B u ild in g co n fi d e n ce
ASR Nederland has regard for the interests of customers, distribution partners, the shareholder, employees, nongovernmental organizations (NGOs) and other stakeholders, having duly embedded the principle of care in its processes. ASR Nederland’s corporate social responsibility and concern for the environment are reflected in its compliance with the principles of socially responsible investment (SRI).
Part I: ASR Nederland at a glance 5 Interview with Jos Baeten about corporate ambitions 6 1.1 Mission, vision and core values 9 1.2 The ambition 10 Interview with Peter Hoitinga and Boudewijn van Uden about customer value and distribution 12 1.4 Financial targets 20 1.5 Corporate social responsibility 21 1.6 Human Resources 27
Part II: Report of the Executive Board 29 Interview with Roel Wijmenga about financial robustness 30 2.1 Members of the Executive Board of ASR Nederland N.V. 33 2.2 Financial performance 36 2.2.1 ASR Nederland 36 2.2.2 Life segment 39 Interview with Gilbert Mattu and Fiona van ‘t Hullenaar about efficiency 44 2.2.3 Non-life segment 48 2.2.4 Other segment 52 Interview with Jack Julicher and Jits Berns about risk management 56 2.3 Capital management 60 2.4 Risk management 63
Part VI: Financial statements 85 Consolidated financial statements 87 Notes to the balance sheet 137 Notes to the income statement 166 Company financial statements 179
Part VII: Other information 187 Independent auditor’s report 188 Events after the reporting date 189 Glossary 192 List of acronyms 194 Contact details 196 Colophon 196
While the market continued to be difficult, ASR Nederland made great strides in 2010 towards achieving its mission. Reducing the complexity of the organization, reinforcing the already robust financial base and putting customer interests first are priorities in the process of change that ASR Nederland is currently undergoing. ‘We want to focus on the fundamentals of insuring. Our initiative to actively offer customers with unit-linked investment contracts the possibility of switching to a new and transparent low-cost product shows what ASR Nederland is all about: we are a financial services provider with a prudent risk profile and robust solvency, guided in our actions by the best interests of our customers,’ says Jos Baeten, CEO.
Commission-free products Closely connected to the cost structure is what Baeten calls ‘future-proof information technology’. The Life segment introduced a Next Generation Life platform, allowing it to offer new products much more efficiently and at lower cost. These next generation products are based on legislation that will come into effect from 2013, when commission will be replaced by consultancy fees. Although sales of these new products are still limited to date, they do demonstrate that ASR Nederland plans to change and that it is ready for changes in regulatory requirements.
Better reporting Good progress was also made in 2010 with respect to the financial structure. At the time of the autonomization from Fortis in 2008, it was clear that a number of support services that used to be provided by the parent company would have to be developed in-house. In 2010, ASR Nederland made significant headway in further professionalizing the financial reporting and risk management departments, in order to meet the relevant requirements for listed companies. ‘We’ve made giant leaps here,’ claims Baeten.
‘ We need to look at the world from a Darwinist perspective’
always act in the customer’s best interest. ‘Although it would be easier to tackle these goals one-by-one, we want to achieve them all at the same time. The pressure of the market forces us to act quickly. This means that our organization is faced with one change after another. We need to look at the world from a Darwinist perspective. The business that will survive is not necessarily the strongest, but the one that adapts best to a changing environment. The introduction of the new platform at Life is an example of our efforts to adapt,’ says Jos Baeten.
In other respects too, 2011 will be a year of delivering on ambitions. Jos Baeten lists a few: ‘Introducing new products that demonstrate our commitment to becoming that different insurer; truly acting differently to show that we operate in the customer’s best interest; selecting products and customers that make us stand out; and offering only those products that fit the customer’s risk profile. Unitlinked investment contracts are an example of a product where we did not put the customer first, in the past. These contracts did not serve the purpose for which customers had bought them. That’s why we now allow existing customers with unit-linked investment contracts a solution, offering them new perspectives.’
‘As an organization, we have the choice and the ability to do things differently. Our own parent company went to pieces in 2008, which was a humbling experience. We’ve learned from the past. We want our work to be based on the values that were established when our insurance business first started in 1720: sharing and bearing risks together, based on the guarantee of mutual trust.’
At ASR Nederland we want to show that we have learned from the past and that we have changed course
• ASR Nederland is approachable. ASR Nederland understands its role, accepts its responsibilities and acknowledges its accountability in everything ASR Nederland does. Employees call one another to account if necessary, and it is appreciated when our customers and distribution partners do the same, so the company can grow and improve. So that others can rely on ASR Nederland even more.
• ASR Nederland is individual and authentic. ASR Nederland is proud of who and what it is, but also dares to show its vulnerability. ASR Nederland values everyone’s individuality, and it is open in communications. Only in this way can unique personalities and specific talents be brought together. By bringing out the best in each other, ASR Nederland achieves the very best solutions.
ASR Nederland strives to be the most approachable insurer in the Netherlands. ASR Nederland is convinced that growth can be achieved by thinking in terms of customers’ interests and experiences rather than in terms of products and processes. Within this approach ASR Nederland puts the focus on individual customers, self-employed professionals and small and medium-sized businesses. ASR Nederland constantly works towards cost-efficiency in its operations in order to achieve its financial objectives and provide the customer with competitive services.
In addition to these core markets, ASR Nederland also focuses on: • markets that, because of their connections with activities in one of its core markets, are important in offering service to customers, such as savings and investment, mortgages and health insurance; • markets with a specific distribution network and a relatively independent market dynamic, such as the travel and leisure market (Europeesche Verzekeringen) and the funeral market (Ardanta); • property activities, on the basis of ASR Nederland’s role as an investor and manager of premium funds and as a property developer.
ASR Nederland pursues a brand strategy in which: • products from ASR Verzekeringen and De Amersfoortse are available through intermediaries; • Ditzo is focused on direct internet distribution; • Europeesche Verzekeringen and Ardanta are specialists who make use of a variety of distribution channels, and where internet distribution is playing an increasingly prominent role.
From the basis of its history, ASR Nederland has a strong position with small and medium-sized intermediaries who provide advice, convenience and administrative support services to individual customers, self-employed professionals and small and medium-sized businesses.
The market for insurance products has undergone major change. Consumers want clarity and transparency. Products need to match this. Some consumers want advice, while others prefer to make their own choices. This demands a different approach to customers from insurers and advisors. Ditzo, ASR Verzekeringen and De Amersfoortse have all translated this changing market view in a different way. Peter Hoitinga and Boudewijn van Uden explain how.
Ditzo started by distancing itself from the bureaucracy and inflexibility of insurers themselves. Their tone has now changed a little. ‘Our approach is based on talks with consumers across the country. And we still use every first Monday of the month to visit customers and talk to them, and to ensure that everyone working here in the organization regularly meets with customers. We have a strong focus on customer-friendliness and transparency. This sits well with ASR Nederland’s core values.
Ditzo customers are people who are able or willing to make their own choices
‘It is our job to improve how we transpose customer needs into products. As an insurance company, we have never done this as intensively as we are doing it now. We need to think better about what consumers want. They are displaying more hybrid behaviour. They often browse the internet for information and then buy a product either directly from an insurer or from an advisor. Once a person has become a customer, he or she may sometimes want information from the advisor and sometimes directly from the insurer. That is something that we were never prepared for before. Increasingly, customers are in the lead, and we have to be ready for that. The distinction is made by the added value that customers experience, both from the intermediary and from the insurer recommended by the intermediary,’ emphasizes Boudewijn van Uden.
Knowing better what customers want Customer research was carried out on various subjects in 2010, by holding conversations with customers and in other ways. This has given ASR Nederland many new insights into what customers want, what motivates them and how ASR Nederland can adapt itself to these factors. Boudewijn van Uden believes that this is not an optional process, but pure necessity. ‘This means that hard work will be needed to make the proposition fully functional across the board. We want to shape that change together with our intermediaries. At ASR Nederland, we need to learn to deal better with the changing behaviour of consumers. We need to have more happy customers, winning back their confidence not by shouting, but by proving. The times when business came knocking at the door are gone,’ says Boudewijn van Uden.
Based on the vision that the trust of those around us is essential for the future of ASR Nederland, a strategy has been formulated based on three interconnected pillars: • Customer interests • Financial robustness • Efficiency
Next generation products The introduction of next generation products in both the life and non-life segments was rolled out at the end of 2009. These are products characterized by an extremely low and transparent cost level. In 2010, this initiative was expanded with the introduction of the new VermogenGarant (Asset Guarantee) product.
Customer satisfaction incorporated into remuneration criteria To prioritize customers’ interests even more emphatically, customer satisfaction has also been incorporated into the remuneration criteria for the Executive Board and senior management.
1. ASR Nederland will add the amount of compensation to which the customer is currently entitled to, to the contract immediately.
2. ASR Nederland will ensure that customers are actively advised of whether there is a better alternative for them than allowing the contract in its current form (including compensation) to be continued. The role of the inter- mediary is very important in this matter. Good advice on the appropriate considerations to be made is therefore also of great importance. ASR Nederland assumes that intermediaries, on the basis of their duty of due care, will actively advise and support their customers. To encourage this process, ASR Nederland will compensate customers for the costs incurred. After having taken this advice, the customer is free to terminate the unit-linked insurance contract or to transfer to another product, regardless of whether this is a product from the new ASR Nederland range or from a competitor. If the customer chooses a new ASR Nederland product, ASR Nederland will bear the administration costs. In this way the advice to the customer will not be influenced. Customers are free to choose their own intermediaries. If the customer does not have an intermediary, or does not wish to continue with the same intermediary, ASR Nederland will offer its customers an appropriate solution.
4. If customers decide to terminate their unit-linked insurance contract or to transfer to another product, ASR Nederland will bear the costs that have not yet been charged to the customer. The customer will therefore not be faced with buyout charges. No distinction will be made here between customers who exchange their unit-linked insurance contract for another ASR Nederland product and those who transfer to a product from a competitor. Customers do not have to sign a warranty clause in this respect, so they do not forfeit any rights.
Financial robustness is closely connected with the strategic principle of regaining customer confidence. A financially robust insurer is able to fulfil its long-term commitments to policyholders.
In 2010, the following steps were taken to strengthen this strategic pillar: • design of a new risk management framework; • Dutch Central Bank (DNB) solvency remained on a strong level; • diversification benefits achieved through legal restructuring; • further reduction of risks within the investment portfolio: - reduced investment in Greece, Ireland, Italy, Portugal and Spain; - reduced investment in financial institutions, especially in Tier 1 loans; - further reduction of investments in property.
Risks within the investment portfolio further reduced The risks within the investment portfolio have been reduced, partly because of the sale of bonds from financial institutions, the reduction in investments in government bonds of Greece, Ireland, Italy, Portugal and Spain and the sale of property. Interests in bonds from financial institutions fell by 11% in 2010 to € 6.4 billion.
This reduction particularly affected Tier 1 loans. Interests in government bonds of the above-named countries were cut back sharply from € 606 million at the end of 2009 to € 164 million. ASR Nederland has primarily reinvested in AAA fixed-interest securities, such as long-term German and Dutch government bonds and Dutch mortgages. Through tactical selling, the property portfolio of ASR Vastgoed Vermogensbeheer has been brought into line with ASR Nederland’s strategic asset mix. In total, property valuing € 346 million was sold in 2010. Relative interests in shares have been slightly raised. Despite the policy aimed at actively reducing risks, the sensitivity of ASR Nederland’s solvency – particularly to fluctuating interest rates – has increased due to the highly specific interest conditions.
Reduction of complexity ASR Nederland continually works on increasing its efficiency through the Complexity Reduction programme. Because of mergers and integrations in the past, the constantly changing legislation and the changing requirements of the customer, complexity has been created in processes and product variants, with the consequence that the costs of product management and system maintenance have risen over the years.
Integration of Falcon Leven into ASR Verzekeringen Because of the strongly changing market for individual life insurance and the possibility of gaining benefits through the efficient deployment of capital, Falcon Leven was integrated into ASR Verzekeringen with effect from 1 September 2010. With this, the Falcon Leven brand ceased to exist. The various business units were integrated in order to optimally and efficiently capitalize on market developments and changing customer demands. This integration is also consistent with the strategy of centralizing the back offices of similar products.
Concentrating accommodation to one location In 2010, the Executive Board decided to renovate the existing premises at Archimedeslaan 10 in Utrecht and not to initiate building new accommodation. Renovation can be completed quicker and is more in keeping with ASR Nederland’s ambitions in the field of sustainability (no wastage, and taking consideration of the large numbers of empty office buildings). Renovation also results in the lowest accommodation costs per employee. Furthermore, because of its large, open workspaces, the current head office is very well-suited to Next Generation Working. ASR Nederland also retains a large number of parking places at its disposal, which benefits accessibility. The renovation is planned to start in mid-2012, and should be completed by 2015 at the latest. Because employees will continue to work in the building during the renovation, the work will be carried out in stages. Seven locations were closed in 2010.
ASR Nederland is certain that, in the long run, profit can be achieved only if attention is paid to the effects of its operations on people and the planet. For this reason, ASR Nederland is highly committed to corporate social responsibility (CSR).
The interests of all stakeholders are considered in conducting ASR Nederland’s business. ASR Nederland maintains close contact with a varied group of external stakeholders (customers, business partners, shareholder the Ministry of Finance, the Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM), politicians, regional governments, industry associations, the Dutch Association of Insurers, trade unions, non-governmental organizations (NGOs) and local communities).
Hard work was put in 2010 at ASR Nederland towards increasing the transparency of products, resolving the problems surrounding unit-linked investment contracts, improving the quality of processes, simplifying the product range, and towards offering sustainable insurance products.
Where ASR Nederland acts as an institutional investor, CSR comes to the fore in applying sustainability criteria to investments.
With the introduction of the VermogenGarant and VermogenBelegd products by ASR Verzekeringen, new investment funds were introduced in 2010 that are fully managed in accordance with these criteria.
Progress has also been made in SRI concerning investments placed with external assets managers. More than 95% of ASR Nederland’s external asset managers have now ratified the UN Principles for Responsible Investment. In addition, more and more external asset managers are embedding ESG factors in their investment processes.
ASR Vastgoed Vermogensbeheer ASR Vastgoed Vermogensbeheer wants to add value for the users of its properties in a sustainable, personal and trans- parent manner. This is reflected, for instance, in investments in land and country estates.
The sustainability policy is embedded in the organizational processes. A supplier of renewable energy was selected for the entire property portfolio. The energy use of the tenants is measured to raise energy awareness and reduce consumption. In the property portfolio, 50% of homes has been awarded energy label C as a minimum. This is 10 percentage points higher than the entire Dutch housing stock rating.
ASR Vastgoed Vermogensbeheer is also a player in several industry associations where it promotes sustainability aspects of real estate on all fronts. In 2010, the Dutch property sector launched a pilot project to develop a sustainability certificate for existing buildings. ASR Vastgoed Vermogensbeheer participates in this pilot with its office investment in ’Willemswerf’ in Rotterdam.
The agreements made in the Lenteakkoord are monitored by the Sustainability Committee of NEPROM, the Association of Dutch Property Developers, in which ASR Vastgoed Ontwikkeling is represented.
ASR Nederland endeavours to place as small a burden on the environment as possible in carrying out its operations. This has been formalized in the ASR Nederland environmental policy statement, which addresses the efficient use of resources, energy and water, as well as waste management, mobility and carbon emissions. ASR Nederland also wants to continually improve its environmental footprint via environmental management. Prompted in part by sustainability reasons, it was decided in 2010 to refurbish the building at Archimedeslaan 10 in Utrecht rather than commission the construction of a new head office.
Long-term Agreement on Energy Efficiency 3 The Dutch government has entered into long-term energy efficiency covenants with sectors of industry since 1992. ASR Nederland signed the Long-term Agreement on Energy Efficiency 3 (Dutch acronym: MJA3) in 2008. The Agreement sets out national agreements between the government and the corporate sector about such issues as saving energy, sustainable purchasing, improvements to data centres and procurement of renewable energy. By signing the Agreement, ASR Nederland expressed the intention to achieve a 30% reduction in energy consumption in 2020.
In addition, a 10% reduction in carbon emissions in day-to-day business operations will be achieved by: • encouraging sustainable purchasing; • implementing measures to procure renewable energy; • improving the energy performance of data centres; • using renewable electricity.
The results achieved are reported annually to the government. As a result of ASR Nederland’s centralization policy and developments in the field of ICT, energy use was reduced by around 10% in 2010. The expectation for 2011 is that savings resulting from continuing centralization and developments in ICT will amount to approximately 5%.
CO2 emissions as a result of mobility ASR Nederland has established that its CO2 emissions are largely caused by mobility. This subject is currently under investigation. Depending on the outcome of the investigation, ASR Nederland will take measures to reduce these emissions.
Recycling of office supplies ASR Nederland encourages the recycling of office supplies via in-house publications. Unnecessary office supplies are donated to Stichting Betuwe Wereldwijd, for instance, which sends them to development projects in several countries, particularly in Africa.
Sustainable purchasing At ASR Nederland, sustainable business practices also entail sustainable purchasing. The key principle is that the environ- mental impact of the goods and services used should be reduced gradually and that international human rights should be respected throughout the production process. Sustainability aspects are considered in the decisionmaking on all new and amended contracts. The coffee served at ASR Nederland has the fair trade label and all paper used is FSC-certified.
For its customers and society at large, ASR Nederland aspires to be the financial services provider with a human dimension. For its employees, ASR Nederland wants to create a comfortable work environment where the most diverse talents and characters feel at home, and their skills and abilities are used to their best advantage. ASR Nederland offers employees opportunities for personal development, career planning and achieving their ambitions.
ASR Nederland has committed itself to several community initiatives, an inextricable part of CSR.
Activities In 2010, more than 1,100 employees of ASR Nederland undertook activities to benefit society. Employees committed their time to various projects, including a clean-up campaign of fort island Pampus and a spruce-up of a playground of a school for the mentally disabled.
Youth care has had ASR Nederland’s special attention since 2006, when the Verzekerd van Jeugdzorg-programme was launched. This programme links the hobbies and passions of employees to opportunities for teenagers. The partnership was evaluated in 2010 in collaboration with RSM Erasmus University.
One of the projects within this programme is the ASR Youth Run, a sport coaching project where ASR Nederland employees form running teams with a number of teenagers and run five or ten kilometres of the Rotterdam Marathon. In 2010, 270 people took part in this initiative.
In 2011, focus will shift to personal development, financial literacy and a healthy lifestyle for teenagers, for instance through the ‘Vliegende Start’ (Hit the ground running) and ‘Grip op je Geld’ (Getting a grip on your money) projects in partnership with the Nationaal Fonds Kinderhulp (National Fund for Children), the Nibud (National Institute for Family Finance Information), and Melching.
Sustainability criteria for existing properties will be established for ASR Vastgoed Vermogensbeheer in 2011. In the Sustainability Taskforce of IVBN, the Dutch Association of Institutional Property Investors, ASR Vastgoed Ontwikkeling continues to support further moves towards sustainability in existing properties. The Sustainability Officer will ensure that the CSR criteria are implemented in policies and procedures. The energy efficiency agreements of the Lenteakkoord will also be observed in this sector.
ASR Nederland strives to be an attractive employer for current and future employees: an employer with employees who use ASR Nederland’s core values as the basis for their behaviour. Employees who place customers’ interests at the centre of their thoughts and actions: who are able to adapt to constantly changing circumstances and who are prepared to grow together with the organization and take responsibility for their own career development.
The HR policy of ASR Nederland is aimed at being in line with the requirements within the company, both as an employer and as the guardian of the agreed policy, and towards making a contribution to a healthy balance within the organization. In this way, Human Resources help build an inspiring and healthy working environment where there is optimum collaboration, and in which employees have the mobility that enables them to develop their talents to the maximum.
Reduction in number of employees An extensive cost savings operation led to a reduction in the number of employees. Despite this shrinkage, 300 vacancies were filled, by both internal and external employees.
The number of internal employees fell on balance by 3%, from 4,454 FTE at the end of 2009 to 4,333 FTE at the end of 2010.
The number of external employees rose from 566 FTE at the end of 2009 to 596 FTE at the end of 2010. An additional 111 FTE external employees are working on compensation (93 FTE in 2009). The Social Plan was implemented for 182 ASR Nederland employees who had become surplus to requirements.
This helps the programme to be matched to the personalities and talents of the participants as closely as possible, while also remaining closely connected to issues within the organization. In this way, the participants’ development is linked to the organization’s development. The standard programme includes modules on strategy development, organizational culture, project management, presentation, coaching, Operational Excellence and change management. In addition, participants devise their own learning programmes for their groups, with options including a selection of modules provided by external educational institutes as well as the use of practical situations as learning experiences. The progress and quality of the training programme are monitored by the programme managers who lead the groups.
The New World of Work ASR Nederland is implementing Next Generation Working to adapt working patterns and give employees more free- dom to work where and when it suits them best. Within the Next Generation Working programme, a number of concrete experiments have been initiated to identify what is needed to make Next Generation Working a reality. A large number of employees will be working according to the new model in 2011, with a move from 1.2 to 0.7 FTE per workspace.
Amendment to remuneration policy The new remuneration policy for the Executive Board and senior management supports the strategy of ASR Nederland and reflects its commitment to moderation and sustainability. The variable remuneration of the Executive Board and senior management is now ⅓ dependent on customer value and employee engagement, ⅓ dependent on ASR Nederland’s financial performance and ⅓ dependent on individual performance.
Employability ASR Nederland strives towards a balanced reflection of society and towards sustainably flexible deployment of all employees, in other words: having the right person in the right post at the right time. ASR Nederland offers tools to promote the flexible deployment of employees throughout their careers, and in doing so, contributes to their personal and professional development.
‘ In a time of financial turbulence, ASR Nederland’s resilience is essential’
A lot has changed in ASR Nederland’s financial situation over the past two years. When ASR Nederland unexpectedly found itself without a parent company in 2008, it had to set up its own independent risk management process. In addition, the balance sheet at the time – amid the financial turmoil – was too vulnerable. ‘We now stand firmly on our own two feet. The balance sheet of ASR Nederland is robust. We are financially sound, risk management has been implemented, and our checks and balances are in working order. This is a necessity given the current market turbulence and the intention of ASR Nederland to enter the private market in the foreseeable future,’ says Roel Wijmenga, who has been CFO of ASR Nederland since early 2009.
‘In a time of financial turbulence, ASR Nederland’s resilience is essential,’ Roel Wijmenga says. ‘This means maintaining adequate financial buffers, but also dipping into them as little as possible. But you can’t predict every eventuality.’ ASR Nederland took great strides in risk management in 2010. ’The whole infrastructure including documentation, regulations, governance of the committee structure, reporting and communication was set up and has proved its added value in 2010. Based on that, measures were taken several times, both due to current events and more strategic considerations. I am sincerely proud of the people around me who helped to achieve this in such a short timeframe and starting from scratch. The financial crisis has taught us the necessity of risk management. I’m glad we are standing firmly on our own two feet again on this issue. We are actively continuing to work on strong risk management.’
Challenging process Wijmenga believes that the Dutch market is highly competitive. ‘For decades, the non-life market has seen fierce competition and low margins. The Life business faced transparency issues, which resulted in a deep loss of confidence in insurers. And then there is the competition from tax driven bank savings products. In Pensions, the interest rate, which is historically low in part due to European monetary policy relating to the credit crunch, is causing us some difficulties. Combined with the guarantees that are common in the market, this makes it more difficult to achieve acceptable levels of return at the moment. If the interest rate rises, things will soon improve, fortunately. The internet is quickly changing consumer behaviour, not just when purchasing insurance, but also in the phases before and after. It is important to respond quickly and appropriately to the turbulent environment in which we operate. At the same time, we are now independent. And that makes this process very exciting and interesting.’
Important steps taken in 2010 Apart from the completion of a fully functional risk management structure, new steps were taken to further purge the balance sheet of financial risks. ‘For instance, based on risk policy we had already greatly reduced our positions in government bonds of Greece, Ireland, Italy, Portugal and Spain before all the commotion started.
For decades, the Non-life market has seen fierce competition and low margins
’ We have invested primarily in Dutch and German government bonds, and additionally in prime Dutch mortgages. We also sold € 346 million worth of property. Furthermore, we kept interest rate fluctuations in check by using interest rate options. Despite low interest rates, this meant that solvency in 2010 remained strong. We were also able to reverse some impairment losses on a number of investments via sale. This is a sign of a cautious recovery in the financial markets. It also shows that we are rather prudent in our balance sheet valuation. Also in 2010, all life insurers within the group were consolidated into a single legal entity. In part because of this, the effect of increased life expectancy on our figures was limited. This illustrates the good balance in our life portfolio. Great progress was made in control over non-financial risks in 2010. The new department Integrity & Operational Risk Management was created. And because attention for independent Enterprise Risk Management increased, an ASR Nederland risk framework was developed for a structured approach. Finally in 2010 another Control Risk Self Assessment was completed, in which the full ASR Nederland management identified risks themselves and determined measures to control these.’
‘ It also shows that we are rather prudent in our balance sheet valuation’
Jos Baeten is the Chief Executive Officer (CEO) of ASR Nederland. His areas of responsibility also include Strategy, Human Resources, Corporate Communications, Audit and the corporate support departments.
Baeten studied law at Erasmus University Rotterdam. He started his career in 1980 when he joined Stad Rotterdam Verzekeringen, one of the pillars of ASR Nederland; he was appointed CEO of Stad Rotterdam in 1999. He then joined the Board of Directors of Fortis ASR Verzekeringsgroep, becoming Chairman of the Board of De Amersfoortse Verzekeringen in June 2003. In 2005, he was appointed to Chairman of the Board of Directors of Fortis ASR Verzekeringen. Since January 2009 he is CEO of ASR Nederland.
Additional positions Jos Baeten is a member of the Board of the Dutch Association of Insurers and of the Holland Financial Centre. He also serves as Chairman of the Supervisory Board of Meetingpoint, a transaction platform for financial advisors and Chairman of the Supervisory Committee of GemivaSVG Groep and the Rotterdam Theatre Foundation. He is also a member of the board of VNO-NCW.
Van der Knaap studied business economics at Erasmus University Rotterdam. He started his career in 1987 when he joined the Corporate Banking department of Bank Mees & Hope, later known as MeesPierson. He went on to become General Manager of Strategy at Fortis and Secretary of the Fortis Executive Committee. Van der Knaap was appointed to the Board of Directors of Fortis ASR Verzekeringsgroep in 2003.
Additional positions Hans van der Knaap is a member of the Supervisory Board of Arboned.
As ASR Nederland’s Chief Commercial Officer (CCO), Roeland van Vledder is responsible for sales. His areas of responsibility include Marketing & Sales of ASR Verzekeringen and De Amersfoortse, Europeesche Verzekeringen, Ardanta, Ditzo, ASR Vastgoed Vermogensbeheer and ASR Vastgoed Ontwikkeling. In addition, he is responsible for Business Support.
After having completed his law degree at Utrecht University, Van Vledder earned a MBA from Erasmus University Rotterdam and the University of Rochester in the US. His career began when he joined ING Bank in 1983, serving as CEO of ING’s Belgian insurance business from 2001 to 2004. In 2006, he became a member of the Board of Directors of Fortis Verzekeringen Nederland.
Additional positions Roeland van Vledder is Chairman of the Life Insurance Sector Board of the Dutch Association of Insurers and Chairman of the Board of SIVI (the Dutch standardization institute for insurance in the intermediary channel).
Additional positions Roel Wijmenga is the Chairman of Stichting Certificering Federatie Financieel Planners and member of the board of the Foundation DSI. He is also a member of the FinancialEconomical commission of the Dutch Association of Insurers.
• Profit for the year up 24%, rising to € 317 million (2009: € 255 million)
liabilities arising from insurance contracts, life 29,305 28,174 liabilities arising from insurance contracts, Non-life 3,535 3,535
Recurring direct investment income was weighed down in 2010 due in particular to a combination of the de-risking policy that was initiated in earlier years and the sharp drop in interest rates. The low interest rates had an offsetting effect on interest payable on funding drawn down.
In the Non-life segment, gross insurance premiums showed a limited fall from € 2,346 million to € 2,310 million. Lower new production and a higher cancellation rate weighed down revenue from occupational disability contracts, due in part to considerably fiercer competition on pricing and contract conditions. ASR Nederland also saw a slight drop in revenue from health insurance contracts. Revenue from Other Non-life business (including motor, fire and liability insurance) and Europeesche Verzekeringen, the specialist travel and leisure insurance label, was up.
* ASR introduced the Other segment in 2010. It comprises the banking operations (ASR Bank and ASR Hypotheken (mortgages)), Ditzo (distribution channel), ASR Vastgoed Ontwikkeling (property development), SOS International and the holding companies.
In addition, ASR Nederland offers pension solutions to corporate clients through the ASR Pensioenen and ASR Verzekeringen labels. Solutions offered include career average schemes, defined contribution plans and defined benefit plans, as well as top-up dependants’ pensions. To distribute these, ASR Nederland works in close cooperation with advisors, specialist pension experts and fee consultants. In addition, De Amersfoortse offers its clients pension products in integrated solutions.
New production (APE) 196 188 * Including € 86 million in contributions to the ASR pension plan (2009: € 124 million).
• Profit for the year up 11%, rising to € 276 million (2009: € 248 million) • Gross insurance premiums down 7% to € 2,514 million • New production (APE) up 4%, rising to € 196 million
• New production (APE) higher (+4%) especially due to Group Life and Mortgage-linked Life production
• Active retention policy leads to retention rate for Group Life of 96%
Funeral business Ardanta N.V. entered into a legal merger with ASR Levensverzekering N.V. at year-end 2010. This offers synergies in the areas of risk management, solvency and efficient use of capital. Ardanta has operated as a label within the Life segment since 1 January 2011.
The share of new production rose from 14% to 16%, which was attributable in part to the introduction of new products and the Premieschuif (commission-free pricing). As a result, intermediaries offer full transparency regarding the pricing of a contract and the fee for their consultancy services. The number of intermediaries selling Ardanta contracts rose by 200.
The Dutch life insurance for the Individual contracts market contracted strongly for the second year in a row. Although, at 11%, the market share was virtually stable, premium income was down, one of the reasons being maturities in the existing portfolio. The rise of tax driven bank savings products, a lack of consumer confidence in unit-linked insurance contracts and low sales volumes of new mortgages also caused a decline in premium income. Within Individual-life, sales of new mortgage-related life insurance contracts increased sharply despite somewhat disappointing mortgage sales. Sales of non-recurring premium contracts dropped considerably in the second half of 2010 in particular because of the choice of return over volume.
The Dutch funeral insurance market also experienced pressure in 2010. There was a drop in the market for lifelong insurance contracts. Ardanta managed to limit the decline in this market.
Profit for the year Net profit for 2010 of the Life segment rose from € 248 million in 2009 to € 276 million, which was attributable in particular to an increase in investment income. Investment income was up thanks to non-recurring income items, such as gains on the sale of assets. The technical result was under pressure due to declining interest spreads. In addition, a number of allocations were made to special provisions within the Pension business.
The compensation scheme for unit-linked insurance contracts will probably be completed over the course of 2011. In addition new, non-complex and transparent products with a low cost structure will be offered.
Pension business The Pension business is also expected to face a difficult market in the coming years. Furthermore, the complexity and scale of rules and regulations are on the rise. Because of market conditions and strong customer demands for transparency and low costs, clear choices need to be made where product offering, operations and complexity reduction are concerned.
Funeral business Ardanta aspires to being awarded the Keurmerk Klantgericht Verzekeren (Customer-oriented Insurance Quality Mark) in 2011. Intermediaries will increasingly receive insurance documents in digital form and changes will be processed electronically. Ardanta expects to grow its market share in 2011 with the market showing a further decline. In the Netherlands, focus will be on increasing the number of points of sale and the marketing of Prijs zonder Provisie (commission-free pricing).
Next generation products Improving efficiency is a necessity for Individual-life. ‘We have been compelled to work more efficiently, because customers no longer want to pay for unnecessary processes. We will be standardizing, making choices and introducing new systems,’ says Gilbert Mattu. For Individual-life, this means a less complex product range (from 1,800 product variants to 50), a single system of records and the development of a new line of products. The first next generation products have already been brought to market. ‘VermogenGarant and VermogenBelegd are transparent and modular. These are low-cost, commission-free products.’ Customers are able to go online 24 hours a day to check the status of their products. ‘But we’re not there yet. The operational cost of existing products needs to fall. This means that a choice will have to be made between converting, selling or outsourcing the portfolio.
This will help tremendously in terms of efficiency, uniformity, future-proofing, compliance and clarity of our customer profile,’ explains Fiona van ’t Hullenaar. Outsourcing is also one of her responsibilities. For example, the collections process for delinquent debts was outsourced in 2010. ‘It is not an end in itself, but rather a means to serve the organization as well as possible, to be efficient and finan- cially sound. This should lead to happy customers and staff, and a cost-efficient, stable organization.’
‘ Everything is falling into place, and that makes it all a lot clearer’
The Non-life segment is comprised of the non-life products offered under the following labels: ASR Verzekeringen, De Amersfoortse, Europeesche Verzekeringen and Ditzo. The portfolio contains a wide range of non-life contracts, for instance for motor, fire, travel and leisure, liability and legal assistance. ASR Verzekeringen focuses on the intermediary channel. In addition, De Amersfoortse offers occupational disability and health insurance contracts in this segment via the intermediary distribution channel. The offering of occupational disability products includes incapacity, absenteeism, accident and work and income insurance. Services also comprise a proactive and integrated approach to prevention and reintegration, which has proven to be successful. The health insurance range includes basic and supplementary contracts, as well as various top-up modules.
• Profit for the year up 27%, rising to € 104 million (2009: € 82 million) • Gross insurance premiums down 2% to € 2,310 million • Gross new business down nearly 14%, falling to € 237 million • Combined ratio down to 100.3% (2009: 101.4%)
Other Non-life business The market for other non-life insurance contracts (motor, fire, liability, etc.) was highly competitive in 2010 where pricing and contract conditions were concerned. Sales of retail products are slowly shifting towards sales via the internet and proxy agencies. The market for motor insurance came under particular pressure from the economic downturn and resulting lower consumer spending and lagging car sales.
Travel and leisure business Europeesche Verzekeringen implemented a strategy change in 2010; it now concentrates only on the travel and leisure segment. Customer perception takes centre-stage: what value does the customer perceive before, during and after the leisure event. Better and faster processes for baggage claims handling, less complex contract conditions and the implementation of the Lean philosophy/OpEx, for example, resulted in an improvement in service rating from 7.2 to 7.6. Dutch travel agencies, important distribution partners, named Europeesche Verzekeringen Best Travel Insurer in 2010. Sales support, claims handling and options for customized services were deciding factors in this regard.
Gross insurance premiums In the Non-life segment, gross insurance premiums were down 2% in 2010, decreasing from € 2,346 million to € 2,310 million, both due to a drop in gross new production and an increase in cancellations. The occupational disability business experienced a slight decrease in revenue, which was attributable to the contracting market and the ongoing competition on pricing and contract conditions. In the health insurance business, revenue was down slightly on 2009; this was caused by a limited increase in cancellations as a result of new claims control measures with respect to supplementary contracts. Despite lagging net new production, gross insurance premiums from Other Non-life business were up on last year. This was attributable to indexations and premium increases. Gross new business was weighed down in particular where motor and fire insurance were concerned. Continued low sales of homes caused the number of new fire insurance contracts in the retail market to drop. In the corporate market, new production still lagged behind growth targets. Several initiatives have been taken in an effort to improve the situation.
Operating expenses The effects of the cost reduction programme clearly manifested themselves in the Non-life segment. Operating expenses in this segment showed a sharp drop, falling from € 292 million in 2009 to € 260 million in 2010. The decline was particularly marked in the Other Non-life business. Despite the decrease in revenue, this resulted in a further reduction in the cost-premium ratio of the Non-life segment by 1.7 percentage points to 12.0% in 2010.
Profit for the year Profit for 2010 of the Non-life segment amounted to € 104 million (2009: € 82 million). This increase could be attributed to the recovery of the financial markets and the combined ratio, which improved from 101.4% in 2009 to 100.3% in 2010 thanks to a decrease in the expense and commission ratios despite a rise in the claims ratio. The expense ratio improved because of lower operating expenses as a result of the cost savings programme.
• The claims ratio increased from 2009 to 2010 (+1.4%p), due to higher claims at Occupational disability, Motor and Travel and Leisure71.6% 73.0%
The decline in the commission ratio was due mainly to non-recurring reinsurance income. The higher claims ratio factored into the combined ratio was caused by higher occupational disability claims and motor claims (part of Other Non-life). Causes of the increase in the occupational disability claims ratio included a rise in the number of sickness and loss claims among the self-employed. The poor weather conditions in 2010 were a factor in an increase in claims at the motor branch of the Other Non-life business. The claims ratio dropped for fire insurance and other product lines.
Health insurance business ASR Nederland’s health insurance business expects the rise in basic health insurance premiums to cause customers to shop around even more in 2011. Online insurers, which are highly price-focused, are expected to benefit most from this development. The costs of healthcare are likely to rise even further in 2011, resulting in revenue increases for healthcare insurers. The market is otherwise awaiting the Cabinet plans. The introduction of Directly Observed Treatment (DOT) is scheduled for early 2012. ASR
Other Non-life business Where the Non-life business is concerned, ASR Nederland’s ambition is to bring about further growth in premium volume. The Other Non-life business expects to introduce the new Bewust Verzekerd Package in 2011, as well as focusing on the corporate market (up to 500 employees). Another key initiative will be to strengthen the supervisory role that Other Non-life business wants to play in handling large claims. This would include providing immediate practical and material support to victims to make their lives as comfortable as possible in difficult circumstances, for instance by offering them money to pay for a hotel after a fire or providing quick funding for a car. In the first half of 2011, several premium changes will be made, e.g. in home owner’s insurance and delivery van insurance, with a view to improving the combined ratio.
Travel and leisure business Given the number of early-bird bookings at the beginning of the year, Europeesche Verzekeringen is moderately optimistic about 2011, although a true recovery of the market is not expected until 2012. The market for leisure activity insurance will continue to grow thanks to the increasing number of consumers over fifty who spend more time recreating in the Netherlands and abroad. Europeesche Verzekeringen will start to market new products in 2011 and 2012. Front and back-office processes will be streamlined drastically in 2011. The implementation of the new strategy will cause a one-off increase in costs in 2011.
ASR Nederland introduced the Other operating segment in 2010. It comprises the banking operations (ASR Bank and ASR Hypotheken (mortgages)), Ditzo (distribution channel), ASR Vastgoed Ontwikkeling (property development), SOS International and the holding companies.
ASR Vastgoed Ontwikkeling focuses on developing residential properties, offices and retail, and is a top-3 player in the Netherlands.
Finally, the SOS International emergency service offers round-the-clock assistance to policyholders, vacationers, lease car operators, account holders and senior citizens.
Banking business A large number of strategic targets for the banking business were achieved in 2010. ASR Bank generated higher than expected earnings thanks in part to a sensible investment strategy and higher interest income. In addition, as part of the multi-funding strategy, ASR Hypotheken replaced its purely external funding to a combination of internal and external funding. This resulted in a better expense ratio. Great strides in efficiency were made by implementing new systems. As far as products go, two and three-year savings deposits were launched in the fourth quarter of 2010. The self-funded, transparent WelThuis endowment mortgage was introduced as part of the launch of the new mortgage system. The Lijfrente Opbouw Rekening, a savings-linked annuity product, was developed in 2010 as well. Its development was given priority over the launch of an online savings product.
ASR Vastgoed Ontwikkeling ASR Vastgoed Ontwikkeling will continue to develop into a professional independent entity in 2011, never losing sight of the risks and the capital requirements that are inherent in property development. The division will place further focus on designing residential and retail developments, devising integrated solutions for municipal spatial planning issues, and giving obsolete buildings or declining urban areas a new lease of life. The guiding principle in all its operations is that a development should offer a sustainable contribution to the surrounding area.
‘The financial crisis of 2008 acted like a catalyst for the insurance industry to speed up the introduction of the Solvency II risk framework, the successor to Solvency I, following the example of the Basel Capital Accords for banks,’ Jits Berns explains. ‘This framework is also primarily the result of demand by insurers. In contrast to Solvency I, which was almost entirely numerical and focused on provisions, Solvency II concerns a focus on capital requirements on the one hand and the implementation of an integrated risk management framework on the other. Solvency II takes account of specific risks in the insurance business, including non-financial risks and governance issues. And that’s a good thing.’
Three lines of defence The internal supervision model is based on the ‘three lines of defence’ model. The first risk test takes place in the divisions, the second in the group risk management department. The final piece of the jigsaw is Audit. On the role of his department, Jits Berns says: ‘Given our central and independent position, we embody, if you will, the integrity of the organization. The importance of that independence is the general lesson that we learned from the past in the Dutch business landscape. Society is no longer willing to accept that incidents happen, and there is a tendency to want to be in control at all times. “Bad luck must go” is the adage.’ In Berns’s view, this is one of the key drivers behind the greatly increased tendency towards risk management within companies.
‘From the risk departments, we focus on establishing frameworks and monitoring financial and non-financial risks at group level. This means assessing the extent to which all group divisions are compliant with laws, rules, ethical standards and the internal standards derived from these. But we also deal with security issues, such as fraud prevention within the business and screening new staff members and intermediaries. In operational risk management, the focus is particularly aimed at examining whether all business processes within ASR Nederland are “in control”’, Berns explains.
‘ In 2010, investment performance of ASR Nederland amply exceeded benchmarks’
Optimum performance within risk framework Jack Julicher’s mandate differs from Berns’s. Julicher has to ensure that the investment portfolio, worth around € 30 billion, performs as well as possible within the established risk framework. ‘Our portfolio has been designed so that ASR Nederland should only encounter a problem in less than two in a thousand scenarios. Benchmarks developed specifically for ASR Nederland – objective references used to measure expected performance – are often used to measure the return on the various investment types. In 2010, the investment performance of ASR Nederland amply exceeded these benchmarks,’ Julicher says proudly.
New risk framework in 2010 The new reality in the post-credit crunch world demands more certainties. In 2010, ASR Nederland developed a new framework based on the ECAP Method and the Solvency II requirements. A standard aspect of Solvency II is that the solvency capital requirement is calculated using a confidence interval of 99.5% (or 1 in 200 cases). ASR Nederland aspires to an internal ECAP norm that is higher than the Solvency Capital Requirement, that is to say less than 2 in 1,000 cases. The capital required to absorb risks (market risk, insurance risk, disaster risk, etc.) is then compared to the available capital. The first calculations based on the new framework have uncovered no surprises for ASR Nederland.
ASR Nederland has now reached the stage that a strategic asset mix has been established based on the principles of Solvency II. The ECAP Model will also be rolled out across the divisions. ‘At macro level, all risk categories have been identified. But we can now also calculate our performance per risk category, and see where we can take more or less market risk.’ Julicher calls this ‘managing value’. ‘This ensures that value growth is contained within the risk framework, and the macro investment mix can then be transposed into the ideal investment mix for the divisions.’
Jack Julicher, Chief Investment Officer of ASR Nederland, and Jits Berns, Director of Integrity & Operational Risk Management of ASR Nederland
Capital management is a key priority within ASR Nederland. It comprises all activities aimed at controlling, managing and overseeing available solvency.
ASR Nederland’s capital position is governed by rules and limits that were instituted to absorb losses and to guarantee financial robustness. Compliance with the rules is monitored and enforced by regulators as well as via internal management models. ASR Nederland endeavours to: • ensure transparency of its capital position in accordance with the chosen methods of measuring capital; • leverage and utilize its capital position efficiently; • create a robust capital base that allows it to achieve its targets; • actively monitor capital ratios and comply with set limits.
In addition to capital management under Solvency II, which is the standard model for European insurers, ASR Nederland also developed its own methodology in 2010. This methodology quantifies the integral risk in terms of economic capital (ECAP), while making allowance for Solvency II requirements. It is different from the Solvency II standard model in that it uses self-developed techniques for calculating a number of risks. These techniques are better geared to the specific risks that ASR Nederland incurs. This allows ASR Nederland to gain a more comprehensive understanding of risk exposure and of the capital that is required to mitigate them. Using these two market value-based control mechanisms, ASR Nederland ensures the transparency of its robust financial position.
In addition to these market value-driven methods, ASR Nederland also prioritizes available solvency under Solvency I requirements, available buffer capital and capital norms, while transitioning to the introduction of Solvency II in 2013.
At ASR Nederland N.V. the regulatory solvency ratio, i.e. available capital as a percentage of minimum capital required, dropped from 232% at year-end 2009 to 221% at year-end 2010. At ASR Levensverzekering N.V. this ratio stood at 258% at year-end 2010 (year-end 2009: 277%) and at ASR Schadeverzekering N.V. it landed at 325% at year-end 2010 (year-end 2009: 295%).
The drop in solvency in 2010 was attributable in particular to the more than 0.6% decline in interest rates used for this calculation with respect to terms of maturity exceeding twenty years. This led to a rise in the value of insurance liabilities as part of the liability adequacy test, which was offset in part by the related increase in the value of bonds and swaptions. In addition, developments in equity prices and property added to available solvency.
As an insurer, ASR Nederland has a relatively limited need for funding. Nevertheless, ASR Nederland wants to have a broad spectrum of funding options in order to secure its access to money and capital markets, and to minimize finance costs.
Where unsecured financing is concerned, ASR Nederland does not currently make use of standardized financing programmes. At present, the secured financing programmes that are in place more than amply cover ASR Nederland’s relatively limited financing needs. Developments in un- secured financing markets are monitored closely, allowing ASR Nederland to quickly expand its distribution channels as needed.
iFSR a negative 20 May 2009 iFS a- Stable 16 december 2010 aSR levensverzekering n.V.
iFSR a negative 20 May 2009 iFS a- Stable 16 december 2010 aSR Schadeverzekering n.V.
In addition, Risk Management is responsible for preparing, maintaining, communicating and implementing a clear risk framework within which risks are managed and reported.
What follows is an overview of key financial risk management measures that were taken in 2010.
Higher claims weighed down earnings from Non-life insurance. In 2010, the claims ratio of the non-life insurance portfolio saw a 1.4% point increase, rising to 73%. The combined ratio dropped, however, falling to 100.3% (2009: 101.4%), which was due in particular to lower costs.
The framework has three pillars: Pillar 1 consists of quantitative solvency requirements, Pillar 2 of governance and internal control requirements, and Pillar 3 of disclosure requirements. Solvency II creates a new set of regulatory requirements and a solvency framework based on marketconsistent valuation. The solvency requirements will better reflect the risks that insurance companies incur.
ASR Nederland performed a Solvency II readiness test in 2009. In 2010, important subsequent steps were taken to increase the extent to which ASR Nederland is ready to meet the Solvency II requirements. Great strides were made, for instance by implementing IRM, developing the ORSA framework and further professionalizing the risk management function.
• Unit-linked insurance contracts have caused unrest in the insurance sector. ASR Nederland attaches importance to offering an appropriate solution in 2011 to customers who took out a unit-linked contract in the past.
• Competition in the insurance market is stiff. Performing a thorough and sharp risk assessment before launching new products helps ASR Nederland to market only sound products, which benefits its strong competitive position. This will therefore also be a key area of focus in 2011.
• Availability, integrity and confidentiality of information are core values of ASR Nederland. ASR Nederland’s customers need to be able to rely on the confidentiality of their personal details. ASR Nederland therefore wants to continue to raise awareness of the importance of infor- mation security and continuity management.
The Dutch State acquired ASR Nederland N.V. from Fortis on 3 October 2008. The State has been the sole shareholder of ASR Nederland N.V. since that date.
The Executive Board is responsible for the day-to-day conduct of business at ASR Nederland as a whole: it makes plans for the future, plots the company strategy and formulates policy. Where required, key decisions by the Executive Board are subject to the prior approval of the Supervisory Board, or the Annual General Meeting of Shareholders (AGM).
The Supervisory Board has every authority the law assigns to a Supervisory Board of a two-tier company subject to the partial regime. The Supervisory Board’s main duties and responsibilities are supervising the policies pursued by the Executive Board, overseeing the general conduct of affairs at the company and its affiliated entities, and advising the Executive Board.
ASR Nederland strives towards a carefully constructed, restrained and sustainable remuneration policy that operates in support of ASR Nederland’s strategy. The policy is in accordance with the framework established by the Dutch Corporate Governance Code, and in line with national and international standards. The basic principles of the policy are attuned to the principles for a ‘restrained remuneration policy’ as established by the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten/AFM), the Dutch Central Bank (De Nederlandsche Bank/ DNB) and the Dutch Banking Code. On 28 May 2010, the Minister of Finance approved the policy for the Executive Board and endorsed the remuneration policy for the senior management.
The basic principles of the remuneration policy are the promotion and maintenance of the integrity and solidity of ASR Nederland, a focus on sustainable, long-term value creation for customers and other stakeholders, and a transparent policy that is applicable to ASR Nederland as a whole in terms of its structure and methodology.
The remuneration is composed of a fixed component and a variable component. The fixed remuneration component is in compliance with the stipulation of the Dutch Banking Code that the remuneration of directors must be below the median of a reference group that is relevant to ASR Nederland. The indexing of the fixed salary is in line with the rises under the collective labour agreement for the insurance industry.
The remuneration policy for senior management differs from that for the Executive Board on a number of points. The variable remuneration amounts to 45% of the fixed annual salary for performance in line with targets, and 60% for outstanding performance. Two thirds of the variable remuneration will be deferred, just as for the Executive Board. However, a transitional scheme applies here. A severance package of a maximum one year’s fixed salary applies for new senior managers.
ASR Nederland is going through a turbulent time. The privatization of Fortis made it necessary to speed up the development of essential functions such as risk management in-house. Changing customer behaviour necessitates changes in approaching customers, product offering and distribution. At the same time, the prospect of privatization looms ever closer, together with all the demands that this will entail. This places exceptional demands on the oversight provided by the Supervisory Board.
Margot Scheltema was appointed to the Supervisory Board of ASR Nederland on 15 December 2008. Until 2009, she had worked at Shell for more than twenty years, most recently as CFO of Shell Nederland. An important part of the work of the Supervisory Board is what she calls its ‘agendastipulating capacity’. She explains: ‘The annual agenda of the Supervisory Board is automatically filled with recurring items. The supervisory directors have to continually critically examine whether the right issues are being tabled.’ Take the matter of customer focus for instance. ‘I see it as one of the duties of the supervisory directors to drive this principle forward where necessary. If we say that the customer is important, then this needs to be confirmed in the reports. What do customers think of this? If questions are being asked about ASR Nederland on television in connection with unit-linked investment contracts, it sends a shockwave through the organization. But it also underlines that what ASR Nederland has embarked on in this respect is fundamentally right, however the pace needs to pick up. It is our job, the job of the supervisory directors, to track this.’
Getting to know the organization Another topic that Margot Scheltema considers to be of great importance, but which does not automatically appear on the agenda of the Supervisory Board, is gaining a correct picture of the organization and the people who work in it. ‘It goes without saying that the supervisory directors talk with the Executive Board. But this is just a small part of the organization. To obtain a good picture of talent development or the continuity of the organization you have to take a closer look at it. And if you gain new understanding in your talks with people from the organization, you also need to feed this back to the management.’
If we say that the customer is important, then this needs to be confirmed in the reports
One of the key areas of focus within ASR Nederland in 2010 was designing its own risk management system. Risk management had previously been the domain of Fortis, the parent company, but now it is self-contained within ASR Nederland. ‘The risk management framework was set up over the past year. Now is the time to get it up and running, and check that it works. The Supervisory Board will be monitoring progress on this item closely. If there is something wrong, it needs to be reported internally immediately. Mistakes happen, but only constitute a real problem if they are not reported, or if people do not feel at liberty to report them.’
Diversity is vital The evaluation of the Supervisory Board’s own performance and the diversity of its composition are topical items in Dutch Corporate Governance regulations. Margot Scheltema says: ‘The current supervisory directors have been working in this configuration for a relatively short time, which is why we have kept the evaluation of our own performance in 2009 and 2010 concise. This year, we intend to do this more thoroughly with some external support. We also want to examine our ability to respect and protect various points of view. We are a small team and we work closely together. We want to keep the individual input recognizable. After all, the concept of diversity means that you are able to make better decisions, because you come from different markets.’ In terms of the diversity of its composition, the Supervisory Board stands out from the national average with two women and two men from diverse backgrounds.
‘ Now is the time to get it up and running, and check that it works’
Chairman of Supervisory Board Member of the Selection, Appointment and Remuneration Committee
Kick van der Pol is the Chairman of the Ortec Finance Supervisory Board, Chairman of the Pension Federation board, member of the Supervisory Board of Raet and Chairman of the Syntrus Achmea Advisory Board. In the past, he served as the Vice-Chairman of the Executive Board of Eureko/Achmea and as Chairman of the Interpolis Executive Board.
Annet Aris had a 17-year career at McKinsey as a management consultant, nine years of which she served as a partner. She has held supervisory directorships for a number of years, including at several Dutch and foreign enterprises and institutions such as V-Ventures B.V., Hansa-Heemann (Hamburg, Germany) and the Sanoma Group (Helsinki, Finland). She is a non-executive member of the OPTA Commission; OPTA is the Dutch telecoms market watchdog. Annet is an adjunct professor of strategy at INSEAD international business school (Fontainebleau, France).
In its meetings, the Supervisory Board focused heavily on ASR Nederland’s financial performance, with particular emphasis being placed on solvency levels and risk mitigating measures. Thanks to targeted policy, ASR Nederland has a robust solvency ratio and exposures to interest rates, for instance, have been reduced. The supervisory directors see this as a positive development.
The Supervisory Board was educated extensively about the execution of agreements made within the scope of a compensation scheme for unit-linked investment contracts and other issues relating to regulatory and social requirements. The Supervisory Board considered at length, for instance, a number of specific studies by the Dutch Central Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM), the risk and supervision analyses of the two regulators, and the compliance and other reports by Integrity & Operational Risk Management. The Supervisory Board stresses the importance of a decisive approach to resolving issues relating to rules and regulations. Such issues affect the confidence of customers and other stakeholders, which is why they need to be treated as priorities at the appropriate management level.
A key issue that the Executive Board submitted to the Supervisory Board was a decision on accommodation. After it was decided in 2009 to concentrate ASR Nederland’s activities in one building, in 2010 the Supervisory Board approved the decision to cluster the business operations in the current head office in Utrecht and to refurbish the existing building for this purpose. In its decision-making, the Supervisory Board not only weighed financial motives, but also heavily considered implications for staff and sustainability issues.
A key issue in the meetings between the Supervisory Board and the Executive Board was ASR Nederland’s return to the private sector. Topics for discussion included the pros and cons, the feasibility, the preconditions and the threats posed by different scenarios. The Supervisory Board and the Executive Board concluded in unison that the preferred course of action would be an IPO, without excluding other possiblities. The supervisory directors believe that ASR Nederland has sufficient scale to build an independent future and that independence would offer the best options for a successful implementation of the corporate strategy.
ASR Nederland has made progress in preparing for its privatization. Steps were taken in the areas of financial processes and reports, and risk management in particular. The Supervisory Board devoted special attention to improvements in risk management. Among the issues discussed were the different aspects of both financial and non-financial risks, and changes in the risk management structure. The Supervisory Board is happy with the improvements and is confident about the further streamlining of financial processes and risk management in the year to come.
A strong financial track record and a future-proof, highquality level of reporting are key prerequisites for returning to the private sector. In addition, ASR Nederland needs to have a clear-cut strategy in place that offers potential for sustainable value creation. In the Supervisory Board’s opinion, the strategy that was formulated last year forms a solid foundation to achieving this aim. To capitalize on market developments, the strategy will be tweaked for a number of specific market segments in 2011.
The Supervisory Board met with the Executive Board ten times during the year under review; two of these meetings were conference calls. Once, the Executive Board met one of the Supervisory Board members between meetings. Prior to the plenary sessions, the Supervisory Board met separately to consult about such issues as the remuneration policy for the Executive Board and senior management. The supervisory directors also met to evaluate its own perfor- mance and that of the Executive Board.
All meetings were attended by all members of the Supervisory Board. The meetings on the annual results for 2009 and the interim results for 2010 in April and August respectively were also attended by the independent external auditor.
Audit Committee The Audit Committee, whose members are Cor van den Bos (Chairman) and Margot Scheltema, met seven times. Its meetings were attended by the CFO, the independent external auditor and the directors of Audit, Risk Management, Integrity & Operational Risk Management, and Accounting, Reporting & Control. The meetings focused on the financial performance of every quarter. The Audit Committee discussed the financial performance for the full year based on the annual report, the financial statements and the actuary’s report for 2009. The Audit Committee issued a positive report to the Supervisory Board.
In the Committee’s opinion, the company built a solid financial basis in 2009 and 2010 for the successful execution of the Policy Plan. Solvency levels are robust and interest rate exposures, for instance, are well under control. The targets set for the cost savings programme that was initiated in 2009 were amply met in 2010. Although the Audit Committee is pleased with those results, it also feels that further steps are required for ASR Nederland to maintain its competitive edge in the future.
ASR Nederland undertakes relatively many projects that relate to the day-to-day operations of the different divisions. New rules and regulations, and various change initiatives to become a more customer-orientated and cost-efficient service provider make great demands on available capacity. For this reason, the Committee periodically monitors progress made on key projects and endorses the importance of strict discipline in their control and execution. The Chairman of the Audit Committee consistently reported the main issues to the Supervisory Board during the Board’s next meeting. Moreover, the Audit Committee provided the Supervisory Board with written reports of its deliberations, findings and recommendations.
Selection, Appointment and Remuneration Committee The Selection, Appointment and Remuneration Committee met three times in 2010. Owing to Marieke Bax’s retirement, the Committee temporarily had a different composition in 2010. Margot Scheltema served as Committee Chair in 2010, and Kick van der Pol and Cor van den Bos attended the Committee meetings as members. After Annet Aris’s appointment as a supervisory director, the Selection, Appointment and Remuneration Committee reverted back to its original number of members in 2011. Those two members are Annet Aris (Chair) and Kick van der Pol.
In the context of management development, the Committee also discussed the succession of members of the Executive Board and the company’s senior managers in 2010.
The Chairman of the Selection, Appointment and Remuneration Committee consistently made oral reports of topics discussed to the Supervisory Board and provided the Supervisory Board with written reports of the Committee’s deliberations, findings and recommendations.
The Supervisory Board concludes that the variable remuneration part of the recently determined remuneration policy, within a year of its ratification, no longer fully suits public perception. Considering public debate, the Supervisory Board chooses to develop a new and futureproof policy in 2011 whereby remuneration fits the nature and size of ASR Nederland and its strategy.
The remuneration based on the current remuneration policy and the Supervisory Board decisions outlined above are shown in the table on page 176.
The Supervisory Board would like to express its appreciation for the efforts undertaken by the members of the Executive Board and everyone else at ASR Nederland. They again put their expertise and experience to good use in 2010, and were committed to the development of the business.
ASR Nederland prepares the consolidated and company financial statements 2010 of ASR Nederland NV in accor- dance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and with Part 9, Book 2 of the Netherlands Civil Code.
The Executive Board declares that, to the best of its knowledge: 1. the financial statements give a true and fair view of the assets, liabilities, financial position and earnings; 2. the financial report does not contain any material misstatements and that risk management and control systems functioned properly in the year under review; 3. the Annual Report gives a true and fair view of the situation at the balance sheet date, developments during the year under review; and 4. the Annual Report describes the principal risks that the company faces.
Notes to the balance sheet 137 6 Intangible assets 137 7 Deferred acquisition cost 138 8 Property, plant and equipment 139 9 Investment property 140 10 Associates and joint ventures 141 11 Financial assets 142 12 Deferred taxes 150 13 Reinsurance contracts 152 14 Other assets 152 15 Cash and cash equivalents 153 17 Subordinated debt 155 18 Liabilities arising from insurance contracts 155 19 Employee benefits 159 22 Due to customers 164 23 Due to banks 165 24 Other liabilities 165
Liabilities arising from insurance contracts on behalf of policyholders 18 10,488 9,823
Total income 2,744 3,278 insurance claims and benefits 30 -5,136 -5,840 insurance claims and benefits recovered from reinsurers 30 12 195
Unrealized change in value of available-for-sale financial assets 697 1,533 share of other comprehensive income of associates and joint ventures -7 28
Attributable to: - holders of other equity instruments 53 18 - tax on coupon of other equity instruments -14 -5
Unrealized gains and losses include shadow accounting adjustments (see chapter 2.29). For more detailed information on the unrealized gains and losses, see chapter 16.2.
Cost of issue of other equity instruments - - - - - - - - -6 - -6
Unrealized gains (losses) on investments at fair value through profit or loss -7 -14
Retained share of profit of associates and joint ventures 6 3
Net increase/decrease in amounts due from and to banks -979 -781
ASR Nederland N.V., having its registered office in Utrecht, the Netherlands, is a public limited company under Dutch law. Its registered office is located at Archimedeslaan 10, 3584 BA in Utrecht. The Dutch Government has been ASR Nederland’s sole shareholder since 3 October 2008.
ASR Nederland N.V. and its group companies (‘ASR Nederland’ or ‘the Group’) have 4,333 employees (in FTE) (2009: 4,454 FTE).
ASR Nederland is one of the leading insurance companies in the Netherlands. It sells insurance products under the following labels: ASR Verzekeringen, ASR Pensioenen, De Amersfoortse, Ardanta, Europeesche Verzekeringen and Ditzo. In 2010 the activities of Falcon Leven were integrated into ASR Verzekeringen. On 29 December 2009, ASR Nederland N.V. acquired a 100% interest in ASR Bank N.V., formerly Fortis ASR Bank N.V.
2 Accounting policies 2.1 General The consolidated financial statements of ASR Nederland have been prepared in accordance with the International Financial Reporting Standards (IFRS) – including the International Accounting Standards (IAS) and Interpretations – as adopted by the European Union (EU).
Pursuant to the options offered by Section 362, Book 2 of the Netherlands Civil Code, ASR Nederland has prepared its company financial statements in accordance with the same principles as those used for the consolidated financial statements.
2.2 Changes in accounting policies The accounting policies for the financial statements for 2010 are consistent with the principles applied to the financial statements for 2009.
• IFRIC 15, Agreements for the Construction of Real Estate. This interpretation provides clarification and guidance on when revenue from the construction of real estate should be recognized in the financial statements, particularly when a construction agreement is in the scope of IAS 11, Construction Contracts or IAS 18, Revenue.
• Improvements to IFRS 2009. The improvements comprise 15 minor amendments to 12 standards. The IAS Board uses the annual improvements project to make non-urgent amendments to IFRS.
The following changes in IFRS standards and new IFRIC interpretations adopted for use in the EU apply to accounting periods beginning after 2010 and are not expected to have a material impact on ASR Nederland: • IAS 32 (amended), Financial Instruments: Presentation
2.3 Changes in presentation The current presentation differs from last year’s presentation in some respects. Where applicable, the comparative figures have been restated. The changes in presentation do not have an effect on ASR Nederland’s profit for the year, total comprehensive income and total equity.
Subsidiaries The consolidated financial statements include the financial statements of ASR Nederland N.V. and its subsidiaries. Subsidiaries are those entities over which ASR Nederland has direct or indirect power to govern the financial and operating policies (‘control’). This is the case if more than half of the voting rights may be exercised or if ASR Nederland has control in any other manner. Subsidiaries are fully consolidated from the date on which control is acquired by ASR Nederland. Subsidiaries are deconsolidated when control ceases to exist.
Associates Associates are those entities over which ASR Nederland has significant influence, but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. The consolidated financial statements include ASR Nederland’s share of profit of associates from the date that ASR Nederland acquires significant influence until the date that significant influence ceases.
Upon recognition investments in associates are initially accounted for at cost price, including any goodwill paid. Subsequent measurement is based on the equity method of accounting. Where an associate’s accounting policies are different from ASR Nederland’s, carrying amounts have been changed to ensure that they are consistent with the policies used by ASR Nederland. For details, see chapter 2.18.
The table below shows the exchange rates of the major foreign currencies: 1 euro=
exchange rate at average exchange rate 2.7 Product classification Insurance contracts are defined as contracts under which ASR Nederland accepts significant insurance risk from policyholders by agreeing to compensate policyholders if a specified uncertain future event adversely affects the policyholder. These contracts are considered insurance contracts throughout the remaining term to maturity, irrespective of when the insured event occurs. In addition, these contracts can also transfer financial risk.
Life insurance contracts Life insurance contracts (in cash) include savings-linked mortgages, annuities, term insurance contracts, savings contracts and funeral insurance contracts. In addition to non-participating life insurance contracts, the insurance portfolio also includes: • individual and group participating contracts; • individual contracts with discretionary participation features
Life insurance contracts on behalf of policyholders Claims from these life insurance contracts are directly linked to the underlying investments. The investment risk and return are fully for policyholders (see chapter 2.30). Life insurance contracts for the account and risk of policyholders are generally comprised of contracts where premiums, after deduction of costs and risk premium, are invested in unit-linked funds. For some individual contracts, ASR Nederland guarantees returns on unit-linked investment funds. In addition, group life insurance contracts with unguaranteed segregated pools (discretionary selfinsurance ) are classified as life insurance contracts on behalf of policyholders.
Non-life insurance contracts Non-life insurance contracts provide cover that is not related to the life or death of insured persons. These insurance contracts are classified into the following categories: Accident & Health, Property & Casualty (motor, fire and liability) and Other.
2.10 Transaction date and settlement date Any purchases and sales of financial instruments, which have to be settled in accordance with standard market conventions, are recognized at the transaction date, which is the date on which ASR Nederland becomes party to the contractual stipulations of the instrument. Any purchases and sales other than those requiring delivery within the time frame established by regulations or market conventions are accounted for as forward transactions until the time of settlement. For details on these transactions, see chapter 2.22 ‘Derivatives and hedge accounting’.
If a lease agreement transfers substantially all the risks and rewards incidental to ownership to ASR Nederland, the agreement is accounted for as a finance lease and the related asset is recognized in the balance sheet. At the inception of the lease term, the asset is recognized at the fair value of the leased asset or, if lower, the present value of the minimum lease instal- ments due. The present value is determined on the basis of the interest rate implicit in the lease. The leased asset is depreciated over the shorter of the lease term and its expected useful life.
Lease obligations are recognized as liabilities at amortized cost based on the effective interest rate method.
ASR Nederland reports cash flows from operating activities using the indirect method. Cash flows from operating activities include operating profit before taxation, adjustments for gains and losses that did not result in income and payments in the same financial year, adjustments for movements in provisions, and accrued and deferred items.
Software The cost of software is capitalized if it concerns identifiable assets that ASR Nederland is able to use or sell, and which will generate probable future economic benefits. The costs mainly involve licensing fees. Capitalized software is amortized using the straight-line method over its expected (finite) useful life, which does not exceed five years. If there is objective evidence of impairment, capitalized software is tested for impairment.
2.15 Deferred acquisition costs Commission fees directly or indirectly related to the acquisition of new or renewal insurance contracts are capitalized to the extent that these acquisition costs (‘deferred acquisition costs’ or ‘DAC’) are covered by the estimated future surcharges of the underlying contracts.
The table below shows the maximum life of components: (ExprEssEd in yEars) ComponEnts rEtail offiCEs rEsidEntial parking rural land not applicable not applicable not applicable not applicable not applicable outer layer 30 30 40 40 not applicable fittings and fixtures 10 15 15 15 not applicable
Associates Associates are entities over which ASR Nederland has significant influence on operating and financial policies, without having control. Associates are recognized using the equity method of accounting from the date at which ASR Nederland acquires significant influence until the date at which such influence ceases. This means that associates are initially recognized at cost, including any goodwill paid. This value is subsequently adjusted to take account of ASR Nederland’s share of the associate’s comprehensive income. Comprehensive income is adjusted in accordance with the accounting principles used by ASR Nederland.
Re a. Financial assets at fair value through profit and loss include: 1. financial assets classified as held for trading. These financial assets include derivatives that do not qualify for hedge accounting (see chapter 2.22); and 2. financial assets, designated by ASR Nederland as carried at fair value through profit and loss. This option is available whenever: a. it eliminates or significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities on different bases (accounting mismatch); or b. ASR Nederland manages a group of financial instruments (assets, liabilities or both) on the basis of fair value in accordance with a documented risk management or investment strategy; c. the financial assets contain one or more embedded derivatives and ASR Nederland does not separate the derivative from the host contract.
Re b. Loans and receivables are measured at fair value plus transaction costs at initial recognition. They are subsequently measured at amortized cost based on the effective interest rate method, less impairment losses where deemed necessary. Loans and receivables are accounted for separately under financial assets (see also chapter 2.21).
ASR Nederland uses the following three hierarchical levels to determine the fair value of financial instruments: 1. Fair value on the basis of quoted prices in an active market
Level 1 includes financial assets and liabilities whose value is determined by quoted prices in an active market. A financial instrument is quoted in an active market if: • quoted prices are readily and regularly available (from an exchange, dealer, broker, sector organization, providers of financial market information, or a regulatory body); and
Impairment of financial assets At each balance sheet date, ASR Nederland assesses whether objective evidence exists of impairment of financial assets. Financial assets at fair value through profit and loss are not subject to impairment testing, because the fair value of these assets reflects any impairment losses.
In the case of equity investments available for sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment. There is a rebuttable assumption that there is a significant or prolonged decline if the fair value: • has dropped 25% or more below cost; or • has dropped below cost for an uninterrupted period of twelve months or longer.
Impairment losses are taken directly to the income statement and represent the difference between amortized cost and the fair value at the balance sheet date, net of any previously recognized impairment losses.
2.20 Investments on behalf of policyholders Investments made for the account and risk of policyholders mainly concern unit-linked insurance contracts. In addition, they concern group contracts with unguaranteed segregated pools (discretionary self-insurance). These investments are carried at fair value. Any realized and unrealized value changes of the investments are recognized in the income statement as gains or losses on investments on behalf of policyholders.
IBNR is estimated by reference to historical loss patterns. The current economic climate is reflected, and account is taken of potentially higher credit risk based on an analysis of the political/economic situation.
Impairment losses are charged to the income statement. If, at a later stage, the impairment losses should decrease and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in the impairment loss is recognized in the income statement.
Hedge accounting Hedge accounting means that, on the date that a derivative is agreed, ASR Nederland designates the contract as: • a hedge of the fair value of a recognized asset or liability or of a firm commitment (fair value hedge); or • a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge).
At the inception of the hedge, ASR Nederland documents the risk management objective and strategy for undertaking the hedge, as well as the relationship between the hedging instrument, the hedged item, and the method for assessing the effectiveness of the hedging transaction. It is also confirmed that the hedge is expected to be effective throughout the hedging period.
Only assets, liabilities, firm commitments or highly probable forecast transactions involving a party external to ASR Nederland can be designated as hedged items.
2.23 Deferred tax assets Deferred tax assets are the amounts of income taxes recoverable in future periods in respect of: • temporary differences between the carrying amount of an asset and its tax base; and • carry-forward of unused tax losses.
2.25 Other assets Other assets include accrued investment and interest income, property developments, tax assets and accrued assets.
Property developments consist of property under development commissioned by third parties. Measurement is at cost including any directly attributable costs and construction period interest, less invoiced instalments and impairment losses. If the contract revenue can be reliably estimated, it is accounted for by reference to the stage of completion, using the percentage of completion method. This does not apply if ASR Nederland has transferred the significant risks and rewards incidental to the development property to the client. Contract revenue is then accounted for upon completion of the development (completed contract method).
Reserve for unrealized gains and losses This reserve consists of: • unrealized gains and losses from financial assets available for sale net of tax and taking account of adjustments due to shadow accounting (see chapter 2.29); • ASR Nederland’s share of unrealized gains and losses of associates and joint ventures (see chapter 2.18); • unrealized gains and losses on the effective portion of cash flow hedges net of tax (see chapter 2.22); • reserve for discretionary participation features (see chapter 2.29).
Other equity instruments This item represents the par value of the other equity instruments, less costs directly attributable to the equity issue and net of tax 2.28 Subordinated debts At initial recognition, subordinated debts are stated at fair value net of transaction costs incurred. Subsequent measurement is at amortized cost using the effective interest rate method.
General This includes liabilities arising from insurance contracts issued by ASR Nederland that transfer significant insurance risks from the policyholder to ASR Nederland. These contracts may also transfer financial risk.
These financial assets include fixed-income financial assets available for sale, specific financial assets designated at fair value through profit or loss (synthetic CDOs), and specific derivatives designated as held for trading (swaptions and interest rate swaps).
Reinsurance liabilities Reinsurance liabilities, with ASR Nederland qualifying as the reinsurer and with significant insurance risk being transferred, are accounted for in the same way as regular directly written insurance contracts. They are included under liabilities arising from insurance contracts.
Obligations to insurers where ASR Nederland qualifies as the reinsurer, and with no significant insurance risk being transferred, are recognized as debts to policyholders.
ASR Nederland applies shadow accounting to unrealized value changes in fixed-income financial assets available for sale, specific financial assets designated at fair value through profit or loss (synthetic CDOs), and specific derivatives designated as held for trading (swaptions and interest rate swaps).
Unrealized gains and losses on assets at fair value through profit or loss are recognized in the income statement with a corresponding adjustment for shadow accounting in the income statement.
Liability Adequacy Test life The liability adequacy test (LAT) is performed at least quarterly to asses the adequacy of insurance liabilities. This test corresponds with the liability adequacy test that is prescribed by Dutch law (‘Besluit Prudentiële Regels WFT’, Article 121). This test is referred to as DNB LAT. If the test indicates that the liabilities are inadequate, ASR Nederland increases its liabilities to adequate levels.
Liabilities are adequate if the technical provision recognized in ASR Nederland’s balance sheet at least equals the best estimate of the life insurance liabilities including an appropriate risk margin. If applicable, a surrender value floor is applied. Also unrecognized gains and losses from relevant assets that are not carried at fair value in the balance sheet are taken into account. The various elements of the liability adequacy test are further discussed below.
Best estimate The best estimate of an insurance contract is the net present value of the projected cash flows of benefits and expenses, less the net present value of premiums. These cash flows are estimated using realistic (‘best estimate’) assumptions in relation to mortality, longevity, lapse rate, expense and inflation. The best estimate assumptions regarding mortality and longevity include the most recent trend assumptions for life expectancy in the Netherlands, as provided by the Dutch Actuarial Association and the Dutch Association of Insurers.
Where applicable the participating features of the insurance contracts, such as profit sharing, are taken into account in the future cash flows. The cash flows are discounted using the ECB-AAA curve for government bonds as published by the European Central Bank. The best estimate is increased by the time value of options and guarantees (CFOG: Cost of Financial Options and Guarantees) and is calculated using stochastic techniques. The intrinsic value of the options and guarantees is already included in the best estimate.
Risk margin The risk margin is calculated for every homogeneous risk group using the cost of capital method. This method requires that insurance risks are measured. ASR Nederland uses the latest standard Solvency II model, as defined in QIS, to quantify these risks. As a result, the risk margin reflects the risk profile of the specific homogeneous risk group. The risks that are incorporated in the risk margin are: mortality, longevity, disability, lapse, catastrophe, expense, non-hedgeable financial risk and operational risk. All these risks are projected into the future. The total risk for every future year is determined based on correlations between the risks described in the Solvency II standard model. The projected total risk for every year is multiplied by a cost of capital charge and discounted at the balance sheet date.
Surrender value floor If surrender is an option in the specific homogeneous risk group, the best estimate is increased to the level of the total surrender value of the contracts, according to the principles of the surrender value floor prescribed by DNB.
The fair value of the financial liabilities is obtained by multiplying the number of units attributed to each contract holder at the end of the reporting period by the unit value for the same date. Allowance is made also for liabilities arising from technical insurance risks (death, occupational disability). Some unitlinked contracts come with guaranteed benefits at maturity. To cover these guarantees, an additional obligation is recognized in the balance sheet that depends on the current fund value and the level of the guarantee. In determining this obligation, account is taken of actuarial assumptions about future fund developments and mortality.
Liabilities arising from insurance contracts on behalf of policy- holders also include obligations in connection with savings pools and group pension contracts, with policyholders bearing the investment risk. Liabilities also include a provision for compensating the costs of these contracts as agreed in 2008 with consumer organizations.
Pension obligations ASR Nederland operates a number of defined benefit plans for own staff. These are schemes under which staff are awarded pension benefits upon retirement, usually dependent on one of more factors, such as years of service and compensation. The defined benefit obligation is calculated annually by internal actuaries.
Differences between expected and actual outcomes of actuarial assumptions are not recognized in the income statement. However, that portion of the actuarial gains and losses that falls outside a corridor of 10% is recognized and charged to the income statement over the expected average remaining service period of the plan members.
Other post-retirements obligations ASR Nederland offers post-employment benefit plans, such an arrangement for mortgage loans at favourable interest rates. The entitlement to these benefits is usually conditional on the employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of employment using an accounting methodology that is similar to that for defined benefit plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to income over the expected remaining working lives of the related employees.
Vacation entitlements A liability is formed for vacation days not taken.
2.32 Provisions Provisions are obligations containing uncertainties about the amount and timing of the future expenditure required in settlement. ASR Nederland recognizes provisions when it has a present legal or constructive obligation as a result of past events, if it is more likely than not that an outflow of resources will be required to settle the obligation, and if the obligation can be estimated reliably.
Provisions are measured at the best estimate of the expenditure required to settle the present obligation at the end of the reporting period.
2.35 Due to customers At initial recognition, amounts due to customers are stated at fair value, net of transaction costs incurred. Subsequent valuation is at amortized cost.
2.36 Due to banks Amounts due to banks are initially recognized at fair value, net of transaction costs incurred. Subsequent valuation is at amortized cost. Any difference between the redemption value and the amortized cost (capital surplus or discount) is recognized in the income statement over the period of the debts as interest charges using the effective interest rate method.
Investments on behalf of policyholders are measured at fair value through profit or loss. Any changes in value are recognized in result on investments on behalf of policyholders. This also includes interest income and dividends received on investments on behalf of policyholders.
2.43 Technical insurance claims and benefits This item includes changes in liabilities arising from insurance contracts (see chapter 2.29) and the related benefits. Expenses associated with contracts on behalf of policyholders relate to changes in liabilities arising from insurance contracts on behalf of policyholders, including the benefits charged to the liabilities.
2.45 Acquisition costs This mainly relates to commissions paid and amortization of capitalized deferred acquisition costs. For details on capitalized deferred acquisition costs (see chapter 2.15).
2.46 Impairments An asset is impaired when its carrying amount exceeds its recoverable amount.
Non-current intangible assets, associates, investments, loans and receivables and other assets may be subject to impairment. Impairment losses are recognized in the income statement as soon as they are identified. For details, see the relevant items of chapter 2 above.
2.48 Income tax expense Income tax is based on profit before tax, after any adjustments for previous periods and changes in deferred tax assets and liabilities using the tax rates and tax laws that have been enacted or substantially enacted by the end of the reporting period. Income tax is recognized in the period in which the income was achieved.
2.49 Off-balance sheet commitments Contingent liabilities are liabilities not shown on the balance sheet. These are liabilities: • whose amount cannot be reliably estimated and in respect of which it is unlikely that their settlement will lead to an outflow of resources; or
• whose existence depends on the future occurrence of one or more uncertain events not wholly within ASR Nederland’s control.
The types of risks ASR Nederland is exposed to are grouped into five categories: market risk, counterparty default risk, insurance risk, strategic risk and operational risk. ASR Nederland has defined its risk preferences and monitors the impact of changes caused by internal and external factors on these risks. The risk environment requires continual monitoring and assessment in an integrated manner in order to understand and manage the complex risk interactions across the organization.
Management framework. The framework entails a risk strategy (including risk preferences and risk limits), clear roles and responsibilities with respect to risk governance, risk policies (including risk controls), and supporting systems and data to deliver the necessary reports.
• The risk committee structure, implemented in 2009, was up and running in 2010.
Market risk • Following the plan to reduce the investment portfolio, ASR
Nederland decided to further lower the exposure in Portugal, Ireland, Italy, Greece, Spain, and France and financial institutions to an acceptable risk level.
• ASR Nederland actively managed the impact of the low market interest rates by purchasing swaps and swaptions that mitigate this risk.
Insurance risk – Life • In general, increased life expectancy requires additional solvency for life insurers. The effect for ASR Nederland is mitigated by its diversified life insurance portfolio. The longevity risk in parts of the ASR Nederland insurance portfolio is compensated by the opposite risk, i.e. mortality risk, in other parts of the life portfolio (funeral, term insurance).
Insurance risk – Non-Life • In the Non-life insurance, an increase in the number of claims in the motor portfolio and disability portfolio negatively impacted the claims ratio.
Solvency II • ASR Nederland made progress in embedding an auditable quarterly process for reporting the Solvency Capital Requirement, both on a group level as per insurance entity under supervision.
Capital management and solvency • ASR Nederland is developing an Economic Capital model that reflects its full risk profile. • The Economic Capital calculation is applied in determining
The ASR Nederland ERM framework is based on the ERM model of the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The framework comprises the following elements of risk management: ASR Nederland Enterprise Risk Management objective The primary objective of ERM is to protect ASR Nederland’s shareholder and other stakeholders from events that hinder the sustainable achievement of performance targets. Furthermore, the objective is to support the group in achieving the right balance between risk and return.
Strategy ASR Nederland’s risk strategy supports the company’s overall strategy. The primary objective of risk management is to support ASR Nederland in achieving the required balance between risk and return, while remaining financially solid. ASR Nederland’s risk preferences and limits are derived from the risk strategy. The strategy also describes solvency targets. ASR Nederland actively manages risks so that they stay within the defined limits.
Risk governance ASR Nederland’s risk governance is based on the principle of ‘three lines of defence’. Risk management roles and responsibilities are anchored throughout the organization. ASR Nederland has a risk committee structure in place. The objective of the risk committees is to manage the risk profile for ASR Nederland Group and its product lines when it comes to risk preferences and risk limits. ASR Nederland is working on its internal risk awareness training programme.
Policy ASR Nederland has developed its own risk classification, which is in line with the FIRM risks as prescribed by the Dutch Central Bank (DNB). ASR Nederland has established policies, which are updated annually, for each of the principal risks that it incurs (market, counterparty default, insurance, strategic and operational). Each policy describes the risk definition, the risk limits and the risk mitigation techniques.
3.3 Risk governance As part of the overall risk management framework, ASR Nederland has established a risk governance framework. Risk governance refers to the duties and responsibilities of the risk management function and the risk committee structure. The duties and responsibilities are designed based on the ‘three lines of defence’. ASR Nederland uses the following definition of the ‘three lines of defence’ model: • First line – responsible for risks in the product lines and managing these risks. The first line implements risk policies and has the day-to-day responsibility for operations (sales, pricing, underwriting, claims handling, etc.). The Executive Board and the management teams of the business lines are responsible for the first line.
• Second line – responsible for supporting and reviewing the integral implementation of risk policies and the operating effectiveness of the first line. The duties of the second line include developing risk policies, supporting and advising the first line, monitoring compliance with internal and external policies, preparing integral risk reports and aggregating the risk profile. The risk departments in the business lines and the central risk management departments (financial risk and non- financial risk) are responsible for the second line.
3.3.1 Risk management organization In the course of 2010, the structure of the risk management function was further aligned to the committee structure and the three lines of defence model. The Group Risk Management department now focuses on financial risks, including risk policies and strategy. The former Compliance, Security and Operational Risk Management departments have been amal- gamated into Integrity & Operational Risk Management, which focuses on non-financial risks. In addition, risk management duties have been embedded in the business lines. In general, risks are now managed by the product lines on the basis of group policies and guidelines. When required or where efficiency gains may be realized, risk management is executed at group level. Group Risk Management defines risk policies for ASR Nederland, securing a consistent approach to the management of risks across the organization.
IR & VM ALM BPSR OR & MC Compliance Anti- Fraud
Risk Strategy & Policy Risk Strategy & Policy is responsible for developing the ERM framework. The ASR Nederland ERM approach involves the further development of ASR Nederland’s risk management culture, risk strategy and the related risk preferences, transparent risk governance, risk policies, classification of risk types, development of value management, optimization of riskadjusted returns within the risk preferences metrics, and value management KPIs. Risk Strategy & Policy is responsible for ASR Nederland’s ORSA process, which will be mandatory under Solvency ll.
Insurance Risk & Value Management Insurance Risk & Value Management, which is the Group’s actuarial function, is responsible for reviewing the business’s actuarial functions. The department also consolidates insurance liabilities, monitors insurance risk, and advises on actuarial and valuation aspects of products. In addition, Insurance Risk & Value Management is responsible for collecting financial risk information, and performing the ASR Nederland Liability Adequacy Test (LAT).
OR&MC facilitates the Control Risk Self Assessment (CRSA). This is an annual self-assessment where management identifies the principal risks that prevent them from achieving their targets. Based on the evaluation of management, the Executive Board aggregates the principal risks, designating them as ‘Executive Board risk priorities’. These are priorities that need to be resolved or mitigated in order to manage ASR Nederland’s principal risks.
Anti-fraud The role of the Anti-fraud department is to execute ASR Nederland’s zero tolerance policy on fraud. ASR Nederland rejects any unfair practices or fraud. Anti-fraud is responsible for fraud prevention, fraud investigation and repression: • Fraud prevention: measures are taken to prevent unfair practices or fraud within ASR Nederland. Fraud prevention measures include customer due diligence checks to ensure that ASR Nederland only does business with reliable individuals or firms.
Business Process Support Risk Business Process Support Risk (BPSR) is the Information management department within Risk Management and the link between Risk Management and ICT. The department arranges and administrates processes and facilitates Risk Management by providing access to the systems and data. BPSR also guides Risk Management by the development of new systems and processes or changes in existing systems.
The ASR Nederland Risk Committee receives information from the Financial Risk Committee and the Non-Financial Risk Committee. These committees have the mandates to manage and control ASR Nederland’s risk profile in line with the risk preferences and limits.
Non-Financial Risk Committee The Non-Financial Risk Committee (NFRC) has a mandate from the Executive Board to decide on non-financial risk policies. The NFRC manages and controls non-financial risks. The NFRC determines non-financial risk limits at group level and monitors that the risk profile stays within the agreed risk limits. If the risk profile exceeds the limits, the NFRC takes mitigating actions. The NFRC reports to the ASR Nederland Risk Committee.
The members include the ASR Nederland’s COO (Chairman), key representatives managing the non-financial risks and an FRC liaison.
3.3.3 Central Investment Committee Next to the risk-committee structure, the Central Investment Committee ‘CIC’ monitors the tactical decisions and the execution of ASR Nederland’s investment policy. It decides on major investment decisions within the boundaries of the strategic asset allocation as agreed in the FRC. Especially, investment decisions within this framework exceeding the limits set for the investment department are the domain of the CIC. The CIC in chaired by an Executive Board member, not being the CFO and reports directly to the Executive Board. Thus, independence of the CIC from both the strategic decision making and the CFO is guaranteed.
3.4 Risk management classification As mentioned above, ASR Nederland develops policies for each of the principal risks that it is exposed to. These policies, which are updated annually, describe the risk definition, the risk limits and the risk mitigation techniques.
ASR Nederland recognizes five main risk categories1 , which are described below. The FIRM risks defined by DNB are used as the basis of ASR Nederland’s risk classification.
Market risk the risk of changes in values caused by market prices or volatility of market prices differing from their expected values. AsR nederland distinguishes the following types of market risk: - interest rate risk - equity risk; - property risk; - currency risk; - spread risk; - concentration risk.
insurance risk insurance risk is the risk that future insurance claims and benefits cannot be covered by premium and/or investment income, or that insurance liabilities and results are threatened because invalid or incomplete assumptions and principles were used in the development and premium-setting of a product. AsR nederland distinguishes two different major types of insurance risk: - life; - non-life.
operational risk operational risk is the risk of losses resulting from inadequate or failed internal processes, persons and systems, or from external events (including legal risk).
3.5 Market risk Market risk arises from changes in the level or the volatility of market prices. Exposure to market risk is measured by the impact of movements in financial variables such as equity prices, interest rates and property prices. ASR Nederland distinguishes several types of market risk, which are discussed in this section: • interest rate risk; • equity risk; • property risk; • currency risk; • spread risk; • concentration risk.
Market risk reports are submitted to the FRC on a monthly basis. Key reports on market risk are the strategic asset mix report, the economic capital report, the interest rate risk report and the report on sensitivity of regulatory solvency to major market risks. A summary of sensitivities is presented in the table below. If the scenarios of the major market risks were to take place simultaneously, a negative effect of 86% would result in a solvency ratio of 135%.
During 2010, interest rates decreased by more than 60 basis points in maturities longer than 20 years. This had a significant impact on the valuation of the best estimate of the insurance liabilities for the LAT.
Duration: The sensitivity of the regulatory solvency ratio to changes in interest rates is monitored on a monthly basis.
3.5.2 Equity risk The equity risk is dependent on the total exposure to equities. In order to maintain a good understanding of the actual equity risk, ASR Nederland has made a number of adjustments for risk purposes to the IFRS classification, i.e. bond funds classified in the balance sheet under equities are not included here. The fair value of equities and similar investments was € 2,142 million at year-end 2010 (2009: € 1,811 million). The increase in the exposure is due to favourable developments in equity prices and acquisitions.
1IFRS refers to credit risk as spread risk or counterparty default risk.
Type risk scenario 2010 2009 equities -20% -21%p -20%p interest -1% -31%p -9%p spread 0.75% -17%p -18%p property -10% -17%p -19%p
Sensitivity of regulatory solvency to equity changes: The impact of price changes of equities on the results under IFRS is limited to the value changes of option contracts, equities held at fair value through profit and loss, and the impairment of equities. At a 10% decline in the price of equities, the effect is € 5 million (2009: € -7 million).
3.5.3 Property risk The property risk is dependent on the total exposure to property. In order to gain an adequate understanding of the actual property risk, ASR Nederland has made a number of adjustments for risk purposes to the IFRS classification. In addition, revaluations to the carrying amount have been included (€ 1,390 million). The fair value of property and property-related assets was € 3,767 million at year-end 2010 (2009: € 3,936 million), including property for own use. During 2010, the exposure dropped owing to the de-risking policy and the resulting disposal of property.
The property is primarily diversified over the rural, residential, office and retail sectors in the Netherlands.
Sensitivity of regulatory solvency to changes in property prices: The impact of changes in the value of property on the results and equity under IFRS is limited to the impairments. At a 10% drop in value, the effect is € 77 million (2009: € 77 million).
The foreign currency position is monitored on a quarterly basis. The table below shows all the main foreign currency positions, including derivatives.
The credit ratings in the fixed-income portfolios present an apparent improvement in AAA government bonds. Also the relative share of government bonds improved versus the relatively higher risk credit portfolio. The relatively high share of AAA-rated government bonds illustrates a focus on strong eurozone countries, as is illustrated in the table showing developments in governments bonds issued by Portugal, Ireland, Italy, Greece and Spain. The increase is not just due to lower interest rates, but also to the acquisition of more government bonds.
The fair value of the financial credit portfolio decreased due to the proactive sale of Tier 1 bonds, whereas the expansion in covered bonds resulted in an increase in AAA-rated financial institutions. The risk spread for corporate bonds dropped in 2010, illustrating the greater optimism among institutional investors. Over the year, the portfolio in corporate bonds was expanded.
The reduction in structured products was achieved through redemptions and active sale of CDOs. In general, the investment policy is to reduce the portfolio of structured products and of CDOs in particular. The relative share of CDOs was further reduced in relation to securitized mortgages. Given the risk profile of mortgage loans and ASR Nederland’s expectations of the Dutch mortgage market, ASR Nederland participated in selective Dutch AAA Residential Mortgage Backed Securities (RMBS) loans for a total of € 181 million. Below the allocation within the structured investment portfolio 2010 is compared to year end 2009. The reduction in CDO exposure in favour of Dutch RMBS is quite significant.
At year end, the exposure to these government bonds issued by Portugal, Ireland, Italy, Greece and Spain was limited. The exposure dropped from € 606 million in 2009 to € 164 million in 2010 and can be broken down as follows: Deposits ASR Nederland’s total deposits amounted to € 128 million (2009: € 39 million). All deposits have an A rating.
Savings-linked mortgage loans Savings-linked mortgages have been sold where savings-linked contracts are carried on ASR Nederland’s balance sheet and the mortgage loan is recognized in the balance sheet of third parties. One of the characteristics of a savings-linked mortgage loan is that the interest in the insurance contract and the interest on the mortgage loan are linked. At the same time, ASR Nederland extends loans to these third parties with a nominal value equal to the value of the savings-linked contract and at an interest rate linked to the interest rate on the mortgage. The amortized cost value of these loans amounted to € 1,908 million at year-end 2010 (2009: € 1,797 million).
Loans to intermediaries ASR Nederland applies stringent application and approval procedures to loans issued to intermediaries. Following an intermediary’s application, its credit rating is determined based on an internal risk-rating model. The loan application is then submitted for approval to the credit committee.
3.6.1 Mortgages ASR Nederland grants mortgages for the account and risk of third parties and for its own account. The ASR Nederland portfolio consists only of Dutch mortgages with a limited credit risk. The Dutch national mortgage guarantee fund (NHG) guarantees part of the mortgage portfolio as shown in the following table. Despite the stagnation in residential property prices over the past two years, the value of the collateral of most mortgages is higher than at issue date.
At year-end 2010, 1.2% (2009: 1.3%) of the mortgages were in arrears.
An accumulated impairment loss for receivables of € 37 million was recognized in 2010 (2009: € 34 million).
3.6.5 Cash and cash equivalents The majority of cash equivalents consists of current accounts.
3.7 Insurance risk Insurance risk is the risk that actual claims and benefit payments or their timing differ from expectations. As a result provisions might not be sufficient to cover insurance liabilities to policyholders.
Every insurance segment within ASR Nederland holds insurance provisions for future claims arising from contracts and assigns assets to cover these insurance liabilities. These provisions are based on assumptions that correspond with assumptions underlying the premiums (mostly in life-business) or based on estimates with respect to claims experience (mostly non-life). These estimates are reviewed at each balance sheet date using statistical analyses based on internal and external historical data.
3.7.1 Life insurance portfolio ASR Nederland has a diversified life insurance portfolio. The portfolio can be divided into two main product types: individual life (including funeral insurance) and group life. The insurance contracts are sold to retail and wholesale clients through intermediaries. Despite the low interest rates, the ASR Nederland solvency continues to meet external requirements.
Life insurance risk is measured with best estimates for the future development of relevant assumptions (mortality and lapse frequencies, expenses) and constant assessment of the adequacy of life insurance liabilities with respect to these best estimate assumptions. The Liability Adequacy Test (LAT) is used to assess the adequacy of insurance liabilities (see chapter 2.29).
Managing life insurance risk General life insurance risk is mitigated by pricing and underwriting policies.
ASR Nederland longevity risk is for a large part offset by the opposite risk (i.e. mortality risk) in other parts of the life insurance portfolio (unit linked, funeral, term insurance).
A provision is formed for each insurance contract. After deduction of capitalized deferred acquisition costs if applicable, the provision totals at least the surrender value or the paid-up value of the contract. As a result, there is no direct loss from lapses. Where contracts contribute to future profits, however, lapses impact these future profits. This reduction in future profits is measured using special models based on market value balance sheets.
Prices are based on best estimate assumptions of mortality rates, surrenders, costs, actuarial interest, prudent margins and profit margin. Based on profit capacity calculations, the assumptions are applied to the fair value of the rate, taking into account profit-sharing obligations to clients.
New policyholders are subject to medical screening for individual life. As far as pensions are concerned, policyholders cannot be subjected to medical screening, but limits are set for acceptable risks. These limits are agreed with the reinsurer.
To limit risk concentration, reinsurance contracts are placed with different reinsurance companies. ASR Nederland has the following retentions for life insurance: Insurance liabilities
The overall adequacy of the liabilities arising from insurance contracts as at 31 December 2010 has been confirmed by internal actuaries and certified by external actuaries.
Life insurance liabilities The technical provision is based on the premium calculation at the time that the contract is issued. The probabilities of death are based on past experience and on the expected future develop-ment of mortality rates according to the latest available tables. Additional liabilities are formed in case of unfavourable trends since the issue date (e.g. increased life expectancy).
The provision at year-end 2010 can be broken down as follows: amounts in euros x 1,000 2010 2009 retentions highest retention at risk highest retention at event highest retention at risk highest retention at event
Without profit-sharing 3,418 402 3,820 contractual profit-sharing (and interest marging participation) 7,282 5,857 13,139 discreationary profit-sharing 1,858 - 1,858 2009 individuaL group totaL
3.7.2 Non-life insurance portfolio ASR Nederland’s non-life insurance portfolio focuses on Accident & Health and Property & Casualty (Fire, Motor and Liability). The insurance contracts are sold to retail and wholesale clients through intermediaries, underwriting agents and direct distribution channels.
Property & Casualty: • Motor vehicle third-party injury liability: Motor vehicle liability is a third-party liability insurance to cover bodily injury, medical care and/or loss of income following a road traffic accident.
• Fire and other damage to property: Fire insurance offers policyholders financial protection against damage to their property and material consequences of interruption of operations as a result of the damage sustained.
Combined ratio In 2010, the combined ratio was 100.3% (2009: 101.4%) and the claims ratio was 73.0% (2009: 71.4%). The lower combined ratio was driven by lower costs and lower fees paid to brokers. The claims ratio increased because of higher claims.
Managing non-life insurance risk Insurance risk is the risk that payments cannot be covered by premiums and/or investment income, or that liabilities and results are threatened because invalid or incomplete assumptions and principles were used in the development and premium-setting of a product. ASR Nederland manages non-life insurance risk by monitoring claims frequency, the size of claims, inflation, handling time, benefit and claims handling costs, and bio-metrical risks (invalidity, convalescence, illness, death). In addition, concentration risk also qualifies as an insurance risk.
Claims frequency, size of claim and inflation To mitigate the risk of claims, ASR Nederland pursues a selection and acceptance policy based on claims history and risk models. The policy is applied to each client segment and to each type of activity. The product lines also use knowledge or expec- tations with respect to future trends to estimate the frequency, size and inflation of claims. The risk of unexpected major damage claims is contained by policy limits, concentration of risk mana- gement and specific risk transfer contracts (e.g. reinsurance).
The underwriting policy is set by each of the insurance businesses based on a risk assessment and actual claims history. In order to limit claims and/or ensure that prices are adjusted correctly, the acceptance policy is continually refined by reference to a number of indicators and statistical analyses.
Handling time The time required for handling and settling claims is an important factor. The settlement of claims that have a long handling time, such injury or liability claims, can take years. Analyses are performed regularly, based, for instance, on ASR Nederland’s experience in similar cases, historical trends – such as the pattern of liabilities – increases in risk exposure, payment of damages, the scale of current and not yet settled damage claims, court rulings and economic conditions.
These risks are kept under control by means of regular evaluation of historical claims patterns, expected future developments and price adjustments, obligations and acceptance policy. ASR Nederland mitigates its occupational disability risk through acceptable criteria, a proactive reintegration policy and suitable reinsurance. ASR Nederland also minimizes its occupational disability risk through acceptance criteria and suitable reinsurance.
Concentration risk ASR Nederland’s risk exposure on its non-life portfolio is geographically almost entirely spread over the Netherlands. Concentration of insurance risks is particularly prevalent in the fire risk portfolio (i.e. home and content, with storm risk forming the most important factor). Storm risk is managed by means of suitable reinsurance (see also ‘Reinsurance’).
The liabilities for amounts payable and the provision for premiums at year-end 2010 can be broken down as follows: Provision for unexpired risk A provision for unexpired risk is formed to the extent that the future claims and expenses – in respect of current insurance contracts – exceed the future contractual premiums, taking into account the current unearned premium reserve.
For the retained occupational disability cover portfolio, a provision is formed for current risk exposure on contracts concluded in 2010 that run until 31 December 2010. This provision is based on the difference between premiums required for accounting and actuarial purposes.
3.8 Strategic and operational risk ASR Nederland defines strategic risk as the risk that ASR Nederland will not achieve its targets because of failure to respond adequately to market developments. Due to the current pressure on the Dutch insurance market, it is extremely important to identify strategic issues and to take the right actions.
Operational risk is the risk of losses resulting from inadequate or failed internal processes, person and systems, or from external events (including legal risk). The main areas for operational risk (related to DNB’s FIRM risks) are IT, outsourcing, integrity, legal issues and operations.
As part of preparing for Solvency II, ASR Nederland has executed a strategic risk assessment (ORSA). In this assessment, strategic risks are transposed into scenarios and their impact on the balance sheet and the income statement is determined. This is internally reported in an ORSA report. This will be developed further in 2011.
3.10 Solvency II Solvency II is the new regulatory framework for European insurance companies, which is expected to be implemented in 2012. Solvency II sets solvency requirements that are better aligned to the risks insurers face and will form an integral part of the operations management of insurance companies. Solvency II has an enormous impact on the insurance market. In accordance with Solvency II, the measurement of assets and liabilities is performed on the basis of market value.
ASR Nederland has set up a group-wide Solvency II programme. In 2009, a gap analysis was performed under this programme. ASR Nederland started resolving any identified gaps in 2010. The progress made in resolving these gaps helps ASR Nederland to become Solvency II-compliant, which is monitored in the Solvency II programme.
As part of Solvency II, ASR Nederland will be required to report its standard solvency capital requirements. ASR Nederland focuses on designing and embedding a process for reporting on the capital requirements. In 2010, this report was prepared in accordance with the requirements of the European Quantitative Impact Study (QIS5). Other Solvency II requirements that ASR
4 Capital and liquidity management 4.1 Capital management 4.1.1 Capital management objectives ASR Nederland is committed to maintaining a strong capital position so as to be a robust insurer for its policyholders and shareholders. The objective is to maintain a solvency level that is well above the regulator’s minimum requirement (Solvency I). Stress tests are performed for the principal risks. An additional objective is to achieve a combination of capital position and risk profile that is at least in line with an ‘A’ rating.
ASR Nederland is currently in the process of preparing for the Solvency II capital requirements. In 2010, ASR Nederland started to implement a process to report the Solvency Capital Requirement as defined in the Quantitative Impact Studies (QIS) of Solvency II. ASR Nederland also started the development of an Economic Capital (ECAP) method that better reflects its own risk profile in 2010.
4.1.2 Solvency ASR Nederland’s regulatory solvency and buffer capital at 31 December 2010 can be broken down as follows: The solvency ratio was 221%, which is below the target of 250%. The sensitivities described in chapter 3.5 pertain to the stress scenarios used for the solvency ratio floor after stress. The total impact of the stress scenarios is 86%, with the solvency ratio after stress landing at 135%.
2010 < 1year 1-5 years 5-10 years 10-20 years > 20 years 2009 < 1 year 1-5 years 5-10 years 10-20 years > 20 years
Cashflow: 5 Segment information 5.1 General ASR Nederland distinguishes between the life, non-life and other segments. The life segment comprises all life insurance entities and their subsidiaries. These life insurance entities offer financial products such as life insurance contracts and life insurance contracts on behalf of policyholders. The non-life segment is comprised of non-life insurance entities and their subsidiaries. These non-life insurance entities offer non-life insurance contracts. Insurance entities are entities that accept the transfer of insurance risks from policyholders. The life and non-life segments have different levels of profitability and growth opportunities, as well as a different outlook and risk profile.
The life and non-life segments have different levels of profitability and growth opportunities, as well as a different outlook and risk profile.
The segment ‘Other’ includes the following entities: • ASR Nederland N.V. and other holding companies; • ASR Bank N.V. (acquired on 29 December 2009); • ASR Hypotheken B.V.; • ASR Vastgoed Ontwikkeling N.V.; • Ditzo B.V.; • B.V. Nederlandse Hulpverleningsorganisatie-SOS International; • SOS International; • as well as several other holding companies.
Ditzo B.V. is a distribution channel and the underwriting income and expenses are recognized in the non-life segment.
Eliminations applied in the reconciliation of the segment information with the consolidated balance sheet and the consolidated income statement are separately presented.
Segment information has been prepared in accordance with the accounting principles used for the preparation of ASR Nederland’s consolidated financial statements (as described in chapter 2). Intersegment transactions are conducted at arm’s length conditions.
investments on behalf of policyholders 9,491 - - - 9,491 equity attributable to holders of equity instruments 2,266 837 -657 - 2,446
Profit attributable to holders of equity instruments 276 104 -63 - 317
Non-technical result includes income from investments that have been allocated to equity and the general provisions, as well as a number of specific results not allocated to insurance activities.
Gross premiums written 2,328 2,332 change in provision for unearned premiums -18 14 Gross insurance premiums 2,310 2,346
Net insurance premiums 2,097 2,121 net insurance claims and benefits -1,422 -1,298 change in liabilities arising from insurance contracts -111 -217 fee and commission expense -319 -340 allocated gain (loss) on investments - to technical result 135 131 allocated other income and expense – to technical result -7 -12
Proceeds (loss) from sales of investments -13 -17 non-technical result 52 27
expenses technical result fire and other property damage 325 307 -200 -95 -49 -31 5.6 Non-life ratios The non-life combined ratio can be broken down as follows: • Claims ratio: the cost of claims, net of reinsurance in non-life, excluding the internal costs of handling non-life claims, expressed as a percentage of net earned premiums.
These ratios are used only by non-life insurance companies. Due to an increase in claims, the claims ratio rose by 1.4%. Commissions and other related expenses decreased and as a result, the combined ratio fell to 100.3%. The expense ratio is calculated taking into account investment costs amounting to € 7 million (2009: € 6 million).
The amortization periods for the intangible assets are specified in chapter 2.14. Amortization charges related to VOBA are included in net claims and benefits; software amortization is included in operating expenses.
Movements in deferred acquisition costs (DAC) can be broken down as follows: Amortization of deferred acquisition costs is recorded in acquisition costs in the income statement.
As at 31 December 2010, the total impairment of deferred acquisition costs amounted to € 68 million (2009: € 68 million).
At year-end 2010, the fair value of land and buildings for own use amounted to € 186 million (2009: € 205 million). This value is determined annually on the basis of valuations.
cost price as at 1 January 2010 242 - 137 379
cost price as at 1 January 2009 203 140 119 462
At year-end 2010, the fair value of investment property amounted to € 3,260 million (year-end 2009: € 3,486 million). This amount is based on valuations by independent valuators. These valuations are performed annually for the entire portfolio. Nearly all impair- ments that are recognized relate to residential property.
The amount transferred from property, plant and equipment in 2009 (€ 140 million) is a result of the revision of IAS 40 and involves a reclassification of investment property under development.
Proceeds from the sale of investment properties and rentals are recognized as investment income. For details, see chapter 27. In 2010, rentals amounted to € 183 million (2009: € 179 million).
Direct operating expenses arising from the investment property amounted to € 27 million (2009: € 23 million). In 2010 and 2009 there were almost no vacant properties. Therefore, virtually all direct operating expenses related to investment properties generating rental income. Direct operating expenses of invest- ment property are classified as operating expenses.
Deltafort B.V., a 50% joint venture, participates in the ordinary and preference shares of Ahold N.V., and has its registered office in the Netherlands.
Company investments investments on behalf of poliCyholDers investments on behalf of poliCyholDers total finanCial assets total finanCial assets
All investments at fair value through profit and loss are designated as such by ASR Nederland upon initial recognition.
Impairment of loans and receivables The following table breaks down changes in impairments of loans and receivables:
Derivatives held for trading are comprised of all derivatives that do not qualify for hedge accounting. Changes in the fair value of derivatives held for trading are recorded in investment income (under ‘fair value gains and losses’, see chapter 27).
At year-end 2010, the derivatives can be broken down as follows: 31 December 2010 Positive fair value Negative fair value NotioNal amouNt
Exchange rate contracts interest rate and exchange rate swaps 6 1 53
Exchange rate contracts interest rate and exchange rate swaps 9 - 82
Expected cash flows in connection with interest rate contracts included in derivatives held for cash flow hedging can be broken down as follows: No cash flow hedges became ineffective in 2010. No amounts were transferred from the cash flow hedging reserve to the income statement.
D at a level 1 level 2 level 3 total Fair value
Fo r s a le in v es tm en t s a va il a b le
Deferred taxes are formed for differences between the carrying amount of assets and liabilities and their tax base at the enacted tax rate, taking into account tax-exempt components. The enacted tax rate of 25% (2009: 25.5%) is used when calcu- lating deferred tax. The current tax rate used in the income statement is 25.5%.
16 Equity 16.1 Share capital ASR Nederland’s share capital can be broken down as follows: The Dutch State has been ASR Nederland’s sole shareholder since 3 October 2008. There were no changes in share capital during the financial year.
Investments avaIlable for sale revaluatIon of assocIates cash flow hedge reserve dPf comPonent total gross unrealized gains and losses 499 1 -4 8 504 tax related to shadow accounting 34 - - - 34 gross unrealized gains and losses -205 8 -5 16 -186 tax related to shadow accounting -49 - - - -49 * Includes shadow accounting on segregated investment pools
ASR Nederland enters into life insurance contracts that, in addition to offering a guaranteed element, also give policyholders a right to additional benefits (see chapter 2.29). Expected claims for additional benefits under these insurance contracts with discretionary participation features (DPF) are included in the DPF reserve. This reserve is recognized as a component of the unrealized gains and losses recorded in equity.
Hybrid tier 1 instrument 6.25% fixed interest 12 12 Per quarter with effect from 30 september 2009
Changes in liabilities arising from non-life insurance contracts can be broken down as follows: Release of cost recovery -147 -175
Provision for unearned premiums changes in provision for unearned premiums 18 -13 -6 -7
Employee benefits can be broken down as follows: ASR Levensverzekering N.V., an insurance company and a group entity, is the administrator of the post-employment benefit plan. As this company holds the separated investments that are meant to cover the employee benefit obligation, they do not qualify as plan assets in accordance with IAS 19 and are therefore included in financial assets.
ASR Nederland operates a number of defined benefit postemployment benefit plans for its employees. These plans are financed partly from contributions paid by employees. The benefits under these plans are dependent on factors such as years of service and compensation. Pension obligations are determined using mortality tables, the rate of employee turn- over, wage drift and economic assumptions such as inflation, income from plan assets and the discount rate.
The discount rate is determined based on the return (zero coupon rate) of high-quality corporate bonds (AA rating) and the duration of the pension obligation. Besides pension benefits, the costs of the defined benefits plans include personnel arrangements for financial products (such as mortgages), which remain in place after retirement.
The tables below provide further information on gross provisions, qualifying plan assets (back to 2006) and the carrying amounts recognized in the balance sheet item for pensions and other post-employment benefits.
Unrecognized past service cost as at 1 January 21 24 - amortization of unrecognized past service cost -3 -3 - -
Pension Plans other Post-emPloyment benefits experience adjustments to qualifying investments, gain (loss)
The provisions for staff redundancies are based on arrangements agreed in the Collective Bargaining Agreement and the 2009- 2010 redundancy plan, and on decisions made by ASR Nederland’s management.
All carrying amounts reflect the fair value as at the balance sheet date.
ASR Nederland uses this financing for investment (property, foreign subsidiary Limited Partnership, group pension contracts), balance sheet management, and short-term cash flow management.
Collateral received for securities lending comprises the following: • A securities lending agreement for € 27 million with ABN
• Items under ‘Other debts’ include collateral received under ISDAs concluded with counterparties. The average interest rate payable for the collateral received in 2010 is 0.438% (Eonia) (2009: 0.35%). There are no specific terms and conditions, because they are dependent on the development of the value of the underlying instrument.
The effective interest rate method has been applied to an amount of € 1,024 million of the interest income from financial assets not classified as stated at fair value through profit and loss (2009: € 1,037 million).
Dividend and other investment income per category can be broken down as follows: 27.2 Realized gains and losses The table below shows a breakdown of realized gains and losses per category: Dividend on equities 46 29
Other income can be broken down as follows: In 2009, income from the restructuring of the non-cumulative guaranteed Trust Capital Securities and the related issue of new hybrid Tier 1 instruments amounted to € 129 million.
Net insurance claims and benefits can be summarized as follows: ToTal life and non-life 2010 2009 insurance claims and benefits -5,136 -5,840 insurance claims and benefits recovered from reinsurers 12 195
Change in provision for outstanding claims - -260 amortization of VoBa (Chapter 6) -2 -3
Insurance claims and benefits -1,543 -1,666 insurance claims and benefits recovered from reinsurers 10 151
In 2010, the employee benefit expense increased to € 345 million (2009: € 330 million), despite a reduction in own staff. This was mainly due to the reversal in 2009 of the provision for profit sharing 2008 amounting to € 23 million.
The distribution of ASR Nederland’s workforce was as follows at 31 December (in FTEs): As a result of cost-cutting programmes, the number of own staff decreased by 121 to 4,333. In 2010, the average workforce numbered 4,383 FTEs (2009: 4,497 FTEs).
Operating expenses are allocated to the life and non-life segments. However, in the presentation of the ASR Nederland’s workforce per segment, employees, administrative expenses and over-heads have not been allocated to segments.
Changes in impairments of financial assets can be broken down as follows:
The table below is a breakdown of the interest expense: 35 Other expenses 36 Income tax expense
The remuneration and combined share ownership of the mem- bers of the Executive Board are described in chapter 38 (Remu- neration of the ASR Nederland Executive Board and Supervisory Board). In the normal conduct of business, ASR Nederland entities may issue business credits, loans or bank guarantees to members of the Executive Board and the Supervisory Board or to these persons’ immediate family members. The table below shows the financial scope of ASR Nederland’s related party transactions: • associates; • joint ventures; • other related parties.
During 2010 ASR Nederland, as part of the disentanglement from Fortis, acquired the employee mortgage loans portfolio related to ASR Nederland. The mortgage loans held by the members of the Executive Board are therefore at 31 December 2010 included as part of the total ASR Nederland mortgage portfolio.
The remuneration of the executive and supervisory directors is determined in accordance with the current Articles of Association of ASR Nederland N.V.
38.1 Remuneration of supervisory directors The annual remuneration for members of the ASR Nederland Supervisory Board has been calculated as follows: Amounts in euros x 1,000 supervisory directors As A supervisory director As A committee member totAl As A supervisory director As A committee member totAl 1 Joined the Supervisory Board on 12 February 2009 and stepped down on 10 March 2010. 2 Joined the Supervisory Board on 7 December 2010.
l, in c lu d in g lo n g -t er m vA r iA b le r em u n er At io n to tA
The remuneration of current and former executive directors is in accordance with the 2010 remuneration policy. This policy was approved by the shareholder.
No variable remuneration was paid in 2010 for the financial year 2009.
VA r iA b le r em u n er At io n to tA
l d is b u r se d r em u n er
At io n executiVe directors 1 This includes pension and VPL. * Term of service at ASR Nederland ended on 27 May 2009. ** Joined ASR Nederland on 1 April 2009. *** Joined ASR Nederland on 1 February 2009.
An amount of € 271,289 was paid in 2010 to former executive directors under existing contractual obligations.
An amount of € 260,000 was paid in 2009 to former executive directors under existing contractual obligations. No variable remuneration was awarded for the financial year 2009.
There were no acquisitions in 2010. On 29 December 2009, ASR Bank N.V. was acquired. This did not have any significant impact on the income statement for 2009.
ASR Nederland forms provisions for such occurrences if, in management’s opinion and after consultation with its legal advisers, ASR Nederland is likely to have to make payments and the payable amount can be estimated with sufficient reliability (see chapters 18 ‘Insurance liabilities’ and 20 ‘Provisions’).
As for other claims and legal proceedings against ASR Nederland known to management (and for which, in accordance with the defined principles, no provision has been formed), management feels, after having sought expert advice, that these claims have no chance of success, or that ASR Nederland can successfully mount a defence against them, or that the outcome of the proceedings is unlikely to result in a significant loss for ASR Nederland.
Lease commitments The table below breaks down the commitments for noncancellable operating leases as at 31 December: No later than 3 months 2 2
General The consolidated financial statements of ASR Nederland for 2010 have been prepared in accordance with IFRS – including the International Accounting Standards (IAS) and Interpretations – as accepted within the European Union. In accordance with Section 362(8), Book 2 of the Netherlands Civil Code, the ASR Nederland Executive Board has decided to apply the same accounting policies to the consolidated financial statements as to the company financial statements. This has been the practice since 2005.
Assets 1. Intangible assets Intangible assets can be broken down as follows: 2. Subsidiaries, joint ventures and associates 3. Loans to group companies
4. Financial assets Financial assets available for sale can be broken down as follows: 5. Loans and deposits 6. Receivables from group companies Receivables from group companies are payable on demand. This amount includes the receivable with respect to the unqualified plan assets (see chapter 19) managed by ASR Levensverzekering N.V. amounting to € 1,623 million (2009: € 1,569 million).
7. Cash and cash equivalents Cash and cash equivalents are stated at face value. They are fully and freely available to the company.
Change in reserves required by law - - -658 658 - - - -
Cost of issue of other equity instruments - - - - - - -6 -6
9. Subordinated debt The table below shows the composition of subordinated debt: The private loans of € 20 million mature on 20 March 2012. The average interest rate on the subordinated loans is 6.6% (2009: 6.6%).
The provision for legal issues is based on best estimates available at year end, making allowance for expert legal opinions. The timing of the outflow of resources related to these provisions is uncertain because of the unpredictability of the outcome and time required for the settlement of disputes.
12. Borrowings Borrowings can be summarized as follows: The residual term to maturity of the borrowings is 30 months (2009: 37 months). The average interest rate is 3.2% (2009: 3.5%).
A breakdown of these fees is provided below: Utrecht, the Netherlands, 26 April 2011
Management’s responsibility Management is responsible for the preparation and fair presen- tation 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 Dutch Civil Code, and for the preparation of the management board report in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the 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 2010 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 Dutch Civil Code.
Report on other legal and regulatory requirements Pursuant to the legal requirements under Section 2:393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the management board report, to the extent we can assess, has been prepared in accor- dance with part 9 of Book 2 of this Code, and if the information as required under Section 2:392 sub 1 at b - h has been annexed. Further, we report that the management board report, to the extent we can assess, is consistent with the financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code.
In 2008, ASR Nederland concluded an agreement with consumer organizations related to the cost compensation scheme for unit-linked insurance contracts. In February 2011, ASR Nederland decided to settle the compensation that unit-linked policyholders are entitled to in 2011 rather than at the end of the contract. Also, ASR Nederland will be offering unit-linked policyholders a free of charge advice from their intermediary, in order to determine the best solution for the individual customer. This may include surrender of the existing unit-linked insurance contract, continuation, or a switch to another ASR Nederland product. In no cases will penalties be charged to the customer following their surrender or switch to a different product.
The financial effect of this decision cannot be reliably estimated because it is dependent on customer behaviour.
All group companies and associates are located in the Netherlands, unless indicated otherwise.
Company name equity interest rate of Control seat segment asr levensverzekering n.V.1, 2 100.00 100.00 utrecht life
Deltafort Beleggingen i B.V. 50.00 50.00 amsterdam life n.V. polder Jannezand1 100.00 100.00 Hank life sycamore 5 B.V.1 100.00 100.00 utrecht life sycamore 6 B.V.1 100.00 100.00 utrecht life asr nederland Vastgoed maatschappij n.V.1 100.00 100.00 utrecht life / non-life
Ditzo B.V.1 100.00 100.00 Zeist other falcon Verzekeringen n.V.1 100.00 100.00 Hoofddorp other servicemaatschappij ‘De Hoofdpoort’ n.V.1 100.00 100.00 rotterdam other united reforce i B.V.1 100.00 100.00 utrecht other
7. The claim of the shareholder for payment shall be barred after five years have elapsed.
The Dutch State has been ASR Nederland’s sole shareholder since 3 October 2008.
Investor Relations ir@asr.nl Up-to-date-information for investors can be found on www.asrnederland.nl > Investor