addition to the strategic distinction between core and non-core risks, ASR uses a standard risk classification (taxonomy) that covers all material risks. The taxonomy is evaluated annually and revised to ensure that all material risks are identified, defined and embedded in the risk governance framework.
6.3.1.1.1 Asset & Liability Management Asset & Liability Management (ILM) is responsible for keeping a close watch on ALM-related risks in the balance sheet of ASR and its insurance entities. ALM does this in accordance with decisions taken by the ALCO (Asset and Liability Management Committee) with due observance of the guidelines of ASR and external regulators. ALM defines risk tolerance and controls risks by establishing guidelines and standards. ILM endeavours to apply best practices in risk management, as required by external regulators and rating agencies.
6.3.1.1.2 Insurance Risk & Value Management Insurance Risk & Value Management (IR&VM) is responsible for keeping a close watch on technical insurance risks entered into by ASR entities. IR&VM does this in accordance with decisions taken by the IRC (Insurance Risk Committee). It observes the guidelines of ASR and external regulators. IR&VM defines risk tolerance and controls risks by establishing guidelines and standards. IR&VM endeavours to apply best practices in risk management, as required by external regulators and rating agencies.
6.3.1.3 Audit ASR The Operational Risk & Management Control (OR&MC) department is responsible for controlling and mitigating operational risks across the various business units/legal entities. As laid down in the central ASR risk structure, however, the businesses are primarily responsibility for controlling operational risks. Proper risk management requires embedding of risk management in the lower levels of the organisation.
ASR Nederland N.V. 2008 48 ASR Nederland N.V. 2008 49 6.3.2 Structure of ASR risk committees A comprehensive structure of the risk committees ensures that decisions are taken at the right level.
General Risk responsibility rests with the Board of Directors of ASR. To fulfil the mission of Risk the Board of Directors is supported by various risk committees.
6.3.2.3 Business Risk Committees For each label in which the insurance activities have been accommodated, there is a Business Risk Committee (BRC) with a task similar to that of ASRRC for its own field of attention. Where necessary there is a separate Operational Risk Committee and sometimes a Financial Risk Committee. An Operational Risk Committee has also been established within the Asset Management function.
6.3.2.3 Supporting Risk Committees 6.3.2.3.1 Asset and Liability Management Committee (ALCO) The ALCO determines the strategic asset allocation and oversees the ALM risk. The responsibilities concern managing, addressing and controlling ALM risks. The committee approves investment risks of new products that will be launched by the business departments. ALCO is assisted by investment committees that carry out the tactical and day-to-day policy of investments in financial instruments, real estate and real estate development.
6.3.2.3.2 Insurance Risk Committee The Insurance Risk Committee (IRC) monitors pricing by the businesses, acceptance and claims handling guidelines, volatility in the insurance portfolios and the adequacy of technical facilities.
6.3.2.3.3 Intermediaries Credit Committee The Intermediary Credit Committee (KC) determines policy and processes for credit risks that stem from relationships maintained with our intermediaries. The committee decides on new credits, monitors the quality of the credit portfolio and ensures compliance with credit limits.
6.3.2.3.4 AHB Credit Committee The AHB Credit Committee determines policy and processes for financing real estate of small investors. The committee decides on new credits, monitors the quality of the credit portfolio and ensures compliance with the credit limits.
6.3.2.4.5 Information Security & Business Continuity Board The Information Security & Business Continuity (IS&BC) Board determines, on behalf of the Board of Directors, the information security and business continuity policy of ASR. The board monitors implementation and determines where necessary the measures that must be taken.
Due from banks Interest-bearing deposits 156 179 Loans and advances 558 606
Due from customers (see chapter 15) Government and public sector 382 436 Mortgage loans 2,179 2,364 Loans to private individuals 14 16 Loans to companies 1,855 1,808
Interest-bearing investments (see chapter 16) Government securities 2 49 Government bonds 6,353 3,457 Corporate bonds 7,918 7,498 Structured credit instruments 1,255 2,341 Total interest-bearing investments 15,528 13,345
6.4.1.3 Concentration of credit risk The concentration of credit risk means an outstanding interest at a counterparty or a collection of outstanding interests at positively correlated (e.g. the tendency to remain in default under similar conditions) counterparties. These interests can produce a substantial loss if the counterparties remain in default. The avoidance of concentrations is a fundamental part of the credit risk strategy of ASR. It is important to maintain widely distributed, liquid and diversified portfolios.
ASR applies the ‘total one obligor’ concept to avoid a concentration of credit risk. This means that groups of related counterparties are regarded as a single counterparty for the purpose of credit risk management. The credit risk policy concerning concentration of credits is aimed at spreading this risk across various counterparties, sectors and countries.
The table below shows the sector concentration of the investment portfolio of receivables due from customers as at 31 December.
Total net receivables from customers 4,406 100% 4,590 100% Impairments -24 -34 Total gross receivables from customers 4,430 4,624
Carrying amount Percentage Carrying amount Percentage Investment quality AAA 6,165 41.71% 4,100 31.02%
Due from customers Government and public sector, total 382 0 0 0 0 382
6.4.1.6 Impairment of financial asset In the ASR investment portfolio investment instruments are presented as held at fair value through profit or loss or as available for sale. In the case of instruments presented as being held at fair value through profit or loss, the changes in market value are shown directly in the results of ASR. In the case of instruments available for sale, the market value change is included under equity. For these instruments an impairment test is used to determine whether a permanent impairment should be recognised in the results of ASR. A financial asset is considered to be impaired if one or more events can potentially cause a negative effect on the future expected cash flows of the financial asset.
ASR applies a number of objective and subjective criteria that can result in the ‘impaired’ status. Objective criteria include bankruptcy, financial restructuring or payment arrears of more than 30 days. Circumstances that require a more detailed assessment include negative equity, regular payment problems, incorrect use of credit facilities, deterioration of creditworthiness (rating) and legal steps taken by other creditors.
To control the risks in its investment portfolio, ASR applies an internal classification of debt instruments from financial institutions according to ‘levels of concern’. The classification of the levels of concern is based in part on the triggering events for impairments referred to in IAS 39.59. The set of events surrounding a company and features of a specific instrument are weighed up to determine the level of concern. All investments are classified in level of concern 0, 1, 2 or 3, with level 0 implying no major causes of concern and level 3 possibly resulting in the taking of an impairment.
As a result of the international credit crisis, the portfolio of structured credit instruments has been affected by substantial writedowns which, in the case of instruments held at fair value through profit or loss, are immediately noticeable in the financial statements or, in the case of instruments available for sale, have resulted in the incurrence of impairments.
Due from customers Government and public sector 382 0 0 0 0 436 0 0 0 0
ALM risk is the risk that the difference in market value of assets and liabilities will change because of changes in interest rates, credit spreads, share prices, exchange rates, real estate prices and other market factors. The difference in market value between assets and liabilities is measured from an economic point of view of the group’s equity. A decrease in the difference between the market value of the assets and the liabilities has a direct effect on the total economic value of the company. This is even the case if, on the basis of income and cash flows, no losses are incurred.
6.4.2.1 ALM risk management ALM risk is managed and measured by means of an independent framework using consistent methods (such as calculation of share values, stress tests, value at risk, worst-case sensitivities, etc.). The mission of the ALM function is to support management accurately and frequently in obtaining an insight into the market risk positions that have been taken on the consolidated balance sheet and at underlying entities. This includes ensuring an assets allocation that is appropriate to the strategy and applying guidelines and limits for all market risks related to the balance sheet. The ALM committee is the decisionmaking body for controlling ALM risks.
The ALM risk is monitored and controlled with the aid of Value at Risk (VaR). VaR is a statistical estimate that indicates the potential maximum loss within a certain reliability interval and time period. The method is usable for all types of risks.
Share risk decreased in 2008 because on balance shares were sold. Additionally, put options mitigated the share risk. The interest rate risk has increased because of the lower interest rate and lower fair value of equity.
Duration of equity Duration (or modified duration) is a criterion for the interest rate sensitivity of a portfolio with assets or liabilities. Duration is calculated as the relative value change in the event of a minor parallel shift of the interest rate i:  Value = — Duration . i
Duration has the following features: • a positive (negative) duration results in a decrease (increase) of the value if the interest rate increases (i is positive); • the higher the absolute value of the duration, the higher will be the sensitivity of the value to interest-rate movements.
Duration of equity decreased sharply in 2008. This is explained by the fall of the fair value of equity and by the increased duration of liabilities as a result of the lower interest rates.
Interest rate sensitivity of the fair value of equity The table below illustrates the effect of a shift of 100 basis points (plus or minus) of the interest curve on the fair value of equity as at 31 December. In other words, the table shows the impact on the fair value of all assets, less the impact on the fair value of all liabilities.
The fair value of the insurance liabilities is determined as the net present value of the expected cash flows including options (embedded options) such as profit-sharing. In conformity with this normal market valuation, the contractual cash flows are discounted on the basis of the risk-free interest, while non-contractual cash flows are measured as profit-sharing in accordance with risk-neutral principles. The embedded options make the insurance liabilities convex. This is reflected by the asymmetrical sensitivity of the value to a shift of 100 basis points in the interest curve: a 21% increase if the interest rate rises and a 34% decrease if the interest rate falls.
Of foreign currency position (for foreign currency forward transactions) 18 19 2 24 8 43
6.4.2.2.4 Real estate risk Some investments consist of real estate with the aim of achieving an extra return. To control the real estate risk the strategic allocation depends on the value at risk (related to the fair value of equity) and solvency. The real estate risk is measured as part of the value at risk.
Exercise price Average term Average term Underlying par value of option (in years) of swap (in years) amount
6.5.1 Management of liquidity risks Management of liquidity risk is a combination of managing financing sources on the one hand and ensuring sufficient liquidity for the investment portfolio on the other. Investments can be liquidated to provide cover against unexpected payments.
The following table shows the contractual cash flows of the investments and liabilities. For the technical provisions, account has been taken of the natural turnover and expected decay in the portfolio. Shares and real estate have not been included.
As the investments on average have a shorter term than the long-term insurance liabilities, there is a positive cash flow gap in the terms up and including ten years.
6.6 Technical insurance risk The technical insurance risk concerns all risks associated with liabilities that stem from insurance activities. This excludes components that are included under market risk factors (such interest rates) or under operational risk factors (such as cost risks and commutation risks).
The technical insurance risk is subdivided into two groups: life risk and non-life risk: • life risk includes the following (not exhaustive) causes of variation in the insurance value of the liabilities: longevity risk, mortality risk, health risk and disability risk. These risks are sometimes called biometric risks; • non-life risk includes the following (not exhaustive) causes of variation in the insurance value of the liabilities: home and ownership risk3, motor-vehicle risk, third-party liability risk, accident risk, risk of interruption of business continuity, travel risk.
The most important components of all types of technical insurance risks can be placed into the following categories: • Volatility: the risk of arbitrary fluctuations in the frequency and scale of the technical insurance risk. If the risks are of an independent and homogenous nature, the volatility of the portfolio will decrease in step with the size of the portfolio. Examples are: - in the case of life: the arbitrary fluctuations of annual mortality rates relative to the modelled trend; - in the case of non-life: the arbitrary fluctuations of annual motor-vehicle claims relative to the expected average.
• Premium risk: this is related to the liabilities that arise from events covered by the existing contracts but that have not yet occurred5; • New business risk: this is related to liabilities that arise from events covered under new or renewed contracts. Based on the approach with a time horizon of one year, only new or renewed policies that fall within the one-year horizon will be factored into the economic capital calculations.
6.6.1 Insurance risk management ASR manages the insurance risk through a combination of acceptance policy, pricing, provisions and reinsurance agreements.
The departments charged with risk management are required at each insurance company to evaluate and manage the insurance risks associated with policies. They do this on the basis of the policy and guidelines laid down at ASR level. The technical insurance risk is managed, together with the other risks (such as ALM) and other departments (such as investments).
6.6.2 Acceptance policy Each insurance company sets its acceptance policy locally as part of general management of the insurance risk. Actuarial employees examine the risks and evaluate the claims history. To improve the pattern of claims and/or to ensure that pricing is adjusted correctly, the acceptance policy is refined by means of a number of indicators and statistical analyses.
6.6.3 Pricing ASR determines the level of premiums in such a way that the amount of premiums, together with the investment income that they generate, is larger than the total amount of claims, claim- handling costs and management costs. The setting of premiums for policies (pricing) is done by means of statistical analyses based on internal and external historical data. The correctness of pricing is tested using techniques and key performance indicators appropriate to the portfolio concerned. This takes place beforehand (e.g. through an examination of profitability) and afterwards (e.g. embedded value, combined ratio). The factors taken into account in pricing insurance differ from product to product. They depend on the offered cover and benefits. Generally speaking the following factors are concerned: • expected claims by insured parties, the expected payments and their timing; • the degree and nature of the variance from the expected payments. Among other things this means that analyses are made of claims statistics that factor in the development of jurisprudence and economic climate and demographic developments; • other production costs for the product concerned, such as distribution, marketing and administrative costs; • financial circumstances that reflect the time value of money; • legislation concerning solvency; • targets for profitability; • conditions in the insurance market, primarily the prices charged by competitors for similar products.
ASR Nederland N.V. 2008 62 ASR Nederland N.V. 2008 63 6.6.4 Policy on provisions Each insurance company within ASR creates its own provisions for future claims under policies and earmarks assets for the provisions. This involves making estimates and assumptions that in the coming year may influence assets, liabilities, equity and results. The estimates are evaluated at each reporting date with the aid of statistic analyses based on internal and external historical data.
At year-end 2008, ASR switched to the adjusted ECB AAA-rated government curve for performance of the test. This adjustment lies in durations after 30 years.
Potential inaccuracies are inherent in the techniques, assumptions and data used to make statistical analyses. Consequently, the risk that claims will ultimately turn out to be higher than the liabilities created under the insurance contracts cannot be eliminated entirely. To reduce the risk that ASR will no longer be able to fulfil commitments to insured parties and others, ASR maintains a resilience capability. This capability is equal to the IFRS equity, plus (among other things) the remeasurement of real estate and the excess value in the technical provisions. This excess value was determined with the factoring in of a risk margin.
6.6.5 Reinsurance If necessary the ASR insurance companies conclude reinsurance contracts to limit the technical insurance risks. Reinsurance can take place for each individual policy (for each risk) or on a portfolio basis (for each event). This latter occurs when the risk concerning the individual insured parties is within the local limits but there is an unacceptable risk. This occurs because of an accumulation of claims at group level (catastrophic risk). These events are generally related to extreme weather conditions or arise through human action. The selection of reinsurance companies is based mainly on considerations concerning pricing and management of the risk that the counterparty represents. The risk that the counterparty represents is integrated in the total credit risk management.
Reinsurance is used mainly to reduce the influence of natural disasters. In the Netherlands this means severe storms, large single claims under policies with a high limit and multiple claims stemming from one and the same event caused by human action.
The table below provides an overview of the limits and retention of the risk for each product.
(in euro) 2008 2007 Highest Highest Lowest Highest Highest Lowest retention retention purchased retention retention purchased at risk 1 per event cover per at risk 1 per event cover per event event
3) External agencies provide the risk models for natural disasters and catastrophes caused by human action in Western Europe. Cover is within a probability interval of 99%.
Insurance sector 2007 Written Reinsurance Net premiums premiums written premiums Accident and medical 1,163 -192 971
ASR Nederland N.V. 2008 64 ASR Nederland N.V. 2008 65 6.6.6 Technical Insurance risk 6.6.6.1 Non-life risk The time necessary to identify and resolve an insurance claim is an important factor in the non-life risk. Claims with a short lead time, such as motor claims and property claims, are usually reported within a few days or weeks and resolved shortly afterwards. But it can take years to resolve claims with a long lead time, such as bodily injury or liability. In the case of claims with a long lead time, the nature of the claim means that information about the event (such as the required medical treatment) is not always immediately available. Moreover, claims with a long lead time are more difficult to analyse. Therefore, more detailed work is necessary. Moreover, the degree of uncertainty is greater than in the case of a claim with a short lead time.
Gross claims (cumulative) for fire, damage to property and other damage and accident and health: 2001 & Earlier 2002 2003 2004 2005 2006 2007 2008 Total
At end of first claims year 1,235,388 1,305,018 1,405,213 1,258,127 1,200,729 1,399,220 1,570,779 2002 2003 1,194,656 2004 1,144,732 1,179,877 2005 1,117,185 1,092,367 1,220,656 2006 1,111,948 1,068,156 1,113,277 1,140,574 2007 1,120,045 1,081,593 1,093,106 1,041,104 1,167,343 2008 1,123,901 1,082,970 1,092,316 1,001,738 1,075,633 1,304,262 Gross claims at 31 December 2008 1,123,901 1,082,970 1,092,316 1,001,738 1,075,633 1,304,262 1,570,779 Cumulative gross paid claims at 31 December 2008 529,338 1,000,775 977,067 984,331 843,883 863,498 932,913 675,987 Gross outstanding claims liabilities (including IBNR) 529,338 123,126 105,903 107,986 157,855 212,135 371,350 894,792 2,502,484 Other claim liabilities (not included in the above claims) 254,815 Claims concerning incapacity for work (disability) and health Total claim liabilities 2,757,299 6.6.6.2 Mortality/longevity risk Pricing, acceptance policy and regular evaluation of mortality tables play an important role in managing the longevity risk. Mortality tables are used for pricing, forming provisions, limiting the contractual term and adapting prices on policy renewal. ASR creates extra provisions if longevity is found to be increasing faster than indicated by the mortality tables. Wherever possible the premium tables are then adjusted.
ASR Nederland N.V. 2008 66 ASR Nederland N.V. 2008 67 6.6.6.3 Disability risk The disability (incapacity for work) risk concerns the uncertainty about claims resulting from higher-than-expected disability percentages and levels. This may occur, for example, in portfolios with disability and medical expenses policies and accident insurance for workers.
Effect on Effect on Life value value Sensitivities as at 31 December 2008 as at 31 December 2007 1)
Effect on Effect on Non-life profit before tax value before tax Sensitivities as at 31 December 2008 as at 31 December 2007 1)
1) Value determined using fair value method. Also see ALM insurance selection for more information about the ASR fair value method.
6.7.1 Operational Risk & Management Control Within the specialised area of Operational Risk & Management Control, a distinction is made between five relevant areas, i.e.: Operational Event Risk, Management Control, Information Security, Business Continuity and Corporate Insurance. Implementation of these specialised areas at ASR always follows the management control framework. The management control framework makes a distinction between a top-down approach whereby ASR draws up standards for these areas and a bottom-up approach whereby the business units discharge responsibility through a ‘comply or explain’ approach. This framework has been implemented, but must be given more concrete substance in various respects. The figure below is a schematic representation of the management control framework: 6.7.2 Operational Event Risk Operational event risk is a field of attention with the following goals: • identify, measure and control operational risk; • manage and implement the Operational Risk Framework for Solvency II and the underlying methods like Risk Self
• The results obtained from these risk analyses serve as input for the annual procedure leading to management control statements.
ASR implements the Information Security policy according to the comply-or-explain principle. This requires the accountability of business units by means of a standardised process. Responsibility for designing and implementing information security has been delegated to the Information Security & Business Continuity Board (IS&BC Board).
ASR implemented a new solvency model following its unbundling from Fortis in 2008, which means that ASR is no longer required to comply with requirements of the Belgian regulator. The solvency model was based in 2008 on calculation of buffer capital. In 2007, the solvency model was based on the Fortis Capital Model (FCM). In contrast with the FCM model, the new model takes into account unrealised results of debt certificates. Permission was obtained in 2008 from the Dutch central bank, DNB, to make allowance for the adequacy test for technical provisions (test margin). In connection with the correction of the shadow accounting provision for determination of solvency, the determination of the test margin is based on a balance sheet provision without shadow accounting. In conformity with DNB guidelines, the test margin in the determination of the DNB solvency is limited by the commutation value requirement, which requires that the test provision must at least equal the commutation value for each homogenous risk group. The test margin is capped by a prudential filter, based on a prudent reinvestment level of 3% (for items closed after 1 August 1999) or 4%. The Liability Adequacy Test under IFRS, for buffer capital purposes, is equal to the outcome of the DNB adequacy test, except for the influences of the surrender floor requirement and the prudential filter. The table above makes allowance for taxation affects.
Refer to chapter 27 for notes on the innovative asset instruments.
ASR Nederland N.V. 2008 70 ASR Nederland N.V. 2008 71 8 Post-employment benefits and other long-term employee benefits
The costs of pension plans based on defined benefits are higher because of the changed treatment of pension investments. The expense would come to EUR 39 million instead of EUR 113 million if these investments were to be treated the same as in previous years.
The foundation Stichting Pensioenfonds Fortis ASR was liquidated on 1 January 2008. Administration of the pension plan has been transferred to ASR Verzekeringen, an insurance company that forms part of the group. Consequently, the fund investments ceased to be considered ‘qualifying fund investments for pension plans’ on 1 January 2008. Revenues of fund investments in 2008 have been recognised under revenues of non-qualifying assets.
Expected return on plan assets 0 58 46 0 0 0 Costs of elapsed length of service 3 3 -20 0 0 0 Amortisation of unrecognised actuarial losses (gains) 2 0 -2 2 2 0
Under IFRS, assets managed by insurance companies that form part of the group do not count as qualifying assets. Therefore, the revenues of these assets have not been included in the above figures. The expected returns on these investments in 2008 came to EUR 74 million (2007: EUR 11 million; 2006: EUR 10 million). These revenues have been recognised under the investment revenues.
The table below shows movements in the liabilities for defined benefit plans: Pension plans Other postemployment benefits 2008 2007 2008 2007 Liabilities for defined benefits plans at 1 January 1,637 1,700 20 26 Service costs, employer’s part 28 36 2 2 Service costs, employee’s part 9 7 0 0
Actuarial losses (gains) on defined benefit obligation 26 -125 1 -6
Liabilities for defined benefits plans at 31 December 1,707 1,637 22 20
The table below provides an overview of changes in the fair value of qualifying plan assets: Pension plans Other postemployment benefits 2008 2007 2008 2007 Fair value of qualifying plan assets as at 1 January 1,265 1,343 0 0 Expected return on qualifying plan assets 0 57 0 0 Actuarial gains (losses) on qualifying plan assets 93 -81 0 0
The following table shows the changes in unrecognised costs of elapsed length of service: Pension plans Other postemployment benefits 2008 2007 2008 2007 Unrecognised: past service-cost as at 1 January 27 30 0 0 Past service cost non-vested benefits 0 0 0 0 Amortisation of unrecognised past service cost -3 -3 0 0 Buying and selling of subsidiaries 0 0 0 0
Experience-based adjustments are the actuarial gains and losses occasioned by differences between the actuarial assumptions at the start of the year and the actual outcomes during the year. The following table provides information about experiencebased adjustments concerning qualifying plan assets and liabilities for defined benefit plans.
Experienced-based adjustments to qualifying plan assets, gain (loss) 93 -82 -23 41 - - - As % of qualifying plan assets as at 31 December - -6.5% -1.7% 3.1% - - - Experienced -based adjustments to defined benefit obligation, loss (gain) -31 60 -11 -28 0 -4 -4 3 As % of liabilities as at 31 December -1.8% 3.7% -0.7% -1.5% 1.1% -21.5% -17.2% 3.8%
Expected return on plan assets - 4.90 4.28 0 0 0 Future salary increases (including price inflation) 2.60 2.30 2.10 - 2.30 2.10 Future pension increases (including price inflation) 2.20 1.90 1.80 - 0 0 Future mortgage interest (in connection with grantable discounts) - - - 5.90 5.25 4.55
The pension plan assets consist primarily of fixed-interest securities and investment contracts concluded with insurance companies. ASR wants to gradually adapt its asset allocation policy to arrive at a better match between the duration of the assets and the duration of the pension liabilities.
The composition of the pension plan investments (qualifying and non-qualifying investments) is: Fixed-interest securities 89% 85% 84%
As a financier of pension plans, ASR has drawn up general guidelines for asset allocation based on criteria such as geographical allocation and ratings. To ensure that the investment strategy remains in line with the structure of pension liabilities, ASR regularly conducts Asset Liability Management Studies. Asset allocation is determined on the basis of these guidelines and the outcomes of the studies.
As an employer ASR is likely to pay the following contributions into these plans in the coming financial year for the purpose of post-employment benefits: Pension plans with Other postdefined benefits employment benefits Expected contributions for next year 96 3 8.2 Other long-term employee benefits The other long-term employee benefits consist of the employer’s liabilities arising from long-service disbursements. The table below shows the liabilities for these disbursements recognised in the balance sheet.
Actuarial year-end assumptions: The table below provides an overview of the costs of other long-term employee benefits.
Net liability as at 31 December -6.8 -6.5 -6.2 9 Remuneration in shares and options
Over the past years Fortis offered shares in Fortis N.V. to a select group of senior managers to secure their loyalty and to align their interests to those of the company. Options are generally exercisable five years after the date of being awarded, regardless of whether they are awarded conditionally or unconditionally.
As part of the option plan, 437,400 Fortis shares were offered to employees in 2008 (2007: 402,300; 2006: 154,283). The costs related to the 2008 option plan amount to EUR 1,446,779 (2007: EUR 1,971,270; 2006: EUR 730,765).
10 Remuneration of Supervisory Board and Board of Directors of ASR
The table below shows the annual remuneration - from 15 December 2008 - for the new members of the Supervisory Board of ASR Nederland: Gross amounts in euros x 1,000 As member of As member of Total Supervisory directors Supervisory Board a committee C. van der Pol 45 5 50 C.H. van den Bos 30 10 40 10.2 Remuneration of directors and former directors The remunerations paid to directors and old directors were: Gross amounts in euros x 1,000 Regular remuneration Remuneration Profit-sharing Total Directors payable over time8 and bonuses J.P.M. Baeten 474 270 0 744 7 Joined the Supervisory Board on 12 Februay 2009.
The Board of Directors decided not to accept variable remuneration for the 2008 financial year. An amount of EUR 223,526 was paid in 2008 to former directors under existing contractual obligations.
Gross amounts in euros x 1,000 Regular remuneration Remuneration Profit-sharing Total Directors payable over time8 and bonuses J.P.M. Baeten 468 167 319 954
10.3 Option rights for directors and former directors Directors and former directors were awarded the following option rights to shares in Fortis N.V.: Name of director ‘Restricted Options Options Options Options Options shares’ awarded exercised outstanding at exercise- expiry in 2008 in 2008 31-12-2008 price date
Options awarded in 2008 concern options granted in recognition of performance over 2007.
The fees paid to accountants for the years of 2008, 2007 and 2006 fall into the following categories: • fees for auditing: these include the fees for auditing the consolidated financial statements, quarterly reports and other reports under the articles of association; • other fees unrelated to auditing: these include the costs of providing support and advice on acquisitions.
The remuneration and combined share ownership of the members of the Board of Directors are described in chapter 10, Remuneration of the members of the Board of Directors and Supervisory Board of ASR.
Insurance premiums, net after reinsurance (earned) -16 20 9 Fee and commission income 35 50 63
ASR is a financial service provider active in insurance. ASR provides products and services and operates in market segments that are subject to different levels of profitability, growth opportunities, future prospects and risks.
ASR cultivates the market through independent intermediaries and offers its business and private customers a wide range of life, non-life, medical and disability insurances plus mortgages and savings products.
Allocation rules In accordance with the ASR business model, the service-providing activities of the insurance companies are not reported separately.
For balance sheet items that cannot be related to products sold to customers, a modified allocation that applies to all reporting segments is used.
Fee and commission income 20 100 0 120 Dividend and other investment income 277 24 0 301
Expenses Insurance claims and benefits -3,751 -1,611 2 -5,360 Fee and commission expense -128 -414 1 -541 Depreciation and amortisation of tangible and intangible assets -70 -9 0 -79 Operating and staff expenses -554 -369 0 -923
Net result for the period -639 6 0 -633 Net result attributable to non-controlling interests -7 0 0 -7 Net result attributable to shareholders -646 6 0 -640
Expenses Insurance claims and benefits -2,831 -1,459 2 -4,288 Fee and commission expense -153 -401 0 -554 Depreciation and amortisation of tangible and intangible assets -62 -6 0 -68 Operating and staff expenses -495 -367 0 -862
Assets 31 December 2008 Life Non-life Eliminations Total Cash and cash equivalents 905 206 -457 654 Other assets and receivables 7,816 989 -128 8,677 Investments available for sale 13,414 2,877 0 16,291 Investments held at fair value through profit or loss 298 112 0 410
Investments in associates and joint ventures 146 16 0 162 Investments related to unit-linked contracts 7,487 0 0 7,487
Property, plant and equipment 244 20 0 264 Goodwill and other intangible assets 396 11 0 407
Liabilities arising from insurance contracts 17,861 3,289 0 21,150 Liabilities related to unit-linked contracts 8,263 0 0 8,263
Assets 31 December 2007 Life Non-life Eliminations Total Cash and cash equivalents 428 115 -60 483 Other assets and receivables 7,324 878 -54 8,148 Investments available for sale 13,059 2,509 0 15,568 Investments held at fair value through profit or loss 1,169 306 0 1,475
Investments in associates and joint ventures 175 10 0 185 Investments related to unit-linked contracts 10,234 0 0 10,234
Property, plant and equipment 206 21 0 227 Goodwill and other intangible assets 391 14 0 405
Liabilities arising from insurance contracts 16,922 3,123 0 20,045 Liabilities related to unit-linked contracts 10,633 0 0 10,633
Cash positions include cash on hand and other financial instruments with terms of less than three months after acquisition date. The cash positions as at 31 December consisted of: Due from banks 580 561 682 15 Other assets and receivables
Total due from customers 4,430 4,626 4,952 Less impairments - Specific credit risks -21 -31 -65 - Incurred but not reported (IBNR) -3 -3 0 Net due from customers 4,406 4,592 4,887
15.4 Trade and other receivables Trade and other receivables as at 31 December were: Due from insured parties 320 313 321 Due for operating leases 1 1 1 Due from intermediaries 141 121 145 Due from reinsurance actions 187 221 217 15.5 Accrued interest and other Accrued interests and other assets as at 31 December were: Deferred acquisition costs 646 678 689 Deferred investment and interest revenues 504 435 395 Buildings held for sale 220 173 128 Deferred tax claims 612 17 12 Immediate tax claims 6 7 8
Changes to deferred acquisition costs The table below shows movements in deferred acquisition costs in connection with insurance contracts over the year.
Group company purchases 1 0 9 Other adjustments including translation differences 0 1 -24 Balance sheet at 31 December 646 678 689 16 Investments
Financial assets and liabilities, including derivatives, are brought together in specific portfolios within the defined investment strategies. Their performance and risk are controlled and evaluated based on fair value.
Investments in associates and joint ventures 162 185 211 16.1 Investments available for sale The table below shows the fair value and amortised cost price and related unrealised gains and losses of investments available for sale as at 31 December: Historical Revaluation Impairment Fair values amortised cost price 31 December 2008 Investments available for sale Short-term government securities and other discountable securities 2 0 0 2
Measured on the basis of market information 603 Listed 15,688 Measured on the basis of theoretical models 0 Total 16,291
Impairments of investments available for sale The following table shows the changes of investments available for sale: Balance sheet as at 1 January -213 -105 -135 Increase in impairments -956 -139 -3 Release through sale 157 0 34 Translation differences and other adjustments -8 31 -1 Balance sheet as at 31 December -1,020 -213 -105
Of the debt certificates covered by other assets, an amount of EUR 373 concern ‘other asset backed securities’. The table below itemises the movements: Position as at 31 December 373 1,387 1,680 16.3 Investment property
Depreciation on buildings is calculated on a straight-line basis. Costs are written down over the estimated useful life to the residual value. Real estate investments have been divided into the following components: land, skeleton, outer shell, systems, furnishings (both rough finishing and detailed finishing) and long lease. The maximum useful life of the components can be found in the financial reporting principles in the property, plant and equipment section (chapter 2.20).
Property, plant and equipment as at 31 December: 2008 2007 2006 Land and buildings for own use 115 113 114 Inventory and motor vehicles 9 12 10 Buildings under construction 140 102 205
2008 Land and Inventory and Buildings Total buildings for motor vehicles under own use construction
Net Property, plant and equipment 113 12 102 227 2006 Cost price as at 1 January 189 173 0 362
Depreciation on IT, office equipment and other equipment and motor vehicles takes place over three to five years.
The fair value of land and buildings for ASR’s own use at year-end 2008 amounted to EUR 261 million (2007: EUR 241 million; 2006: EUR 237 million).
Intangible assets as at 31 December were: Value of business acquired (VOBA) 344 363 385 Software and other intangible assets 15 6 17 Total goodwill and other intangible assets 407 405 428
ASR Nederland N.V. 2008 90 ASR Nederland N.V. 2008 91 2007 Goodwill Value of Software and Total business other acquired intangible (VOBA) assets Cost price as at 1 January 31 500 56 587
Amortisation on intangible assets takes place according to the expected useful life. There is no amortisation on goodwill, in accordance with IFRS. At least once a year there is an evaluation of whether there is an impairment by comparing the carrying amount with the fair value.
Accrued interest and other liabilities as at 31 December were: Derivatives held for hedging 1 1 1 Derivatives held for trading 36 22 25
Due to customers 59 16 13 Accrued interest and other liabilities 3,463 2,590 2,437 19.1 Due to customers Debts owed tot customers as at 31 December were: Deposits of reinsurers 5 5 6 19.2 Accrued interest and other liabilities Accrued interest and other liabilities as at December 31 were: Other employee benefits 108 108 89
Debts to agents, policyholders and intermediaries 481 791 765 VAT and other payable taxes 17 2 6
Further details of pension liabilities can be found in chapter 8, ‘Post-employment benefits and other long-term employee benefits. Other employee benefits concern such matters as other long-term employee benefits (see chapter 8), other postemployment benefits (see chapter 8), social security charges, severance schemes and accrued holiday entitlements.
ASR Nederland N.V. 2008 92 ASR Nederland N.V. 2008 93 20 Due to banks
Liabilities arising from insurance contracts as at 31 December were: Life Non- Total Life Non- Total Life Non- Total life life life Gross
Impairments on investments, interest and dividend income and commutations are presented under ‘Other changes’. The sharp increase in the other changes compared with 2007 is due to a sharp increase in impairments of investments as a result of the turbulence in the financial markets in 2008.
Other borrowings as at 31 December were: Total other borrowings 509 1,057 1,323
This item mainly concerns privately placed loans. ASR furnished no security for the outstanding privately placed loans.
The table below shows the taxation position: Current Deferred Total Current Deferred Total Current Deferred Total
Deferred tax assets: Assets held for trading (securities trading portfolio/derivative financial instruments/other trading assets) 76 10 2 Investments (held until maturity/available for sale) 570 40 1
Property, plant and equipment 0 0 3 Intangible assets (excluding goodwill) 3 0 1 Insurance policy and claim reserves 174 140 278 Impairment on loans 0 0 0 Debt certificates and subordinated liabilities 0 0 1 Provisions for pensions and benefits after employment ends 33 33 66
Deferred costs and revenues received in advance 29 17 8 Unused compensable losses 0 0 0
Gross deferred tax assets 915 252 381 Write-down of deferred tax assets 0 0 0 Total deferred tax assets, net of write-down 915 252 381
Balance sheet as at 2008 2007 2006 Deferred tax liabilities: Trading assets (securities trading portfolio/derivative financial instruments/other trading assets) 39 25 5 Trading liabilities (sold securities/derivative financial instruments/other trading liabilities) 0 0 Investments (held to maturity/available for sale) 14 31 214
Property, plant and equipment 161 166 138 Intangible assets (excluding goodwill) 0 0 0 Due from customers 0 0 0 Debt certificates and subordinated loans 0 0 0
As deferred taxes on profits may be netted under fiscal regimes, they have been presented in the balance sheet in the following manner: Deferred tax liabilities 612 17 12 Deferred tax debts 136 241 193 Net deferred taxes 476 -224 -181
The provisions were created for: • fiscal and legal matters; • premature departure of personnel; • increasing the quality of management; • costs incurred for unbundling from Fortis.
Of the provisions an amount of EUR 17 million has a term less than one year.
To strengthen the capital base of insurance operations, ASR issued non-cumulative guaranteed Trust Capital Securities in April 1999 for an amount of EUR 650 million. A subsidiary was established especially for this purpose in the United States. The subsidiary is only allowed to possess debts or other securities owed by ASR group companies. The Trust Capital Securities are guaranteed by parent companies and have a perpetual term. However, after ten years ASR is allowed to make cash repayment on the payment date.
Swaptions are presented under the options of interest rate contracts. These are option contracts in order to conclude interest rate swaps at expiry date. ASR concludes these contracts to hedge the risk of a low interest rate.
Capital and indexation contracts Forwards and futures 0 0 0 0
Fair Assets Fair Liabilities values notional values notional amount amount 2006 Exchange rate contracts Forward contracts 1 186 4 188 Interest rate and exchange rate swaps 22 210 1 191
Fair Assets Fair Liabilities values notional values notional amount amount 2007 Exchange rate contracts Forward contracts 0 0 0 0 Interest rate and exchange rate swaps 0 0 0 0
Balance sheet as at 31 December 2007 0 123 1 123
Assets Liabilities Fair notional Fair notional values amount values amount 2006 Exchange rate contracts Forward contracts 0 0 0 0 Interest rate and exchange rate swaps 0 42 0 38
2008 Carrying amount Fair value Assets Cash and cash equivalents 654 654 Due from banks 871 957 Due from customers 4,406 4,489 Reinsurance, trade and other receivables 1,528 1,528 Total financial assets 7,459 7,628
Liabilities Due to banks 1,207 1,207 Due to customers 16 16 Debt certificates 5 5 Subordinated liabilities 687 726 Other borrowings 1,057 1,058 Total financial liabilities 2,972 3,012 2006 Assets Cash and cash equivalents 1,004 1,004 Due from banks 1,177 1,300 Due from customers 4,887 5,032 Reinsurance, trade and other receivables 1,597 1,597 Total financial assets 8,665 8,933
The basic principles for determining fair value are: • maximisation of market influences and minimisation of internal estimates and forecasts; • adjustment of the estimation method (valuation method) occurs only if an improvement of the valuation can be demonstrated, or if the valuation is necessary because insufficient information is available.
The fair value presented is the fair value excluding accrued interest (‘clean fair value’). Accrued interest is presented separately.
The methods and assumptions used to determine fair value depend largely on whether the instrument is traded in a financial market and which information is available to be incorporated into valuation models. A summary is provided below of the various financial instruments with the applied fair value method.
Quoted prices must be used for financial instruments traded in a market with quoted prices.
Quoted market prices are the most reliable fair values for derivatives traded on the market. Fair value for derivatives not traded on a recognised exchange is considered to be the value that could be realised through termination or assignment of the derivative.
Customary methods for valuing an interest rate swap (IRS) compare the yield of the swap with the current market yield. The swap yield curve is derived from the quoted swap yields. For customary IRSs buy and sell prices are generally available for parties with a rating.
Factors that influence the valuation of individual derivatives include the credit risk of the counterparty and the complexity of the derivative. If these factors differ from the basic factors, there will be consideration of whether an adjustment of the quoted price is necessary.
The calculation of the fair value of financial instruments not traded actively in financial markets is summarised below.
Instruments with no stated maturity On-demand accounts (current account), savings accounts, etc.
The development of new, sophisticated products in the market is resulting in the development of mathematical models to price them. These models depend in turn upon assumptions regarding the stochastic behaviour of underlying variables, numerical algorithms and other possible approximations needed to replicate the complexity of the option pay off.
Furthermore, the underlying hypotheses of a model are depending on the general market conditions (specific interest rates, volatilities, etc.) prevailing at the moment of its development. There is no guarantee that the model will continue to give adequate results, should market conditions change drastically.
Earned Insurance premiums: Life insurance products 3,491 3,108 3,437 Non-life products 2,338 2,124 1,977 Other and eliminations -52 -35 -36 Total gross premiums 5,777 5,197 5,378
The table below shows the single and regular insurance premiums: Unit-linked contracts Group business Single premiums written 105 360 41 Regular premiums written 162 141 93 Group business total 267 501 134
The table below provides an overview of the gross earned non-life insurance premiums. Insurance premiums for motor, fire and other have been combined under ‘Other Non-life’.
The table below itemises dividend and other investment income: Dividend on shares 107 110 114 Rent revenues from investment property 187 175 174 Other revenues from investments 7 13 2 Total dividend and other investment income 301 298 290 33 Other income
Other income consists of the following components: Share of reinsurers in paid claims 126 125 179 Share of reinsurers in changes to liabilities 0 23 -140 Sale revenues from investment property under development 112 127 60
Assets and liabilities held for trading will have been purchased specifically with a view to achieving a gain through short-term fluctuations in the price or the trading margin. The initial valuation is made at acquisition price, including transaction costs of the acquisition of the assets liabilities. After the initial valuation the valuation takes place at fair value, as determined based on the market. The realised and unrealised difference between carrying amount and fair value is presented under other realised and unrealised income and expense.
Derivatives held for trading include all derivatives not held for hedging purposes (hedge accounting). The changes to the fair value of derivatives held for trading are presented in this section.
ASR Nederland N.V. 2008 108 ASR Nederland N.V. 2008 109 35 Insurance claims and benefits
The table below shows details of the net claims expense and benefits for life Insurance: Commutations and expiration, Gross -2,538 -2,439 -2,939 Changes to life insurance liabilities, gross -1,173 -364 -559 Issued reinsurances premiums -38 -28 -26 Total claims expense and benefits, Life -3,749 -2,831 -3,524
36.2 Staff expenses The table below itemises staff expenses: Social security expenses -26 -22 -22
The table below shows the interest expenses according to product: Interest due to credit institutions -68 -71 -17 Interest due to customers -3 0 -1 Interest expense on subordinated liabilities -37 -37 -57 Interest expense on other loans -22 -47 -71 Interest expense on trading liabilities and derivatives -126 -180 -78 Other interest expenses -96 -34 -105 Total interest expenses -352 -369 -329
The table below itemises changes in impairments: Due from customers 0 10 -7
Due to the credit and financial crises, impairments have been applied to shares, corporate bonds and structured products. The change in impairments in investments is specified below.
Impairments on investments rose sharply by EUR 763 million, due entirely to the volatile financial markets.
Deferred tax over current financial year 406 -125 -172 Influence on tax rate changes on deferred taxes 0 0 -6 Deferred taxes arising from write-down or reversal of a write-down of a deferred tax liability 0 0 0 Previously unrecognised tax losses, tax credits and other temporary differences that reduce deferred tax expenses -2 0 -12 Total deferred tax expense (income) 404 -125 -190
Result before taxation -845 1.017 808 Prevailing tax rates 25.5% 25.5% 29.6% Expected income tax expense 216 -259 -239
Other notes to the consolidated income statement 40 Insurance 40.1 Technical result ASR analyses the results of its insurance activities partly on the basis of life and non-life products. The Life segment includes insurance contracts that cover the life and death of insured parties. Life further includes investment contracts with and without a discretionary profit-sharing component (DPF). The Non-life segment includes accidents, health, motor, fire and other insurances that cover the risk of loss of property or claim liabilities. The technical result is used for this analysis.
Total technical result -998 74 -86 200 276 272 Allocated added values 54 -25 316 44 39 9
The realised and unrealised added values in the investment portfolio that cover the insurance liability and that are not allocated to the technical result are recognised in the operating margin. This concerns among other things the realised added values on the CPPI model (refer to chapter 6.4.2, ‘Market risk’, under ‘ALM strategies for reducing risks’).
Claim benefits, own account Paid claims, Gross -1,221 -1,111 -986 Share of reinsurers 108 125 59
Change in provisions for claims, gross -185 -154 -24 Share of reinsurers 17 29 -26
Changes in other technical provisions, after reinsurance 14 -17 -10 Business costs Acquisition costs -414 -401 -391 Change in deferred acquisition costs 0 -1 -1
Result of technical account for non-life Insurance before taxes 74 200 272
The administrative costs, for Life and Non-life totalling EUR 591 million, form part of the operating expenses and staff expenses (see chapter 36).
40.2 Non-life Insurance per sector The table below shows for each sector selected information about Non-life insurance business: Gross Gross Gross Gross Reinsurance written earned claims operating balance premiums premiums expences costs 2008
Claims ratio: the cost of claims, net of reinsurance in non-life, as a percentage of the earned premiums, excluding the internal costs of handling non-life claims.
Expense ratio: expenses, i.e. costs plus net commissions charged to the year, less internal investment costs as a percentage of the earned premiums, net of reinsurance. The expense ratio is used for non-life insurance companies only.
Investment liabilities and guarantees In connection with the development of real estate, there are investment liabilities at Real Estate Asset Management totalling EUR 451 million. Real Estate Development has issued guarantees to third parties for a total amount of EUR 3.1 million for projects. The guarantees were issued by principals in connection with the performance of projects in favour of the clients of these projects.
The table below show liabilities as at 31 December for non-cancellable operating lease agreements.
Annual rental expenses: Lease payments 4 3 3 43 Funds under management
Balance sheet as at 1 January 1,026 960 228 Inflow and outflow -37 -18 683 Market gains/losses 14 84 49 Balance sheet as at 31 December 1,003 1,026 960 44 Subsequent events
Current assets Receivables due from group companies 3 1,829 831 1,633
Liabilities Equity 6 Paid-up and called-up capital 7 100 100 100
Reserves of associates required by law 9 0 464 1,075 Unrealised gains and losses 9 0 23 98
General The consolidated financial statements of ASR for 2008 were prepared in accordance with IFRS - including the International Accounting Standards (IAS) and Interpretations - as accepted within the European Union.
ASR invoked Section 2:402 of the Netherlands Civil Code to prepare the income statement, which makes it possible to suffice with an abridged income statement.
Unless otherwise stated, all amounts presented in these financial statements are in millions of euros.
The table below shows movements in 2008 in the balance sheet item for participating interests held in group companies: Balance sheet value as at 1 January 3,465 4,957 4,728 Additions to capital 862 30 0 Restructuring of associates 1 -245 0 Share in result of associates -512 889 685
4 Other receivables and deferred assets The concerns receivables under investments and interest yet to be received on the investments and liquidities. All other receivables have a maturity shorter than one year.
ASR Nederland N.V. 2008 122 ASR Nederland N.V. 2008 123 6 Shareholders’ equity The table below shows movements in shareholders’ equity.
Addition to statutory reserves of associates 0 658 0 -658 0
Balance sheet as at 31 December 2008 -640 0 0 10 -631 10 Pensions
Pension plans 1,885 Other benefits after employment ends 41 Other 7 Total pensions 1,933
For notes to pension liabilities see chapter 8, ’Post-employment benefits and other long-term employee benefits’.
Balance sheet value as at 31 December 27 22 23 12 Subordinated liabilities Subordinated liabilities as at 31 December were: The average interest rate on the subordinated loans was 5.5% (2007: 5.5%; 2006: 5.6%). An amount of EUR 600 million in the subordinated loans concerns hybrid securities with a first possibility for early repayment on 26 April 2009. This possibility will not be used. ASR will put forward a proposal in the near future for exchanging the existing securities. The other subordinated loans amounting to EUR 88 million have an average remaining term of 11 months.
16 Taxes and social security contributions This concerns corporation tax payable for tax returns of previous years that have not yet been settled.
17 Option plans A description of the option plans for the shares of former parent company Fortis can be found in the financial statements of ASR in chapter 9, ‘Remuneration in shares and options’, in the notes to the consolidated financial statements of ASR.
ASR Nederland N.V. 2008 124 ASR Nederland N.V. 2008 125 18 Liabilities not shown on the balance sheet
Guarantee statements ASR has stated, under Section 403(1f) of Book 2 of the Netherlands Civil Code, that it is liable for debts that result from legal acts of the legal persons listed in the list of associates with their names and registered offices appended as additional information to this annual report (under ‘Additional information’, List of associates) and indicated as such.
General The result consists mainly of the share in the result of the associates. The other results consist of interest income and interest expense under receivables from and debts owed to group companies, results of investments in shares and financial expenses and results under the provision of pensions.
Report on the financial statements We have audited the accompanying financial statements 2008 of ASR Nederland N.V., Utrecht. The financial statements consist of the consolidated financial statements and the company financial statements. The consolidated financial statements comprise the consolidated balance sheet as at 31 December 2008, the profit and loss account, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. The company financial statements comprise the company balance sheet as at 31 December 2008, the company profit and loss account for the year then ended and the notes.
Management’s responsibility Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code, and for the preparation of the management board report in accordance with Part 9 of Book 2 of the Netherlands Civil Code. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditor’s responsibility Our responsibility is to express an opinion on the financial statements based on our audit. We conducted our audit in accordance with Dutch law. This law requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
Opinion with respect to the consolidated financial statements In our opinion, the consolidated financial statements give a true and fair view of the financial position of ASR Nederland N.V. as at 31 December 2008, and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Netherlands Civil Code.
Report on other legal and regulatory requirements Pursuant to the legal requirement under 2:393 sub 5 part f of the Netherlands Civil Code, we report, to the extent of our competence, that the management board report is consistent with the financial statements as required by 2:391 sub 4 of the Netherlands Civil Code.
2. Distribution of profit cannot take place until after adoption of the financial statements shows that such distribution is permissible. The profit shown in the adopted financial statements shall be at the disposal of the general meeting of shareholders.
3. The general meeting of shareholders may make in the interim distributions charged to the profit over the current financial year only if the requirement of paragraph 1 has been met according to an interim capital statement within the meaning of Section 105(4) of Book 2 of the Netherlands Civil Code and prior permission has been obtained from the Supervisory Board.
Company name Fin. % Registered office * “Het Regentenhuys” Verzekeringen N.V. 100.00 Rotterdam * Administratie- en Adviesbureau voor Belegging en Krediet (A.B.K.) B.V. 100.00 Amersfoort Aktiva Financiële Dienstverleners B.V. 25.00 Dordrecht Ambachtsheerlijkheid Cromstrijen 99.22 Numansdorp * Amersfoortse Verzekeringen N.V. 100.00 Amersfoort * Amstar B.V. 100.00 Amersfoort * Amsterdamsche Grond- en Huizenexploitatiemaatschappij B.V. 100.00 Rotterdam ArboNed Holding B.V. 17.96 Utrecht * Ardanta N.V. 100.00 Enschede * ASAM N.V. 100.00 Utrecht * ASR Aanvullende Ziektekostenverzekeringen N.V. 100.00 Amersfoort * ASR Basis Ziektekostenverzekeringen N.V. 100.00 Amersfoort * ASR Beleggingsconsortium. Maatschappij voor Beleggen en Verzekeren N.V. 100.00 Utrecht * ASR Betalingscentrum B.V. 100.00 Utrecht ASR CVE II B.V. 100.00 Utrecht * ASR Deelnemingen N.V. 100.00 Rotterdam ASR Dutch Residential Fund I C.V. 97.51 Utrecht ASR Dutch Residential General Partner I B.V. 100.00 Utrecht ASR Dutch Residential General Partner II B.V. 100.00 Utrecht ASR Dutch Retail Fund I C.V. 97.51 Utrecht * ASR Financiële Dienstverlening B.V. 100.00 Rotterdam * ASR Levensverzekering N.V. 100.00 Utrecht ASR Nederland Beleggingsbeheer N.V. 100.00 Utrecht * ASR Nederland Vastgoed Maatschappij N.V. 95.01 Utrecht * ASR Pension Fund Services N.V. 100.00 Utrecht ASR Property Fund N.V. 100.00 Utrecht * ASR Schadeverzekering N.V. 100.00 Utrecht * ASR Service Maatschappij N.V. 100.00 Rotterdam ASR Vastgoed B.V. 100.00 Utrecht ASR Vastgoed Exploitatie Bodegraven-Oost B.V. 100.00 Utrecht ASR Vastgoed Exploitatie Ede B.V. 100.00 Utrecht ASR Vastgoed Exploitatie Gnephoek B.V. 100.00 Utrecht ASR Vastgoed Exploitatie Haarlemmermeer-West B.V. 100.00 Utrecht ASR Vastgoed Exploitatie Opstal Ede B.V. 100.00 Utrecht ASR Vastgoed Exploitatie Schalkwijk B.V. 100.00 Utrecht ASR Vastgoed Exploitatie Sint Michielsgestel B.V. 100.00 Utrecht ASR Vastgoed Exploitatie Zuidplas B.V. 100.00 Utrecht ASR Vastgoed Mahler B.V. 100.00 Utrecht ASR Vastgoed Ontwikkeling (55) B.V. 100.00 Utrecht ASR Vastgoed Ontwikkeling N.V. 100.00 Utrecht ASR Vastgoed Ontwikkeling Winkelcentrum Vleuterweide B.V. 100.00 Utrecht ASR Vastgoed Ontwikkeling Winkelcentrum Vleuterweide Beheer B.V. 100.00 Utrecht ASR Vastgoed Participatie Bodegraven-Oost B.V. 100.00 Utrecht ASR Vastgoed Participatie Ede B.V. 100.00 Utrecht ASR Vastgoed Participatie Gnephoek B.V. 100.00 Utrecht ASR Vastgoed Participatie Haarlemmermeer-West B.V. 100.00 Utrecht ASR Vastgoed Participatie Opstal Ede B.V. 100.00 Utrecht ASR Vastgoed Participatie Schalkwijk B.V. 100.00 Utrecht ASR Vastgoed Participatie Sint Michielsgestel B.V. 100.00 Utrecht ASR Vastgoed Participatie Zuidplas B.V. 100.00 Utrecht * ASR Verzekeringen N.V. 100.00 Utrecht * ASR Ziektekostenverzekeringen N.V. 100.00 Amersfoort
Gebiedsontwikkelingsmaatschappij Zuidplaspolder Beheer B.V. 20.00 Utrecht Gebiedsontwikkelingsmaatschappij Zuidplaspolder C.V. 19.60 Utrecht GEM Vleuterweide C.V. 11.31 Vleuten GEM Vleuterweide Beheer B.V. 11.78 Vleuten GHW Beleggingen B.V. 25.00 Nijmegen Grondbank Bennekomseweg Ede Beheer B.V. 50.00 Nieuwegein Grondbank Bennekomseweg Ede C.V. 49.00 Nieuwegein HB Holding B.V. 20.00 Nieuwegein Herendeal B.V. 49.00 Haarlem HerstelVerzekerd B.V. 25.00 Utrecht Hoge Erasmus V.O.F. 50.00 Rotterdam * Interlloyd Levensverzekering Maatschappij N.V. 100.00 Hoofddorp Jasonpark OmFor B.V. 50.00 Utrecht
Company name Fin. % Registered office Keerpunt B.V. 50.00 Hilversum Klanderij I B.V. 95.01 Utrecht Klanderij II B.V. 95.01 Utrecht Leidsche Rijn Centrumplan B.V. 78.00 Utrecht Meetingpoint B.V. 16.67 Hilversum Multizorg B.V. 14.29 IJsselstein (Ut) * N.V. Amersfoortse Algemene Verzekerings Maatschappij 100.00 Amersfoort * N.V. Amersfoortse Levensverzekering Maatschappij 100.00 Amersfoort N.V. Bergkwartier Mij tot Stadsherstel 10.91 Deventer * N.V. Maatschappij voor Sparen en Beleggen “Voorzorg Van 1838” 100.00 Amersfoort * N.V. Polder Jannezand 100.00 Utrecht N.V. Stadsherstel Leeuwarden 0.63 Leeuwarden * N.V. Verzekering Maatschappij “Johan de Witt” 100.00 Utrecht N.V. Zeedijk 2.43 Amsterdam Nautisch Centrum Scheveningen B.V. 50.00 Utrecht Neude 11 Monumenten B.V. 95.01 Utrecht NFP Finance B.V. 49.05 Nieuw Vennep * Onderlingehulp Verzekeringen N.V. 100.00 Enschede * Onroerende Goederen Maatschappij Stad Rotterdam N.V. 100.00 Rotterdam Ontwikkelingscombinatie AmFor Bodegraven - Oost Beheer B.V. 50.00 Nieuwegein Ontwikkelingscombinatie AmFor Bodegraven - Oost C.V. 49.00 Nieuwegein Ontwikkelingscombinatie AmFor Gnephoek Beheer B.V. 50.00 Nieuwegein Ontwikkelingscombinatie AmFor Gnephoek C.V. 50.00 Nieuwegein Ontwikkelingscombinatie AmFor Schalkwijk Beheer B.V. 50.00 Nieuwegein Ontwikkelingscombinatie AmFor Schalkwijk C.V. 49.00 Nieuwegein Ontwikkelingscombinatie Haarlemmermeer-West Beheer B.V. 40.00 Utrecht Ontwikkelingscombinatie Haarlemmermeer-West C.V. 39.00 Utrecht Ontwikkelingscombinatie Heeze-Zuid JaFor B.V. 50.00 Utrecht Ontwikkelingsmaatschappij Berghem B.V. 50.00 Utrecht Ontwikkelingsmaatschappij De Monarch B.V. 50.00 Den Haag Ontwikkelingsmaatschappij De Monarch C.V. 49.50 Den Haag Ontwikkelingsmaatschappij Kalvermarkt B.V. 90.00 Den Haag Oosterheem V.O.F. 19.84 Rotterdam OSPS Beheer B.V. 50.00 Utrecht Plan Brenthof Beheer B.V. 50.00 Geffen Plan Brenthof C.V. 49.50 Geffen Pluswoning B.V. 100.00 Utrecht PoliService B.V. 100.00 Zeist PreF Obligatie Groei Fonds N.V. 100.00 Utrecht Prisma Bleiswijk Beheer B.V. 22.00 Bleiswijk RiverStone Gebiedsontwikkeling B.V. 50.00 Velp * Servicemaatschappij “De Hoofdpoort” N.V. 100.00 Rotterdam S-Gravenhaagsche Passage Maatschappij B.V. 97.39 Utrecht * SR-Beheer B.V. 100.00 Rotterdam Stadsherstel Amsterdam N.V. 5.48 Amsterdam Stadsherstel Den Haag en Omgeving N.V. 11.31 Den Haag Stadsherstel Historisch Rotterdam N.V. 4.42 Rotterdam Stichting SR Bewaarder 100.00 Rotterdam Super Winkel Fonds B.V. 3.39 Zeist * Sycamore 5 B.V 100.00 Utrecht * Sycamore 6 B.V. 100.00 Utrecht * Sycamore Insurance 5 B.V. 100.00 Utrecht t Financieel Spectrum Holding B.V. 49.00 Hillegom Triple IP B.V. 35.00 Amsterdam * United Reforce I B.V. 100.00 Utrecht
The articles of association of ASR may be inspected at the Utrecht Chamber of Commerce and at the company’s head office. The financial statements will be lodged with the Utrecht Chamber of Commerce.
Investment contract A life insurance contract that transfers the financial risk, but not a significant insurance risk.
Clean fair value The fair value, excluding the unrealised part of the interest to date.
Participating interests An entity in which ASR possesses significant influence but that is not a subsidiary or an interest in a joint venture.
Subsidiary Subsidiaries are companies in which ASR is able to steer, directly or indirectly, the financial and operating policy in order to obtain benefits from these activities (‘control’).
Financial lease A lease agreement that transfers virtually all of the risks and remunerations attached to the ownership of an asset. This ownership may ultimately be transferred or may not be transferred.
Hedge accounting Accounting for the compensating effects of changes in the fair value of the hedging instruments and the fair value of the hedged instrument in the income statement of the same period.
IFRS Abbreviation for International Financial Reporting Standards (previously International Accounting Standards, IAS). The standard international accounting rules for preparing financial statements as of 1 January 2005 applicable to all listed companies in the European Union. They make annual results easier to compare and provide a better insight into the financial position and results.
Joint venture Strategic cooperation between two or more parties, which contribute capital and knowledge but at the same time continue to operate independently.
Market capitalisation Market value. Market capitalisation equals the number of outstanding shares multiplied by the prevailing price of the share.
Notional amount An expression of a number of units of a currency, a financial instrument, a certain volume or weighting that is specified in a transaction with derivatives.
Operating lease An agreement that allows the use of a good in return for regular payments, but does not provide for the transfer of title to its ownership. The financial risk remains with the creditor or lessee.
Operating margin Operating result divided by net earned premiums. The operating result is the profit or the loss on all activities, including the technical and investment results.
Option The right, but not the obligation, to buy (call option) or to sell (put option) a security during a certain period of time at a certain date in return for a certain price.
Deferred acquisition costs The costs of acquiring new and renewed insurances, mainly commissions and expenditure concerning underwriting, intermediaries and the issue of new policies. These costs vary and relate mainly to the conclusion of new contracts.
Transaction date The date at which ASR enters into the contractual provisions of an instrument.
Impairment The amount by which the carrying amount of an asset exceeds its realisable value. In such cases the carrying amount will be reduced to its fair value via the income statement.
Abbreviations ALM Asset and liability management DPF Discretionary participation features Euribor Euro inter bank offered rate IBNR Incurred but not reported IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards LAT Liability adequacy test OTC Over the counter