Chapter 3 - Executive Board Responsibility Statement 3.1 Executive Board Responsibility Statement 78
Chapter 5 - Financial Statements Consolidated financial statements 93 Company financial statements 224
Chapter 6 - Other information 6.1 Independent auditor’s report 232 6.2 Events after the balance sheet date 238 6.3 Other equity interests 238 6.4 Provisions of the Articles of Association regarding profit appropriation 238 6.5 Profit appropriation 239
Chapter 7 - Sustainability 7.1 Sustainability strategy 242 7.7 Standards, covenants and memberships 270 7.8 About this sustainability report 272 7.9 Assurance report of the independent auditor 274
6a.s.r. 2015 annual report a.s.r. at a glance 1.1 Key figures
ASR Nederland N.V. and its subsidiaries, hereinafter jointly referred to as a.s.r., is the Dutch insurance company for all types of insurance. Via the a.s.r., De Amersfoortse and Ditzo brands and specialist labels such as Europeesche Verzekeringen and Ardanta, a.s.r. plans to continue to focus its insurance business on P&C, occupational disability and health insurance (non-life) policies and pensions, individual life and funeral expenses insurance (life) policies, as well as on the distribution of insurance products. a.s.r. also offers specific banking and investment products and asset management services. Except for operating a small Belgian funeral expenses insurance portfolio, which is recognized as a business line of ASR Levensverzekering N.V., a.s.r. operates exclusively in the Dutch market. Having generated € 4,092 million in gross written premiums (GWP) in 2015 and servicing approximately 1.52 million customers (through its a.s.r., De Amersfoortse and Ditzo labels), a.s.r. is the fourth largest insurance company in the Netherlands measured by GWP.
a.s.r. allows people to take out insurance for risks they are unable or unwilling to bear alone, and to help customers grow their assets for later. Customers need to be able to rely on a.s.r. meeting its financial obligations because a.s.r. enters into long-term liabilities such as pension contracts. That is why sustainable financial robustness is essential and one of the top priorities.
a.s.r. is confident that it can prove its right to exist by acting based on customer interests and customer perception. This is something that all employees work towards on a daily basis. And it is the employees that give the service of a.s.r. a face and determine its quality. a.s.r.’s products and services need to follow in step. Customers can rest assured that their risks are covered by an insurer that operates sober and avoids waste, listens to them and puts itself in their shoes. In order to position itself well in different customer segments of the Dutch insurance market, a.s.r. pursues a hybrid and multi-brand distribution strategy and offers products through 5,500 intermediaries.
In its policies, a.s.r. takes account of the interests of its customers and employees, shareholder, and a broad group of external stakeholders (business partners, regulators, politicians, regional governments, industry associations, trade unions, nongovernmental organizations (NGOs) and local communities).
a.s.r. has its registered office in the Netherlands. Its head office is located at Archimedeslaan 10 in Utrecht. The offices at Pythagoraslaan in Utrecht and Stadsring in Amersfoort were closed in 2015. a.s.r. also has offices in Amsterdam (until April 2016) and Enschede. a.s.r.’s subsidiaries are based in various locations in the Netherlands.
9a.s.r. 2015 annual report a.s.r. at a glance a.s.r. roots go back to 1720 with the foundation of N.V. Maatschappij van Assurantie, Discontering en Beleening der Stad Rotterdam anno 1720, which – on 21 June 1720 – became the first listed insurance company in the Netherlands. The company in its present form was created in 2000 by the acquisition of ASR Verzekeringsgroep by the Fortis group. ASR Verzekeringsgroep was formed via acquisitions and mergers of, and partnerships with, a number of other companies, including insurers such as Woudsend Verzekeringen, Europeesche Verzekeringen, De Amersfoortse and Stad Rotterdam. The Fortis group saw the light in 1990 as a result of the merger of AG Group, Dutch insurer AMEV and Bank Group VSB. In the autumn of 2008, following the financial difficulties of Fortis group and to prevent further disruption of the Dutch economy, the Dutch State acquired the Dutch entities of Fortis group and forced Fortis to spin off Fortis Verzekeringen Nederland N.V., which now operates as ASR Nederland N.V.
Although ASR Nederland N.V. was acquired by the Dutch State as a result of the nationalization of Fortis group, it has never received any state aid.
On 29 September 2011, the Dutch State transferred all of the shares to NLFI in exchange for depositary receipts for these shares. NLFI is responsible for managing the shares and exercising all rights associated with these shares under Dutch law, including the voting rights. Since the date of nationalization, the Dutch Minister of Finance has indicated that the investment was intended to be temporary and that a.s.r. was to be returned to the market. On 28 January 2016 the Lower House of Dutch Parliament agreed with the governments plan to initiate the process of the sale of a.s.r. The Minister requested NLFI and a.s.r. to start preparing for an IPO, so that privatization will become an option from the first half of 2016.
Merger between AMEV and VSB Group, followed by merger between AG Groep with AMEV/VSB
Merger between ASR Group and Fortis AMEV, Fortis’s Dutch insurance operations
Our solvency ratio at year-end 2015 was once again robust. It has, in fact, been the one of the most robust solvency ratios among Dutch insurance companies for years. In 2015, a.s.r. focused heavily on the implementation of the Solvency II regime, which took effect on 1 January 2016. a.s.r. is committed to not taking any irresponsible risks, based on a prudent investment policy and its preference for value over volume. The idea is that an insurance company should always be in a position to meet its financial obligations, both now and in the future.
At the end of 2015, the renovation of the building at Archimedeslaan in Utrecht was completed, which allowed us to welcome the remaining De Amersfoortse colleagues who had not moved to Utrecht before. Our colleagues at Europeesche Verzekeringen will also join us soon. With a total of 3,300 work stations, nearly all employees have now been brought under the same roof and the conditions have been created to work in accordance with the principles of The New World of Work. This was motivated by the idea that this will allow us to provide even better customer services.
In 2015, a.s.r. also continued to prepare for a future as a private company. In January 2016, the Dutch Parliament approved the Cabinet plan to privatize a.s.r. through a potential IPO. The Finance Minister has requested a.s.r. and its shareholder NLFI to start preparing for an IPO, so that privatization will become an option from the first half of 2016. All our actions are motivated by our strategy to be a socially relevant insurer that is robust, customer-oriented, cost-efficient and knowledgeable. But a.s.r. also wants to be an agile insurer that adapts to a rapidly changing market. And for this, we need our employees to be flexible as well. We put a lot of effort into internal mobility and staff development, based on the idea that our customers will also benefit from the expertise, motivation and flexibility of our people. And this approach is paying dividends. We are seeing that customers are more satisfied with our service provision as they award us a better NPS score and intermediaries tend to recommend a.s.r. more often. I am proud of the expertise of our people and the enthusiasm, drive and commitment they display on a daily basis.
Premium income up 8% to € 4,092 million: stable in Nonlife segment and rising in Life segment • In the Non-life segment, premium income was virtually stable at € 2,350 million (2014: € 2,359 million). • In the Life segment, premium income rose to € 1,828 million
(2014: € 1,543 million), due in particular to a buy-out of a pension fund and the strategic acquisitions of De Eendragt and AXENT.
• The DNB Solvency I ratio continued to rise to 305% (year-end 2014: 285%).
• The double leverage ratio improved to 102% (year-end 2014: 121%).
• Profit for the year was up 10%, rising from € 153 million to € 169 million due to higher earnings before tax.
• Regular operating expenses were up 15% in 2015, mainly due to an increase in the cost base as a result of the strategic acquisitions and one-off costs due to strategic and regulatory projects.
Investments a.s.r.’s investment policy aims to strike a balance between generating returns and preventing risks. Protecting the solvency position was an important factor in this context. Overall growth in the fair value of the investment portfolio was 5.8% in 2015 (from € 34.7 billion to € 36.7 billion). Of this increase of € 2.0 billion, € 1.0 billion was attributable to mortgages, € 0.4 billion to fixedincome securities and € 0.7 billion to equities. Property exposure was slightly lower compared to year-end 2014. The acquisitions of AXENT and De Eendragt added € 3.5 billion to a.s.r.’s asset base. The AXENT and De Eendragt portfolios were integrated into a.s.r.’s investment policy over the course of
12a.s.r. 2015 annual report a.s.r. at a glance 2015. The related increase in the investment portfolio was offset to some extent by the fall in value of the bond portfolio as a result of accrued interest and spreads.
• The Fair Insurance Guide mentioned a.s.r. as a positive exception in its report on life insurers investing in companies that do military business with countries that are subject to an arms embargo, are the locations of armed conflicts or are known to restrict liberties. Out of the ten insurers covered in the study, only a.s.r and one other insurance company were shown conclusively not to have invested in such companies.
• The former post office at Neude in Utrecht was nominated by fellow investors for the Green Brick Award in 2015. The Green Brick Award for 2015 was all about transformations. This listed building dating from 1924 will be transformed into a multi-functional public meeting place, offering a library, bars and restaurants, a food market and a public bicycle parking facility. The transformation and extension will be carried out with the BREEAM building standard as leading. The project is carried out by a.s.r.’s real estate investment management and real estate development businesses.
AXENT and NIVO Uitvaartverzekeringen AXENT Verzekeringen B.V. (AXENT) of Groningen is a Dutch insurance company with a portfolio of 2.2 million Funeral expenses policies. a.s.r. acquired 100% of the shares in AXENT. AXENT’s portfolio and operations will be fully incorporated into Ardanta. At year-end 2015, a.s.r. reached agreement on the acquisition of the funeral insurance portfolio of NIVO. a.s.r. will consolidate NIVO’s financial information with effect from 2016. NIVO of Mijdrecht was established in 1981 as a subsidiary of Uitvaartcentrum Zuid in Amsterdam, the largest private funeral services provider in the Netherlands. NIVO has 286,000 policies in portfolio, including both term life and burial insurance. NIVO’s entire portfolio will be transferred to Ardanta. Thanks to this acquisition, a.s.r. has further bolstered its position in the Funeral expenses market. The acquisitions tie in with the a.s.r. strategy.
De Amersfoortse launched occupational disability policy 2.5 and flexible occupational disability insurance Targeting self-employed persons, De Amersfoortse has launched AOV 2.5, an occupational disability policy that will pay benefits for two or five years. There are 800,000 selfemployed persons in the Netherlands; three-quarters of them have no occupational disability insurance. De Amersfoortse’s new policy targets them in particular by paying benefits for two or five years, depending on the choice made when taking out the policy. AOV 2.5 is designed to encourage self-employed persons suffering from an occupational disability to go back to work by providing job counselling and retraining or refresher courses. The target group are self-employed persons who cannot afford or do not want to take out comprehensive occupational disability insurance to age 67, but do want some coverage. A flexible occupational disability policy was introduced in 2015 as well. This flexible policy allows business owners to change their coverage, including the insured sum, policy excess, contract term, benefit payment threshold, age limit and indexation of benefits, at any given time.
a.s.r. P&C awarded personal injury quality mark and a.s.r. and Ditzo received top rating in quality mark survey 2015 was the second year in which a.s.r. P&C achieved the maximum score in the personal injury insurance certification audit by PIV, the Insurers’ Institute on Personal Injury Claims. a.s.r. achieved the best possible score on nearly all aspects. The personal injury quality mark is part of the general CustomerOriented Quality Mark; it is the only type of insurance that is audited separately. The audit is based on the Code of Conduct for Personal Injury Claims Processing, which a.s.r. was one of the first insurers to endorse.
AFM Customer Centricity Dashboard a.s.r. achieved a score of 3.4 out of 5 for 2014/2015 on the Customer Centricity Dashboard of the Netherlands Authority for the Financial Markets (AFM). Although this corresponds to the average score for the financial sector, it is 0.2 lower than last year when a.s.r. scored 3.6. • AFM praised a.s.r. claims handling An AFM survey shows that a.s.r.’s claims handling is rated better than the market average on every aspect; the AFM looked at the claims handling procedures for house and home contents insurance of six (large) insurance companies. a.s.r. scored a 3.8 on a 5-point scale. The market average was 3.4. The AFM concluded that a.s.r. shows that it puts itself in the customer’s shoes.
• Top ranking for a.s.r. Bank on AFM Dashboard a.s.r. Bank achieved the highest score in the AFM Self-
Assessment Dashboard for Contemporary Savings Policy pilot: it was awarded a 5 on a 5-point scale. The AFM Dashboard rates savings products offered by banks for the criteria defined by the AFM. The score represented an improvement on 2014 (3.8) and was better than the average score achieved by all survey participants (4.5).
a.s.r. nominated in performance survey Adfiz, the sector association of independent financial advisors, nominated a.s.r. label De Amersfoortse twice in the categories ‘commercial income’ and ‘commercial pension’. The Adfiz performance survey shows which providers offer the quality the customer deserves.
De Amersfoortse’s Doorgaan.nl campaign received international SABRE Award De Amersfoortse Doorgaan.nl campaign won an international PR award. The judges of the SABRE Awards 2015 named the campaign the winner in the Product Media Relations category.
Europeesche Verzekeringen named 2014’s Best Travel Insurance Company In February 2015, Europeesche Verzekeringen was named 2014’s Best Travel Insurance Company in the Feather Awards, an annual initiative of TravMagazine, the professional journal of the travel industry. The Feather Awards are presented based on a survey conducted by GfK Retail & Technology Benelux of more than 6,000 travel agents in the Netherlands. It was the 15th time that Europeesche Verzekeringen won the Feather Award for best travel insurance company.
a.s.r. reaches mobilization targets through intensive customer contacts a.s.r. has had an active strategy in place for mobilizing customers since 2010; in addition to offering compensation for excess charges, this strategy is also designed to educate customers about their unit-linked policies and help them make informed decisions. a.s.r. continued on this path in 2015 too, focusing heavily on localizing and approaching customers. a.s.r. is committed to having customers make informed decisions, so that they know whether or not their unit-linked policy still suits their current financial situation. In 2015, the main focus was on approaching and mobilizing non-accruing policyholders and customers with mortgage-linked policies. In-depth customer research and customer panels are used first of all to align the method for approaching customers to their wishes. All targets for 2015 were achieved. The target mobilization rate of 100% was reached for non-accruing policyholders. The target for mortgage-linked policies was 80%; at year-end 2015, we had managed to mobilize 86% of our mortgage-linked policyholders. Based on a survey, AFM qualified a.s.r.’s rebalancing recommendation as ‘good’ to ‘very good’, which makes a.s.r. ‘best in class’ compared to other insurance companies.
Ditzo introduced claim submissions via WhatsApp Ditzo customers have been able to file claims via WhatsApp since September. Claim forms covering storm or fire damage can now also be filled in easily online. Ditzo customers will receive an answer via WhatsApp within half an hour, and policyholders and crash repair companies will usually have the compensation paid into their bank accounts the very same week.
Engagement score 2015 The engagement score for 2015 was 53.5%, a 4% rise on 2014 (49.5%). The results of the Engagement Scan 2015 paint a more uniform picture than they did before. The differences between the business lines have diminished greatly and overall things have improved in terms of sustainable engagement. The employee participation rate was 80%. Of them, 53.5% felt ‘Fully Engaged’ and 33.6% ‘Nearly Engaged’. Employees continue to feel a strong commitment to TCF; the score of 8.6 was the same as last year.
a.s.r. launched its On the move programme in May 2015. A special Human Resources team has been formed to provide guidance to members of staff who wish to develop their talents and take ownership of their own future, whether it concerns promotions (talent development), transfers (sustainable mobility within or outside a.s.r.) or redundancies.
15a.s.r. 2015 annual report a.s.r. at a glance management positions. The ratios of women on the Executive Board and the Supervisory Board of a.s.r. at year-end 2015 were 25% and 33%, respectively. The percentage of female senior managers was 24.5%.
Herman Hintzen (60) joined Supervisory Board Herman Hintzen was appointed as a Supervisory Board member on 1 January. Herman Hintzen was Chairman Insurance EMEA at UBS Investment Bank in London since 2012, where he was concerned with financial institutions in Europe, and insurance companies in particular. He succeeds Margot Scheltema, who resigned as a supervisory director of a.s.r. on 1 September 2015 to join the Supervisory Board of the Dutch Central Bank.
Winner of Bouwpluim Award The renovation of the Archimedeslaan building was presented with the Dutch Bouwpluim Award 2015. This award is primarily concerned the partnership between the principal (a.s.r.) and the contractor (Bouwcombinatie Archimedes). The Bouwpluim Award, which is presented once every two years, is an initiative of various players in the construction industry. An independent panel of judges mainly assesses the openness and constructiveness of the partnership between the principal and the contractor.
a.s.r. Real Estate Investment Management awarded four BREEAM-NL stars for Centrum Waddinxveen a.s.r. Real Estate Investment Management was awarded a BREEAM-NL four-star completion certificate for Centrum Waddinxveen. This is the first retail development that was awarded an ‘Excellent’ score in its completion certificate.
FIRA Silver certification FIRA is an institution that verifies the sustainability information of businesses and enables benchmarking based on reliable data. The FIRA Platform is a digital register where suppliers can post their sustainability performance. After having verified this information, FIRA awards Gold, Silver and Bronze certificates. a.s.r. was awarded a Bronze certificate in 2014, which was upgraded to a Silver certificate in 2015.
De Hartstocht On 5 November, a blue velvet toy heart was sent on a trip around the Netherlands to cover as many kilometres as possible and raise funds for research into cardiovascular disease in women. Ditzo donated € 10 for each kilometre clocked up by the blue heart and for each selfie with the heart shared on social media. After the campaign, a.s.r. donated € 307,650 to the Utrecht University Hospital.
• A financial institution a.s.r. aims to be a financially reliable and stable institution with a strong solvency position to fulfil its long-term obligations and commitments to all its stakeholders. a.s.r. believes that a solid financial position will enable it to meet both its short and long-term obligations to customers and shareholders. In a.s.r.’s opinion, its ‘value over volume’ philosophy will help to capture long-term value creation.
• A valuable member of society a.s.r. feels responsible to society at large, to its customers in general and to vulnerable groups in particular. a.s.r.’s strives to reflect its view on social responsibility in its HR policy (e.g. by employing (partly) disabled young people), its investment policy, its working environment (The New World of Work) and its environmental policy.
The employees of a.s.r. strive to help customers where possible, communicating with them in clear and simple language. a.s.r. believes that the intermediary channel has proven to be resilient and allows customers to receive appropriate advice and to select the most suitable product. a.s.r. focuses on retail customers, self-employed individuals and SMEs. a.s.r. strives to shape its products and multi-brand distribution strategy to meet customer requirements and preferences. Furthermore, through further decentralisation of distribution, product marketing and IT, a.s.r. aims to further simplify its organizational structure in order to allow a.s.r. to respond quickly to changes in market trends and customer behaviour. The result of decentralisation is that business directors are responsible for end-to-end business lines, allowing a.s.r. to easily and swiftly respond to changing market trends.
In addition, a.s.r. believes it operates in capital-light businesses with significant growth potential.
Further detail about the strategy of the individual business lines is presented in chapter 2.
In order to position itself advantageously in different customer segments of the Dutch insurance market, a.s.r. uses a hybrid and multi-brand distribution strategy and offers its products to approximately 1.52 million households (through its a.s.r.,
2015 annual report a.s.r. at a glance a.s.r.’s current brands and distribution policy includes the following: a.s.r.
Under the a.s.r. brand, a.s.r. offers products for P&C (all customer segments), pensions (DB products for the commercial market), individual life (term life and annuity) and banking products (mortgages, savings and investments for retail clients). The a.s.r. branded products are distributed via the intermediary channel (e.g. P&C, mortgages and DB pension products) as well as online (e.g. term life, savings and individual annuity). In addition, mandated brokers, aggregators and service providers can sell a.s.r.’s products under their own brand names. The a.s.r. brand targets retail and commercial (primarily SME) customer segments.
Ardanta is a.s.r.’s funeral insurance brand. Most of Ardanta’s funeral insurance policies historically sold via the intermediary channel. Currently, Ardanta utilises a multi-channel distribution strategy by offering its products through intermediaries, direct salesforce and online. The Ardanta brand targets retail customers. With the acquisitions of AXENT and NIVO, a.s.r. has two additional funeral brands; and
VKG and Boval were recently acquired and are a.s.r.’s service providers. They are full service providers and mandated brokers to a number of Dutch insurance companies. As full service providers, VKG and Boval give connected intermediaries access to a wide array of insurance products.
• Strong solvency position supported by high-quality capital • Track record of attractive return on equity and capital and cash generation • Diversified, resilient Dutch insurer with leadership in attractive market segments • Differentiated distribution, underpinned by highly reputable brands • Excellence in pricing, underwriting and claims handling • Proven cost-reduction capability and continuous focus on operational efficiency • Profitable LDI Asset Management platform with strong track record • Skilled, experienced management focused on execution and delivery
This survey asked the stakeholders to list the themes that they believe are most material to a.s.r. These material themes were then presented to higher management to determine the impact for a.s.r. (for details, see Appendix F, Materiality).
Customer-Oriented Insurance Quality Mark, Net Promoter Score (NPS), 1-in-service, AFM Customer Centricity Dashboard, customer surveys and complaints management.
2. Transparent product and service descriptions We are constantly making sure that prospective and existing customers can access and understand the product information we provide. a.s.r. is taking various steps to make information more accessible and easy-to-read. We do this by rewriting our style guides and offering training courses in language level B1/customer-friendly information.
4. Customer privacy a.s.r. has policies and procedures in place in relation to privacy regulations. The privacy statement provides an understanding of the different categories of data a.s.r. processes, the reasons for processing this data and the rights of the customer.
For details on the material themes described above, see chapter 7, Sustainability. Appendix F describes the delineation of all identified materialities and correlates them to the related stakeholder interests.
The figure below ties in with the reporting framework of the Integrated Reporting Council and consists of three elements: input, our business model and output.
Manufacturing Customer satisfaction (NPS) Sustainable products (e.g. VVP, Occupational Disability 2.5) Intermediary distribution Introduction of new products Claimhandling Customer services
Intellectual Employees are encouraged to achieve their full potential. a.s.r. uses its knowledge and innovative drive to develop new and improved products and processes. The wishes and requirements of customers, which are identified in customer surveys, are leading.
Human a.s.r. facilitates the development of its employees by offering them education and training. a.s.r. seeks to hire talented new people.
Social a.s.r. contributes to society by investing in a variety of sustainable public initiatives, such as the drive for financial literacy, and by engaging in regular dialogue with its stakeholders, but also by paying tax and by sourcing products and services.
Financial a.s.r. has a strong capital and solvency position. The capital that is required for its business operations is raised based on a responsible investment policy.
24a.s.r. 2015 annual report a.s.r. at a glance 1.6.1 Members of the Executive Board
J.P.M. (Jos) Baeten (CEO) Jos Baeten (1958) has the Dutch nationality and is the Chairman of the Executive Board and Chief Executive Officer (CEO). His areas of responsibility are Human Resources, Corporate Communications, Strategy, Marketing, Business Support, Corporate Social Responsibility, Audit, Integrity and Legal.
H.C. (Chris) Figee (CFO) Chris Figee (1972) has the Dutch nationality and serves as CFO. His areas of responsibility are Group Accounting, Reporting & Control, Business Finance & Risk, Group Asset Management/ Financial Markets, Group Balance Sheet Management and Group Risk Management.
1 Jos Baeten 2 Karin Bergstein 3 Chris Figee 4 Michel Verwoest
Chris Figee was appointed as a member of the Executive Board on 1 May 2014.
Additional positions Karin Bergstein is a member of the Supervisory Board of Stichting Sanquin Bloedvoorziening and of the Supervisory Board of Utrecht University. She also serves as a member of the Supervisory Board of Human Total Care.
M.H. (Michel) Verwoest Michel Verwoest (1968) has the Dutch nationality. His areas of responsibility are the product lines Pensions, Occupational Disability Insurance and Health Insurance. He is also responsible for Real Estate Development, Real Estate Asset Management and Information Technology & Change.
Michel Verwoest studied marketing at TiasNimbas Business School in Tilburg and business administration at IBO Business School, and held several executive positions at ING Group between 1997 and 2012. At ING, he served as CEO of RVS Insurance and was in charge of the Individual Life business. His last position in the insurance business of ING Group was a managing board member of Nationale Nederlanden.
Annet Aris (1958) has the Dutch nationality and had a 17-year career at McKinsey as a management consultant, including nine years of which she served as a partner. She holds supervisory directorships at several Dutch and foreign enterprises and institutions, including ASML N.V. in the Netherlands, ProSiebenSat1 AG and Jungheinrich AG in Germany and Thomas Cook PLC in London. Annet Aris is an associate professor of digital strategy at INSEAD international business school (Fontainebleau, France).
C.H. (Cor) van den Bos Chair of the Audit & Risk Committee
Cor van den Bos (1952) has the Dutch nationality and served on the Executive Board of SNS REAAL N.V. until August 2008, in which position, he was responsible for all insurance operations. Cor van den Bos is the Chairman of the Supervisory Board of CED, a claims-processing manager, and of Noordwijkse Woningstichting, a housing corporation. He is also ViceChairman and a Non-Executive Member of the Board at the investment firm Kardan N.V.
First appointed on: 15 December 2008 Current term of office: 15 June 2015 – 15 June 2019
First appointed on: 1 January 2016 Current term of office: 1 January 2016 – 1 January 2020 a.s.r.’s registered address, i.e. Archimedeslaan 10, 3584 BA Utrecht, the Netherlands serves as the business address for all the members of the Supervisory Board.
The financial statements for 2015, which the Executive Board has submitted to the Supervisory Board, covers the period from 1 January 2015 to 31 December 2015. The Executive Board met at least twice weekly in 2015 for consultation. The key themes that were addressed in the meetings of the Executive Board in 2015 are listed below.
Customers HR and talent development Market, strategy, business Mergers, acquisitions and divestments Employees and development Unit-linked policies Complaint reports Privatization Contacts with Works Council Solvency II Solvency Renovation of Archimedeslaan office Developments in premium income/cost ratio Risk management and risk appetite Financial performance (quarterly, interim and annual results) Reinsurance policy Contacts with, and reports to, regulators Contacts with shareholder Investment plan Dividend proposal, including policy CSR and sustainability Multi-year budget Compliance, audit and risk reports Governance ICT-projects
Treating customers fairly continues to be a priority for the Executive Board and further improvements are being explored all the time.
HR and talent development a.s.r.’s employees are the driving force of the organization. They help customers through unexpected events and difficult times, and work to improve products and processes every day. By responding to customers quickly and giving them the right answers, putting themselves in the customer’s shoes and offering them products and solutions that they actually need,
A paper elaborating on the ‘On the move’ programme was used to discuss a.s.r.’s policy on sustainable employability. Management development issues were also addressed extensively during this discussion. Both initiatives encourage and help employees to develop themselves and to invest in their professionalism and career perspectives, so as to improve their sustainable employability.
The Executive Board also places special focus on the development and succession of senior management. One of the ways of doing so is the annual senior management survey, in which context the individual members of senior management are first discussed within the Executive Board and then jointly with the Supervisory Board. The discussions focus on personal growth, combined with mobility within a.s.r. As part of this policy, one managing director took on new roles in 2015, two left a.s.r. and one was recruited externally.
The Executive Board sets great store by robustness because it clearly tells our customers that a.s.r. will be able to fulfil its obligations at any time, even in the more distant future. To a.s.r., this is reflected in a robust solvency ratio, measured based on Solvency I and Solvency II requirements alike. Given that the Solvency II regime was to take effect on 1 January 2016, this regime became increasingly important to a.s.r. in 2015. Solvency II is governed by a standard formula, rather than the self-developed internal model. The Executive Board believes that this should enhance transparency and consistent interpretation. At year-end 2015, the midpoint estimate for a.s.r.’s Solvency II ratio was 185%. a.s.r. uses a bandwidth of +10 percentage points and -10% percentage points for the midpoint estimate.
Works Council The Executive Board attaches great value to providing information to the Works Council and hearing their opinion. The working relationship that has developed between the a.s.r. executive and the Works Council is characterized by a great deal of openness. The Works Council is informed of many issues at an early stage, allowing it to use its influence on the decision-making process in an effective manner. The Executive Board is highly appreciative of the constructive and open discussions, and for the time and energy that the Works Council spends on issues that are impactful for a.s.r. Key themes that were discussed with the Works Council in 2015 were a.s.r.’s privatization and potential IPO, various acquisitions and disposals, and a jointly to be conducted survey of employee preferences for different fringe benefits. The outcome of this survey will form the basis for the dialogue with the Works Council on the simplification and modernization of the payand -benefits package. In 2015, the executive also discussed with the Works Council the outcome of the annual employee engagement survey and the ‘On the move’ programme, which was introduced in mid-2015.
With effect from 29 September 2011, the shareholder has been represented by Stichting Administratiekantoor Beheer Financiële Instellingen (NLFI), a trust office. a.s.r. was in frequent contact with NLFI in 2015, which was greatly intensified by the preparations for a.s.r.’s potential privatization.
CSR and sustainability We are keenly aware of a.s.r.’s role in society and the sustainable and ethical choices that come with it. The organization is committed to forging sustainable relationships with our customers and advisors (the intermediary channel) every day. To achieve this, we are continuously working to improve our services and offer sustainable insurance products. Our key driver is to be a socially relevant insurance company. This also encompasses our investment policy and our insurance and banking products, as well as the procedures for selecting social projects to participate in.
The second stage of the building works was completed early in 2015. The third and final stage was completed in December 2015.
The works progressed as planned and came in within budget. We received very few complaints about inconveniences experienced by users and neighbours. The employees working in the renovated building are very proud of their work environment. The renovated building, which has already been showered with several awards, has been assigned energy efficiency rating A and received the BREEAM Excellent label.
Privatization From the time that a.s.r. was nationalized in 2008, all our people have worked hard to build a financially solid and socially relevant insurance company that would be ready to return to the private sector at some point in time. The commercial drive, capital position and profitability of the different business lines of a.s.r. and of a.s.r. as a whole are developing well and a.s.r. was one of the best-positioned insurers in the Dutch market in 2015. a.s.r. is well on its way to becoming the ‘other insurer’ that treats customers fairly and helps by taking action.
31a.s.r. 2015 annual report Report of the Executive Board instance, may come with acceptable cost increases – and increases in premium income – and costs incurred for raising our level of professionalism that can be ‘recouped’ can also tie in with the envisaged cost development. One example is that we decided to insource a claims inspection service in 2015. The insurance market is fiercely competitive. To stay relevant, a.s.r. not only needs to be able to offer its customers attractive prices, but also provide attractive service levels. After all, insurance is all about creating a safety net for unforeseen circumstances. For this reason, the Executive Board considers it of great importance that a.s.r.’s product and service offering remains of high quality in the future.
The Executive Board Jos Baeten Karin Bergstein Chris Figee Michel Verwoest
• The DNB solvency ratio 3 (Solvency I) rose further to 305% at year-end 2015 (year-end 2014: 285%).
• Gross written premiums increased to € 4,092 million (up 8%), mainly due to a buy-out of a pension fund and strategic acquisitions in 2015.
• In 2015 a.s.r. focused on core activities, illustrated by: • Increase of scale in the Life segment (acquisitions of
2 The estimate at year-end 2014 was based on the methodology in force at the time.
3 This is the last press release in which the Solvency I ratio is mentioned. Under EIOPA regulations, the Solvency I regime has been superseded by the Solvency II regime with effect from 1 January 2016.
Operating expenses associated with ordinary activities -538 -485 Provision for restructuring expenses -30 -28
Profit/(loss) before tax 780 534 - Banking and Asset Management 10 6 - Distribution and Services 4 1 - Holding and Other -67 -40 - Real Estate Development -93 -12
Profit/(loss) for the period attributable to holders of equity instruments 601 423
Economy The Dutch economy is recovering from the economic downturn triggered by the financial crisis which commenced in 2008. After a fall in housing prices between 2008 and 2012, the Dutch economy began to stabilise in 2013 and returned to growth later that year. Despite the impact of economic imbalances across the Eurozone, many main economic drivers, including consumption, corporate investments, government spending and exports have contributed to the stable economic performance of the Netherlands in recent periods (GDP growth 2010-2014 +1.3% CAGR).
In 2014, the Dutch insurance market was the fifth largest in Europe, following behind the United Kingdom, France, Germany and Italy. The Netherlands ranked the third highest in the EU in 2014 in terms of insurance density and had the highest GWP per capita in the EU (€ 4,500). The Dutch insurance market is a mature market, with a GWP as a percentage of GDP of 11.0%. In 2014, Dutch insurance companies paid out € 71 billion in claims to their customers, and received € 74 billion in premiums. The CAGR of the Dutch insurance market (including health) in terms of GWP amounted to -1.0% between 2010 and 2014, which excludes reinsurance premiums written.
The Dutch insurance industry can be divided into two categories of insurance products: (a) life insurance, which comprises group life, individual life and funeral insurance, and (b) non-life insurance which comprises P&C, disability insurance and health insurance. a.s.r. was the fourth largest composite
35a.s.r. 2015 annual report Report of the Executive Board life and non-life (excluding monoline health insurers) insurance provider in the Netherlands measured by GWP in 2014. The Dutch insurance market is mature, with a few leading insurers in all segments.
Distribution The distribution channels for life and non-life insurance include (a) intermediaries (advisors, mandated brokers and actuarial consulting firms), (b) the distribution networks of banks (‘Bancassurance’), (c) direct sales, (d) collective insurance partners, such as sports federations and travel agents) and (e) other channels such as post offices and retailers.
In all markets except health insurance, intermediaries account for most of the commercial business line volumes and a significant portion of the retail line volumes. The typical (‘traditional’) intermediary is a small business with a physical office and limited or no online presence. Fifty-two percent of intermediaries are freelancers of which most have annual revenues below € 150,000. Some of the larger intermediaries also operate as mandated brokers and have branded insurance products.
Distribution channels in the Dutch market are in a state of transition. The number of small intermediaries (fewer than 20 employees) has been decreasing (around -3.6% annually since 2011) while number of intermediaries with over 20 employees has remained steady. Drivers and trends currently shaping the market are: • The decrease in the number of intermediaries, primarily driven by the ban on commissions for complex products in 2013 and the increasing requirements in respect of expertise for advising on financial products; • In addition, these developments have led to an increase in specialisation of the remaining (larger) intermediaries; and
• Both insurance companies and intermediaries have been building up their online distribution capabilities. Still, few intermediaries are present online (in 2013: 28%, of which only 60% generated revenue online).
The operating result was up € 104 million, rising from € 417 million to € 521 million. The operating result from the insurance business showed a € 99 million rise to € 603 million, due to an increase in both the Life and Non-life segments. In the Non-life segment operating result increased by € 14 million, from € 155 million to € 169 million. The improvement was due in particular to the occupational disability and health insurance businesses. In the P&C business, the combined ratio also remained well below 100%, despite the damage caused by summer storms. In the Life segment, the operating result increased by € 85 million, rising from € 349 million in 2014 to € 434 million in 2015. In 2014, the operating result was adversely affected by a number of provisions. Adjusted for this effect, the figure was stable.
The increase in the operating result from the non-insurance business was due mainly to lower interest accrual on the pension provision in the Holding segment and a higher operating result from the banking operations.
Profit for the year was up € 178 million, rising from € 423 million to € 601 million, due in particular to the higher operating result, a one-off increase in of equity investment income and an increase in the value of the property portfolio. Conversely, the decision to sell or discontinue parts of the real estate development business caused additional loss provisions to be formed in 2015.
Return on equity (ROE) based on profit for the year rose to 17.2% (2014: 11.0%). Operating return on equity climbed to 13.9% (2014: 11.7%). Both the Life and Non-life segments posted a higher operating result.
Gross written premiums increased by € 305 million on 2014, rising to € 4,092 million (up 8%). In the Non-life segment, gross written premiums were stable at € 2,350 million (2014: € 2,359 million). P&C saw a € 14 million (or 1%) rise in gross written premiums. The increase in the Life segment was mainly attributable to gains from the buy-out of a pension fund and strategic acquisitions.
2015 annual report Report of the Executive Board which was classified as gross written premiums in 2015. Other causes for the decline in new business included the structural fall in demand for individual life insurance products and a.s.r.’s preference for value over volume. a.s.r. bolstered its position in the pension and funeral insurance businesses (Life segment) in May 2015 by acquiring De Eendragt and AXENT. These two acquisitions have diversified a.s.r.’s risk profile and added € 3.5 billion to its assets invested.
Operating expenses for 2015 amounted to € 575 million (2014: € 524 million). The increase was due in particular to a.s.r.’s incorporation of De Eendragt, AXENT, Van Kampen Groep and Dutch ID and the associated acquisition costs.
Objective: strengthen competitive position • Continuation of organic reduction of internal work force
(internal FTEs excluding acquisitions reduced by 208 FTE); • Significant new business initiatives, e.g. reinsurance on pension buy out contracts, further decentralization and empowerment of a.s.r. business lines, achieved top line growth in P&C whilst writing 98% COR business.
Objective: optimize balance structure and enhance capital management • Solvency II standard formula very strong at midpoint estimate 185% after proposed dividend; • Balance sheet further optimized: • Issued € 500 million Tier 2 hybrid capital instrument; • Financial leverage at 25.1%; Operating interest cover at 9.8x; • Double leverage reduced to 102%.
Objective: strengthen business portfolio of the Group • Added additional scale in life & pensions segment whilst maintaining longevity / mortality balance (AXENT, NIVO, De Eendragt); • Boosted scale in Distribution and Services segment (VKG, Dutch ID); • Strengthened third party asset management skills in run-up to APF as business model; • Divested business where a.s.r. is not the best owner (SOS International).
ASR Nederland N.V. is a Dutch company. Both the parent company and its associates have their registered offices in the Netherlands. a.s.r.’s business focuses virtually exclusively on the Dutch market. Its income tax liability is concentrated nearly entirely in the Netherlands.
The relationship between a.s.r. and the Dutch Tax & Customs Administration is governed by a so-called Horizontal Supervision Covenant, which is based on transparency, understanding and trust. a.s.r. periodically sits down with the tax authorities. a.s.r. submits relevant standpoints (on tax matters) to the tax authorities as soon as possible and actively offers them insight into all relevant facts and circumstances, its standpoints and its view of the related legal effects.
a.s.r. has a tax department, which plays a central role in all things tax-related. The tax department occupies an objective and independent position within a.s.r. and assesses the quality of internal tax opinions. The tax opinions a.s.r. offers to (retail) customers do not contain any information that might encourage them to commit tax violations.
a.s.r.’s effective tax rate can be derived from the table breaking down the income tax expense (see chapter 5.32 of the financial statements for 2015). At 25%, the nominal tax rate was the same in 2015 as in 2014. This percentage corresponds to the Dutch income tax rate. a.s.r.’s effective tax rate for 2015 was 19.23% (2014: 20.22%). In addition to exempt profit constituents and non-deductible costs, the difference between the nominal and effective tax rates was affected by prior-year adjustments as well. These tax adjustments weighed down the nominal tax rate by 4.6% (2014: 1.4%)
38a.s.r. 2015 annual report Report of the Executive Board 2.2.2 Non-life segment
• The operating result rose from € 155 million in 2014 to € 169 million in 2015 thanks to an increase in earnings from both the occupational disability and health insurance businesses. In the P&C business, developments in earnings were affected by the summer storms in 2015. Despite this, the combined ratio in the Non-life segment remains practically unchanged at 95.0%.
• Profit for the year was up 10%, rising from € 153 million to € 169 million due to the higher operating result.
• At € 2,350 million, gross written premiums in the Non-life segment (P&C, occupational disability and health insurance) were in line with 2014.
Combined ratio - P&C (a.s.r. Non-life, Ditzo and Europeesche Verzekeringen) 98.5% 95.0% - Occupational disability insurance 89.6% 91.3%
Profile The Non-life segment consists of non-life insurance entities and their subsidiaries. These non-life insurance entities offer non-life insurance contracts, including policies insuring risks related to motor vehicles, fire, travel and leisure, liability, legal assistance, occupational disability and medical expenses. The most significant entities of the Non-life segment are ASR Basis Ziektekostenverzekeringen N.V., ASR Schadeverzekering N.V. and N.V. Amersfoortse Algemene Verzekering Maatschappij.
This segment consists of (a) motor (including bodywork and motor vehicle liability), (b) fire (including property damage, natural forces and engineering, (c) transport (goods in transit) and (d) other (liability, miscellaneous financial loss and legal expenses).
• Economic growth and premiums in commercial P&C Economic growth increases insured sums in the commercial market. However the current soft market is expected to hamper premium income increase.
• Growth of market share of mandated brokers and emergence of service providers
Mandated brokers and service providers increased revenues (a combination of fees and commissions) from € 2.1 billion in 2011 to € 2.3 billion in 2014. Service providers accounted for approximately 20% of the total retail P&C insurance portfolio in 2014 (40% via advisors and 40% via mandated brokers). The growing market share of mandated brokers and service providers stems from their ability to compete on price and to combine products that they offer in a cost efficient way.
Big data and online servicing can help to make processes more efficient (e.g. business rules for underwriting, fraud detection and claim handling), offer more tailored products, adapt pricing and offer better service to customers. In the long-term, technologies such as the automated car can have a disruptive impact on the insurance market by reducing or changing risk and thus the need for insurance, while other developments, such as the need for cyber security, can lead to the formation of new P&C markets.
The disability market is mature and concentrated, with the top three market participants controlling 61% of the market in 2014.
Trends • Political influence on disability insurance market The political landscape in the Netherlands has had an impact on the disability products offered and the related volume in terms of GWP. In general, a more liberal government tends to allow for a higher level of participation by the private sector in the disability market. The foundations for the current disability insurance market came into effect as a result of changes in social legislation starting in 1987. There is market potential for further deregulation in regard to disability products.
• Legislation (BeZaVa) for Group disability Currently, there are ongoing political discussions in relation to legislation for Group disability to extend employers’ liability for temporary employees (‘BeZaVa’), which is expected to represent a potential market size of € 528 million in 2016. It is expected that this legislation will become effective as of 1 January 2017.
• Disability of self-employed The number of self-employed professionals has been increasing by approximately 4% per annum during the past 13 years in the Netherlands. To improve accessibility and insurability of self-employed, the disability market developed more flexible products to tailor the mix of excess and insurance coverage.
Trends • Strong political influence on the health insurance market The core principle of the Dutch healthcare system is to
• Mandatory excess (‘own risk’) for insured rises slightly every year.
• Increasingly informed customers Consumers are price sensitive due to price transparency and enforced standardisation of health insurance (basispakket). Consumers seek a balance between freedom of choice in healthcare provider selection and lower premiums if limitations apply.
The increase in profit for the year was mainly attributable to the higher operating result and higher investment income (due to realized capital gains in particular).
Gross written premiums were almost stable at € 2,350 million (2014: € 2,359 million). In the P&C, premium income was up from € 991 million in 2014 to € 1,005 million in 2015. This rise was mainly attributable to an increase in premiums in the underwriting agency channel (up € 50 million), which was partially offset by a fall in the captive channel (down € 34 million). In a contracting market, gross written premiums in the occupational disability business dropped by € 48 million.
This decline compared to the previous reporting period was largely due to a high single premium of € 21 million in 2014. In the health insurance business, premiums were up € 25 million, due in part to the higher inflow of new policyholders through Ditzo.
General The Non-life segment comprises the following three product lines: • P&C insurance, including motor vehicle, fire, transport, liability and other insurance policies, as well as travel and leisure insurance products; • Disability insurance, including disability self-employed, sickness leave and group disability, as well as occupational disability insurance products related to the Dutch Work and Income Act; and
By brand, a.s.r. accounted for € 821 million of GWP, Europeesche Verzekeringen for € 161 million and Ditzo for € 23 million in 2015.
• Group disability (sickness leave and long-term disability) a.s.r. provides employers with two categories of products: (i) sickness leave disability products, which cover the first two years of employers’ mandatory salary payments in the case of disability of employees (SME market), and (ii) long-term group disability products which offer coverage up until retirement age depending on the coverage (SME market and corporate market). As the BeZaVa act (wet beperking ziekteverzuim en arbeidsongeschiktheid bij vangnetters), comes into force as of 1 January 2017 for the part of WGA liability for temporary employees. A new additional market segment for group disability products will be created. With respect to Group disability the average customer duration for sickness leave was 7.0 years, while the average customer duration for sickness leave was 8.8 year.
General a.s.r. was the eighth largest provider of health insurance products in 2014 in the highly competitive Dutch market measured by GWP with a market share of 1.5%. a.s.r. offers health insurance products under the brands Ditzo and De Amersfoortse. Health had a combined ratio of 98.9% and 95.5% in 2014 and 2015, respectively. Health had limited capital requirements within a.s.r.’s structure, and circa 3% of a.s.r.’s total Solvency II was attributable to Health as at 31 December 2015.
Products a.s.r.’s health business line comprises two primary categories: basic health insurance and supplementary health insurance. • Basic health insurance a.s.r. offers basic health insurance coverage, the terms of which are mandated by law. For the year ended 31 December 2015, 88% of a.s.r.’s health portfolio measured by GWP (excluding governmental premium) was comprised of basic health insurance policies.
• Supplementary health insurance a.s.r. offers a range of health insurance products covering risks and expenses not covered by the Dutch basic health insurance scheme, including physiotherapy, restorative dental care, glasses, maternity care, medical assistance abroad and orthodontia. Services offered under supplementary health insurance packages vary depending on targeted customer groups. For the year ended 31 December 2015, 12% of a.s.r.’s health portfolio measured by GWP was comprised of supplementary health insurance policies.
Distribution The distribution mix of Health consists of the direct distribution channel under the Ditzo brand, focused on individual clients, while distribution under the De Amersfoortse brand is done through the use of intermediaries and is mainly focused on selfemployed and SME customers.
In the Non-life segment, a.s.r. aims to leverage its claims management skills and to maintain operational efficiency and total expense discipline in order to continue to deliver a combined ratio in line with its targets. a.s.r. seeks to develop products based on customer data, underwriting experience and claims management excellence. The entire process is managed on a business line basis, in which end-to-end empowered business directors are in charge of executing strategy for each product group. There is no separate chain or channel management at a.s.r. level for all non-life products.
a.s.r. strives to leverage its deep understanding of the Dutch non-life markets to apply risk based pricing to achieve profitable growth in line with GDP growth. a.s.r. aims to strengthen its presence in Non-life markets by improving connectivity with the intermediary channel, forward integration with service providers and by actively promoting its products through its own direct business, Ditzo.
In respect of P&C insurance a.s.r. endeavours to leverage its existing strengths and to achieve a combined ratio < 98% on the average over the course of the business cycle.
Maintain market leadership with focus on the combined ratio Through its disability product line a.s.r. aims to achieve the targeted combined ratio. In respect of disability insurance, a.s.r. plans to capitalise on its unique integrated approach of utilising a dedicated multi-disciplinary team of professionals and by maintaining focus on the enhancement and further development of pricing and underwriting, which a.s.r. believes are key drivers for sustainable value creation. a.s.r. believes that it can achieve this through (i) optimisation of pricing and focusing on cost efficiency, expanding skills and expertise in respect of claims management and reintegration (both supported by in-house medical advisors and specialists in the field); and (ii) data analysis. Furthermore, a.s.r. intends to pursue and enhance its strict performance management framework of mandated brokers, for example through an increase in audits. To improve competitiveness, the disability business line plans to finish the implementation of a system for Group disability, an IT platform resulting in better service (e-based underwriting), better underwriting and lower costs (self-fill data systems).
Product development for new business opportunities a.s.r. intends to continue providing optimal services and high quality products to its customers. This is expected to be achieved by reducing the complexity of products and by keeping product offerings up-to-date through the introduction and development of new propositions to seize market opportunities. Recently planned or introduced product developments include: • The development of a new product to cover the 12-year risk of disability including reintegration services complementary to social legislation (BeZaVa); • Improving access for and insurability of the self-employed; • The introduction of ‘Doorgaanverzekering‘ under the
De Amersfoortse brand. This is an integrated disability and health insurance proposition whose benefits for the customer include lower premiums and additional services. a.s.r. plans to develop several variants including basic coverage, full coverage and services that complement the existing disability or health insurance product. a.s.r. expects that this product will enable increased cross-selling between disability and health sub-segments. a.s.r. believes that the integrated process will result in customer appreciation and, in turn, increased retention rates.
The strategy of a.s.r. for Health is to continue to be an agile niche player with profitable underwriting, benefiting from alliances (e.g. collaboration with other insurance companies in respect of the purchase of medical care and Delphi R&D in respect of back office IT processes), with a focus on cross-selling and retention of customers. Health has a strong record with a combined ratio below 99% since 2013. a.s.r.’s strategies for offering health insurance products include the following: • Self-funding a.s.r. intends to fund the growth of its health business exclusively through organically generated Solvency II capital without any capital injection from a.s.r.
• Support Ditzo and De Amersfoortse brands to facilitate cross-selling a.s.r. is focused on the growth of Ditzo Health and De Amersfoortse customers to create cross-selling opportunities to its P&C and disability businesses,
47a.s.r. 2015 annual report Report of the Executive Board 2.2.3 Life segment
Distribution Group life products are mainly distributed through the intermediary channel, in particular by a limited number of intermediaries. The pension intermediary market is consolidating, coming from 2,700 pension intermediary firms in 2012 to 1,076 firms in 2014. Actuarial intermediary firms, auditors and branded specialists (e.g. Willis Towers Watson, Aon, Mercer) are the main channels for corporate clients while small insurance advisory business are mainly used is SME market.
Trends • Economy • Increased capital requirements have been put in place and there is a limited ability to absorb market risk due to low interest rates and longevity risk. This has led to a market shift from the more capital-intensive DB products to capital-light DC and APF products.
• Legislation • Pension reform in the Netherlands, with further future reforms expected: The Netherlands, like many other mature markets, is facing the economic consequences of an ageing population. To handle this issue, the Dutch government gradually extended the retirement age for occupational pensions from 65 to 67 in 2014, and linked it to life expectancy thereafter. In addition, fiscal support for the accumulation of pension benefits has been reduced. One of the consequences is an expected increase in demand for individual pension schemes in Pillars III and IV, as employer-paid pensions are likely to decrease in the future.
• Market • Shift from defined benefit pension schemes towards defined contribution pension schemes: Traditional Dutch group pension schemes are defined benefit pensions offering investment guarantees to employees. As a result of low interest rates, longevity risk and capital requirements under IFRS accounting rules, demand for defined benefit pension schemes is under pressure and defined contribution pensions are becoming an increasingly attractive alternative. Companies are looking for more affordable defined contribution alternatives which result in less volatile financial results for the employer. After the introduction of IORPs in 2011, IORPs have taken a significant portion of defined contribution premiums. IORP GWP levels grew from € 11 million in 2012 to € 380 million in 2014. As part of the shift of the market from existing products to new products such as DC (including IORP) and APF, insurers face a shift of active participants to inactive participants in their existing books. These existing books will need to be managed on costs, as the rights of the inactive participants and related assets will last for many years.
• Pension funds liquidating and moving to insured solutions: Increasing regulation of pension funds, intended to ensure that pension funds comply with minimum coverage ratios, has resulted in stricter requirements on funding and governance. As a result small- and medium-sized pension funds are rapidly consolidating or are being liquidated.
Life insurance policies can be split into traditional life insurance policies, where the insurance company bears the investment risk, and unit-linked insurance policies (beleggingsverzekeringen), where the policyholder bears the investment risk. Life insurance policies can also be distinguished by type of premium payment (recurring or single premiums), and on the basis of insurance payments by the insurance company (capital sum or annuity, depending on product). Commissions have been banned for life insurance products since 2013.
New production has decreased from € 822 million APE in 2010 to € 325 million APE in 2014 (CAGR -20%). While natural and unnatural lapses are larger than new production, GWP decreased over time. The combined market share measured by GWP of the top six providers of individual life insurance was approximately 78% in 2014.
• Due to new entrants in term life, competition from incumbents and increasing price transparency are expected.
• Legislation and economy • Increasing capital requirements and low interest rates pose a challenge for making required returns on the existing portfolio.
• Low interest rates on savings have a positive effect on lapse rates and retention rates as customers profit from relatively good returns on both nominal and unit-linked policies. In addition, customers are less price-sensitive at expiration of insurance products and generally choose the ease of dealing with the insurer over price.
Distribution Historically, nearly all funeral policies were sold through intermediaries. In recent years direct sales have seen a strong increase. In addition to obtaining new customers, insurers also generate new business through fulfilling their ‘duty of care’ to their in-force underinsured customer base (e.g. increase insured sum).
50a.s.r. 2015 annual report Report of the Executive Board the product. Economic recovery and higher wages could slightly soften the overall downward pressure on demand. Retention of existing customers by increasing the customer satisfaction becomes therefore more and more important.
• Shift to direct channel As customers have low willingness to pay for intermediary advice, insurers are starting to promote their direct offering to compensate for the loss of intermediary volume.
• Consolidation Another trend in the funeral market is the consolidation of portfolios to create more value on existing and new business by reducing the costs per policy. This is possible as some large insurers have moved funeral to closed book and hence are looking for solutions for their portfolios. Furthermore, there are a number of insurers with sub-optimal scale (approximately 19 Dutch funeral insurers, who have less than € 1 million GWP).
Profit for the year was up € 257 million from € 299 million in 2014 to € 556 million in 2015 due to higher indirect investment income and incidental items, including an impairment of € 93 million (before tax) on value of business acquired (VOBA), in 2014.
Gross written premiums were up from € 1,543 million in 2014 to € 1,828 million in 2015. In the pension business, premium income rose by € 346 million from € 626 million in 2014 to € 972 million in 2015. This was mainly attributable to higher single premiums because of the buy-out of a pension fund, the sharp increase in Werknemers Pensioen and the acquisition of De Eendragt. Regular premiums written were down in the pension business, due in part to a lower cap on tax-facilitated pension accrual. The customer base of the IORP, in which a.s.r. has teamed up with Brand New Day, rose to over 1,500 employers (year-end 2014: 1,000 employers). New business (APE) in 2015 was lower than in 2014, one of the reasons being a pension buy-out that was recognized within new business in 2014.
Premium income from the funeral insurance business was up € 20 million (i.e. 18%) due mainly to the acquisition of AXENT. The share of policies taken out online is still gaining ground. Of total new business, 45% of policies are now taken out online (2014: 39%).
The increase in insurance liabilities was mainly due to the acquisitions of De Eendragt and AXENT (€ 3.2 billion). In addition, gross written premiums increased as a result of the buy-out at year-end 2014 of a large pension contract, while insurance claims and benefits were virtually stable compared with last year.
Operating expenses rose by € 27 million from € 178 million in 2014 to € 205 million in 2015, due in part to a higher cost base as a result of strategic acquisitions.
The life insurance products offered by a.s.r. range from relatively simple insurance products such as term life to more complex and personalised insurance products such as pension products. Life insurance products can be characterised as either traditional policies or unit-linked policies. Traditional policies are those products that have benefits primarily based on a guaranteed interest rate, sometimes combined with profitsharing to the extent that certain thresholds are met, and term life policies. Thus, under traditional policies, a.s.r. bears the investment risk. Under unit-linked policies, the investment risk is borne by the policyholder. Further, a.s.r. provides hybrid forms of unit-linked policies with a minimum investment return or minimum accumulation at maturity being guaranteed to the policyholder. As per 31 December 2015, the Life segment had € 38 billion of technical reserves.
The Life segment is active in the retail mortgage market. Mortgages are originated on behalf of a.s.r. Leven and are serviced by ASRH, which is part of the Banking and Asset Management segment. The Life segment offers mortgages to customers to diversify and optimise the asset mix of the segment and a.s.r. as a whole. A part of the mortgages originated by Life are consequently purchased by the Bank. The mortgage portfolio is therefore owned by the Life segment and Bank.
General a.s.r. was the sixth largest provider of pension insurance products in the Netherlands measured by GWP with a market share of 7.2% in 2014. a.s.r. offers pension insurance products under the brands a.s.r. and De Amersfoortse and has a IORP in a joint venture with Brand New Day. The current customer base of the business line Pensions comprises 20,000 companies and 460,000 participants.
• For separate account products, a.s.r. establishes and maintains a separate investment account to which funds are allocated in line with the relevant contract. a.s.r. bears the investment risks related to the assets backing the liability obligations. This investment account is thus separated from a.s.r.’s general account. The policyholder is entitled to the positive revenues of the separate account; In addition, a.s.r. selectively offers pension funds the option of selling their DB pension liabilities to a.s.r., within pre-determined capital and return thresholds through customised contracts. This allows companies to remove pension liabilities from their balance sheets and decrease future balance sheet volatility. a.s.r. effectuated its first material buy-out of pension funds in 2014. The production of buy-outs amounted to € 377 million in 2014 and € 160 million in 2015, measured as single premiums. In order to facilitate these buy-outs a.s.r. often partners with other entities for the reinsurance of a part of a.s.r.’s pension portfolio; • Defined contributions: a.s.r. provides pension products based on defined contribution with recurring premiums where benefits are based on investment returns on specified funds or are guaranteed pensions. DC schemes are characterised by a pre-defined contribution of employers, providing them with a high degree of certainty. With respect to products where benefits are based on investment returns, both market and insurance risks are borne by customers. DC products are ‘capital-light’, with a small percentage of a.s.r.’s total technical provisions being attributable to DC products as at 31 December 2015. A new DC product called ‘Werknemers Pensioen’ was launched in 2013 via an external SaaS solution that utilises a standardised ICT system, where costs are based on a price per participant. In 2015, the GWP for ‘Werknemers Pensioen’ was € 60 million (2014: € 16 million) and 1,569 customers were served (2014: 702), comprising 21,125 (2014: 8,268) participants; a.s.r. has a 50/50 joint venture IORP with Brand New Day Houdstermaatschappij N.V. in Brand New Day Premiepensioeninstelling N.V., which acts as a challenger in
The following chart shows a.s.r.’s pension product mix by GWP in 2015.
The policies provide savings from recurring or single premium payments. The value of capital is based on the value of the investments at the chosen end date, with the possibility of guaranteeing a minimum return under certain conditions. Unit-linked and universal life savings can be regular, mortgagerelated or annuity-related.
In 2015, the active policies accounted for 100% of individual life’s GWP. As at 31 December 2015, the active policies accounted for approximately 75% of the technical reserves of the individual life service book.
a.s.r.’s remaining in-force service book in the individual life insurance portfolio, in addition to the categories listed above, consists of the following products: • Pension-related endowments a.s.r.’s savings pension-related life insurance products are traditional individual savings plans with a single premium payment and benefits based on a guaranteed interest rate and include non-guaranteed profit-sharing. These policies were sometimes sold as deferred annuities carrying certain tax advantages for policyholders. The annual payments received by the policyholder are generally subject to a tax levy; • Mortgage-related endowments a.s.r.’s savings mortgage-related life insurance products are traditional individual savings plans with recurring or single premium payments and benefits based on a guaranteed interest rate and non-guaranteed profit-sharing. These
In July 2015, the Dutch Ministry of Finance published an Order in Council (Algemene Maatregel van Bestuur), on the basis of which the guidelines regarding mobilising customers became legislation. This Order in Council requires insurers to inform and mobilise policyholders who have active individual unit-linked life insurance policies which were entered into prior to 1 January 2013. In line with the Order in Council, a.s.r. and its intermediaries are continuing to actively approach individual unit-linked policyholders to inform them of the prospects of the relevant policy for its remaining term. a.s.r. also offers policyholders, amongst other things, the option to change their policy or to choose an alternative product if the unit-linked policy no longer fits their needs. Partially as a result of a.s.r.’s active efforts since 2010 to reach out to policyholders, the number of a.s.r.’s outstanding active unit-linked policies reduced from approximately 1.1 million at year-end 2008 to approximately 260,000 policies with recurring premiums at year-end 2015. The AFM has reported that the ’recovery advice‘ provided by a.s.r. to mobilise customers is of good quality.
The chart below shows the split between unit-linked and traditional policies by GWP in 2015: Distribution For sales of individual life products, a.s.r. distribute new business via the intermediary channel (in 2014, it had the second largest market share of 26% in individual life products measured by GWP). At the same time, a.s.r. has experienced an increasing demand by customers for direct and online contact, which it
54a.s.r. 2015 annual report Report of the Executive Board strives to address via its own online channel and direct customer services, including advice on annuity insurance for customers of a.s.r. Term life policies are also sold through aggregator websites.
Products a.s.r.’s funeral policies are traditional life insurance products with guaranteed insured amounts to cover the cost of the insured funeral. The amounts insured are usually relatively low and there is life-long coverage. Within these policies, a.s.r. distinguishes between capital (monetary payment) and in-kind (provision of funeral services) products. a.s.r. does not provide funeral services itself but has contracts with funeral service providers who provide these services.
In 2015, the funeral unit accounted for 7.1% of the Life segment’s GWP and 7.6% of the Life segment’s new business (APE). In 2015, 96% of funeral GWP was attributable to recurring premium policies and 4% to single premium policies. As at 31 December 2015, a.s.r.’s funeral product line had € 4 billion of technical reserves and consisted of approximately 6 million policies.
Pensions a.s.r.’s strategy for its existing DB book is focused on preserving its value, reducing capital requirements, enhancing cost coverage and lowering risks, including through reinsurance. a.s.r. aims to invest, within its financial targets, in larger blocks or buy-outs of DB business that meet one of two strategic objectives: cost coverage or potential DC transfer. Furthermore, a.s.r. is adapting to the changing pension market by developing the capacity to distribute new ‘capital-light’ pension products. a.s.r. has already started the distribution of IORP pension products through a joint venture (Brand New Day), introduced new Defined Contribution products (Werknemers Pensioen).
a.s.r. believes that cost control is crucial to managing its existing DB portfolio. a.s.r. is the first and only Dutch pension insurer to outsource the back-office functions of its existing portfolio, enabling cost reduction and increasing the amount of variable costs relative to fixed costs. a.s.r. aims to increase the client service level in the existing book in order to protect brand value. This increase in service level is
The strategy of individual life is based on maximum retention of the current value of the Individual life book. In order to achieve this, a.s.r. has two primary strategic initiatives: Optimise customer satisfaction To maximise the value of the individual life book, a.s.r.’s strategy is to maximise customer satisfaction. a.s.r. believes that maintaining customer satisfaction is crucial to efficiently manage how customers behave when their existing policy expires, which can extend profitable cash flows. In order to maximise the provision of personalised service, a.s.r. intends to increase the services it offers to its customers. When an individual life policy expires, in collaboration with a.s.r. Bank, a.s.r. continues to offer solutions suited to individual customer needs, whether through a life insurance product or a bank saving product (either tax incentivised or basic internet savings). Of the expiring individual life policies, the retention ratio of customers towards a bank or individual life product was 29% in 2015. Focusing on customer satisfaction, a.s.r. also continues to strive to make its services more accessible and easier to use for its customers. In particular, a.s.r. launched an innovative online platform in 2015, which is designed to deliver more services directly to its customers.
Unlocking the value of acquired books a.s.r. believes that it has a strong track record of successfully acquiring and integrating blocks of business. In the past, a.s.r. has integrated different funeral portfolios into its own operations and IT system. a.s.r. acquired three large blocks of funeral business (de Facultatieve, AXENT and NIVO). One of these is already fully integrated with a.s.r.’s low-cost operational systems that include a high percentage of variable costs. a.s.r. believes that capital synergies have already been unlocked and the asset portfolio has been re-risked based on a.s.r.’s strong capital base and risk management framework. By adding blocks of business, a.s.r. believes that it will be able to realise substantial cost synergies through leveraging its already low cost base and obtaining capital synergies through the natural hedge of mortality risks versus longevity risks and leveraging its skill in managing liability driven investments.
Key figures, Banking and Asset Management (in € millions) 2015 2014 (restated)
Profit/(loss) before tax 10 6 Income tax expense -2 -2 Profit/(loss) for the period attributable to holders of equity instruments 8 4
Distribution The customer categories of the Dutch market serviced by the investment management industry consist of institutional investors and retail customers. For investment funds, customers also include institutional investors and retail customers. Institutional investors include insurance companies, pension funds, banks and others. Dutch pension funds are among the largest pension funds in the world, investing worldwide and applying a wide range of modern investment techniques. Retail banking is the dominant distribution channel for investment funds, representing around 80% of Dutch fund assets. The other 20% is distributed amongst insurance companies, private banks and brokers.
4 The Banking and Asset Management segment comprises ASR Bank N.V., ASR Vastgoedvermogensbeheer B.V., ASR Nederlands
• New regulations offer new business opportunities While investment management companies must on the one hand adjust to comply with the new regulations, in some cases new regulations also offer new opportunities for investment managers. For example, in the past, banks were the main source of long-term financing and the facilitation of loans. The withdrawal of banks from certain areas of capital markets is creating opportunities for asset managers to fill the gaps as other investors, such as pension funds and insurance companies, are showing interest in providing such loans and can use asset managers to manage such portfolios. The EC intends to facilitate this transition with new regulations regarding European longterm investment funds. Moreover, the new regulation for European insurers, Solvency II, represents an opportunity for asset managers with in-depth Solvency II knowledge to fulfil such customer needs through new intermediary products and services. From an insurance company point of view, asset management activities provide a capital light source of revenue.
• Corporate Social Responsibility (CSR) Integrating CSR in the investment process is increasing in popularity, as customers of asset managers (pension funds, insurers and banks) and consumers demand ethical and transparent investment policies from asset managers.
Dutch Residential Mortgage Market Outstanding mortgage loans as a percentage of GDP in the Netherlands was 95% in 2014, making the Netherlands a country with one of the highest mortgage debt to income ratios. Traditionally, the Dutch residential mortgage market consists of different types of mortgage loans, including annuity mortgage loans, linear mortgage loans, (bank) savings mortgage loans, investment mortgage loans and interest-only mortgage loans.
To improve stability in the Dutch residential mortgage market and to decrease the private household debts, the Dutch government decided that as of 1 January 2013, interest on new mortgage loans is only tax deductible provided the loan’s principal is fully repaid within 30 years, by way of annuities or linear repayment.
The Homeownership Guarantee Fund (Stichting Waarborgfonds Eigen Woning, ‘WEW’) acts as a guarantor of mortgages under certain conditions through the provision of an NHG guarantee. Around half of new mortgage loans were government guaranteed in 2014.
• Low interest rates Interest rates on existing variable mortgages and on new mortgage applications have dropped significantly during the financial crisis, as a result of the ECB actions to lower interest rates. Average variable rates dropped from more than 5% in 2008 to below 3% from 2012 onward, while the interest rates on fixed mortgages have decreased as well. It is expected that interest rates remain low as long as ECB rates remain at the current levels.
a.s.r. Bank posted growth in savings deposits despite the low rate of interest on savings. The portfolio rose by 14% in 2015, reaching € 1,174 million (2014: € 1,032 million) mostly attributable to deposits into the Lijfrente Spaarrekening annuity savings account. New business of WelThuis Hypotheek mortgages rose by € 302 million in 2015, reaching € 1,335 million (2014: € 1,033 million).
a.s.r. Vastgoed Vermogensbeheer, the real estate investment management business, again welcomed external investors in 2015, allowing a.s.r. to further reduce its participations in the various property funds. There were six placements in the ASR Dutch Core Residential Fund in 2015, as well as two placements in the ASR Dutch Prime Retail Fund. As a result, a.s.r.’s participation in the two funds has fallen to approximately 80% and 40% respectively. Measured as a percentage of total gross rent, the vacancy rate in the ASR Dutch Core Residential Fund was 2.5% at year-end 2015 (year-end 2014: 4.3%). The vacancy rate in the ASR Dutch Prime Retail Fund was 2.5% at year-end 2015 (year-end 2014: 4.4%).
ASR Nederland Beleggingsbeheer N.V., the asset management business, which manages investment funds for customers of a.s.r. Life and a.s.r. Bank, for instance, has more than € 6 billion worth of assets under management. Werknemers Pensioen, a pension product offered by De Amersfoortse, was accountable for some of the new inflow. ASR Beleggingsfondsen (investment funds) outperformed their respective benchmarks in each asset category and the performance of ASR Mixfondsen (mixed funds) was stable. Assets under management by the Luxembourg-based ASR Fonds Sicav saw a slight increase. The acquisition of asset manager BNG Vermogensbeheer, which was announced early in 2016, will allow a.s.r. to strengthen its position as a professional third-party asset manager.
• Retail investments a.s.r. Bank conducts, on an execution-only basis, orders for the purchase and sale of investments of different asset managers. These are primarily linked to mortgages.
Products a.s.r. is active in the retail mortgage market. Mortgage loans are issued by a.s.r. Leven, which is a part of the Life segment. A part of mortgages originated by a.s.r. Leven are subsequently purchased by a.s.r. Bank. The mortgage portfolio is therefore owned by the Life segment and Bank. Mortgages are distributed only via the intermediary channel. ASRH provides mortgage loan services such as acceptance, credit analysis and arears management in respect of a.s.r.’s residential mortgage portfolio, which includes annuity mortgages, linear mortgages, interest-only mortgages and bank annuity mortgages. All other operations with respect to the mortgage portfolio are conducted by Dutch mortgage service provider Stater N.V. (part of ABN AMRO Group N.V.) on the basis of a contract entered into between Stater N.V. and a.s.r. Leven.
local governments, agencies and wealth funds) through the acquisition of the entity BNG Vermogensbeheer (announced in January 2016) as well as institutional mandates for a select number of asset classes, such as Dutch and European equities, Euro fixed income (government and credit)
• Mutual funds for retail clients a.s.r. GAM is managing a number of mutual funds that offer clients either a tailored solution (via balanced funds) or exposure to a specific asset class. As at 31 December 2015, this category accounted for € 7 billion of AuM.
With the recent announcement of the acquisition of BNG Vermogensbeheer in January 2016, a.s.r. GAM further expanded its customer portfolio and increased its AuM. BNG Vermogensbeheer is a leading asset manager previously focused on the public sector but has been moving to the private sector, with a client portfolio valued at nearly € 5 billion. BNG Vermogensbeheer has a diverse customer portfolio primarily comprising lower-tier authorities, health care and educational institutions, universities, network companies, housing associations, charitable trusts and capital funds, industrial pension funds and medical insurers. a.s.r. believes that the acquisition of BNG Vermogensbeheer takes it a step closer to its goal of becoming a key provider of asset management services in the Dutch market.
a.s.r. REIM a.s.r. has over 125 years of history of investing in real estate in the Netherlands and is the largest private land owner in the country. a.s.r. has a diversied real estate portfolio consisting of rural, retail, residential and office investments in the Netherlands. a.s.r. REIM clients comprise a.s.r., insurance companies, pension funds and retail clients, for which it invests in commercial properties (both offices and retail), residential properties, land positions and real estate equities. Clients invest via the following funds: ASR Property Fund N.V., ASR Dutch Prime Retail Fund and ASR Dutch Core Residential Fund. ASR Property Fund N.V. mainly invests on behalf of unit-linked policy holders of a.s.r., whereas the other two funds are open to third parties. Since 2011, more than ten international institutional investors invested in the two newly created real estate investment funds managed by a.s.r., with 19% and 60% of AuM in ASR Dutch Core Residential Fund and ASR Dutch Prime Retail Fund, respectively, held for third parties. In addition, a.s.r. REIM also manages a real estate portfolio for the account of a.s.r.’s insurance operations.
The total AuM managed by a.s.r. REIM amounted to € 4.0 billion as at 31 December 2014 and € 3.8 billion as at 31 December 2013, whereof € 3.0 billion and € 2.8 billion, respectively, were
62a.s.r. 2015 annual report Report of the Executive Board managed for own account, and € 1.0 billion and € 1.0 billion, respectively, for third parties.
a.s.r. holds the largest private land portfolio in the Netherlands comprising 33,500 hectares. In total ASR Property Fund had € 0.5 billion of AuM (of which 69% was managed for third parties), ASR Dutch Prime Retail Fund had € 1.4 billion of AuM (of which 60% was managed for third parties) and ASR Dutch Core Residential Fund € 0.8 billion of AuM as at 31 December 2015 (of which 19% was managed for third parties). a.s.r. REIM accounted for 58.3% of operating results (before tax) in the Banking and Asset Management segment in 2015.
The Bank supports the overall strategy of a.s.r. a.s.r.’s goal is to modestly grow the Bank in a controlled manner. a.s.r. strives to align its banking operations with the individual life and asset management business lines in order to be able to offer a comprehensive set of financial products to customes (in a market that is shifting away form individual wealth accumulation and annuities), focusing on customers with expering life policies and offering them savings and investment products. Of the expiring individual life policies, the retention ratio of customers towards a bank or individual life product was 29% in 2015. a.s.r.’s banking products are distributed through intermediaries and directly. The products offered are bank annuities (long term fiscal saving and investment products), deferred annuities (fiscal savings product), savings accounts (e.g. variable interest, term deposits) and retail investments.
While a.s.r.’s asset management activities have historically been exclusively to service the assets of the insurance segments, a.s.r. aims to enhance its asset management capabilities and grow third party assets under management, leveraging the track record of a.s.r.’s real estate asset management activities in managing assets for third parties. The recently agreed acquisition of the niche asset manager BNG Vermogensbeheer contributes to that objective. a.s.r. also aims to expand its fiduciary asset management by leveraging its existing investment skills and platforms.
5 The Distribution and Services segment comprises the operations involving the distribution of insurance products, including the activities of financial services provider PoliService B.V., Het Assuradeuren Huys, Van Kampen Groep Holding B.V. (from 22 January 2015), Dutch ID B.V. (from 19 November 2015) and B.V. Nederlandse Hulpverleningsorganisatie SOS International (sale announced in Q1 2016).
Profit/(loss) before taxes 4 1 Income tax expense -1 Profit /(loss) for the period from discontinued operations -7 1 Profit/(loss) for the period attributable to holders of equity instruments -4 2
The acquisitions of VKG and Dutch ID have strengthened a.s.r.’s position in the intermediary distribution chain. Profit before tax rose from € 1 million in 2014 to € 4 million in 2015. The strategic acquisitions of VKG and Dutch ID were the primary reason for the increase in operating expenses, total income and the operating result. Total income consists mostly of service fees. Both VKG and Dutch ID are intermediary service providers.
As part of a drive to focus more on core activities, SOS International was classified as ‘discontinued operations’ in 2015. As a result, gains and losses from SOS International have not been included in the operating result. These activities were sold in January 2016.
a.s.r. believes that VKG and Boval will benefit from their inclusion in a.s.r. as this will allow them to develop their business with the support of a.s.r. (e.g. for product offerings and/or innovation possibilities).
Profile The segment Holding and Other consists primarily of the holding activities of the Company (including the Group related activities), other holding and intermediate holding companies and the activities of ASR Deelnemingen N.V. This segment includes a pension contract with a.s.r. Leven on behalf of a.s.r. for a.s.r.’s employees.
Key figures, Holding and Other (in € millions) 2015 2014 (restated)
Operating expenses -112 -96 - of which associated with ordinary activities -81 -62 Provision for restructuring expenses - -
Since a.s.r. no longer classifies real estate development as one of its core activities, gains and losses from this business are no longer included in operating result. At year-end 2015, the real estate development business was divided into ‘discontinued operations’ and ‘continuing operations’. Discontinued operations are held for sale. Gains and losses from discontinued operations are disclosed in the income statement in condensed form; they are not included in gains and loss before tax from continuing operations.
Key figures, Real Estate Development (in € millions) 2015 2014 (restated)
Profit/(loss) for the period from continuing operations -91 -9 Profit/(loss) for the period from discontinued operations -19 -6 Profit/(loss) attributable to non-controlling interests -3 2 Profit/(loss) for the period attributable to holders of equity instruments -113 -13
The continuing operations of this segment consist primarily of the Leidsche Rijn and the Centrum Plan Waddinxveen development projects and related guarantees and commitments. Leidsche Rijn is a development project assumed in 2007 with a joint venture partner, in which a.s.r. has the obligation to develop a retail and residential district in Utrecht, the Netherlands. a.s.r.’s share in the joint venture is 78%, and the partners have an obligation to provide financing of the expected maximum of € 249 million in accordance with their respective participations in the first quarter of 2018. a.s.r. also provided two guarantees for the project to the municipality of Utrecht, the total amount of which is reduced as the development proceeds and payments are made. The total amount of the guarantees as at 31 December 2015 amounted to € 304 million. a.s.r. is actively seeking to further minimise its exposure in respect of this project including negotiations with the investor in the commercial real estate and the development partner. The other project (Centrum Plan Waddinxveen) was finalised in 2014 and related to the development of commercial real estate and rental houses. As at 31 December 2015, the project had not met pre-defined conditions and a.s.r. made a corresponding provision of € 8 million for final settlement relating to the delay.
2015 annual report Report of the Executive Board 2.2.8 Investments a.s.r.’s investment policy is aimed at striking a balance between generating returns and preventing risks. Protecting the solvency position was an important factor in this context. Overall growth in the fair value of the investment portfolio was 5.8% in 2015
(from € 34.7 billion to € 36.7 billion). Of this increase of € 2.0 billion, € 1.0 billion was attributable to mortgages, € 0.4 billion to fixed-income securities and € 0.7 billion to equities. Property exposure dropped slightly against year-end 2014.
The value of the equity portfolio increased by € 0.7 billion, mainly thanks to currency tailwinds, while the value of the property portfolio fell by 5% to € 2.8 billion due, in part, to the placement of participations in the ASR Dutch Core Residential Fund with external institutional investors.
67a.s.r. 2015 annual report Report of the Executive Board a.s.r. REIM
In 2015, a.s.r. REIM managed to bring about the first placements in the residential fund for an amount of € 150 million; as a result, a.s.r. REIM’s interest in the total assets of € 0.8 billion has now dropped to 81%. In addition, a.s.r. REIM secured a fifth placement in the retail fund early in 2015. As a result, the total share of the retail fund that has been placed with external investors since its creation now stands at nearly € 0.8 billion.
a.s.r. continued its sound capital policy in 2015, the aim being to maintain a strong and robust capital position that contributes to the corporate targets. a.s.r.’s capital position is governed by various rules and limits that were instituted to absorb losses and to guarantee financial robustness. Compliance with these rules and limits is monitored and enforced by internal management and control models. a.s.r. seeks to actively monitor risks and streamline its capital position within the guidelines set by regulators and stakeholders. One of the priorities in this regard is securing an A rating at group level.
In addition to capital management based on Solvency II, the standard regime for European insurance companies, a.s.r. has analyzed the Solvency II regime and developed its own partial methodology (ECAP). The ECAP methodology, which quantifies a.s.r.’s integral risk in terms of economic capital, entails a minor departure from the Solvency II standard model in that it uses self-developed methods for measuring a number of risks. The ECAP methodology also forms part of a.s.r.’s overall capital management.
The internal minimum Solvency II ratio for ASR Nederland N.V. as formulated in the risk appetite statement is 120%. At a midpoint estimate of 185%, the SCR solvency ratio at 31 December 2015 was comfortably higher than the internal requirement of 120%. The table below breaks down the capital position of a.s.r. as at the dates specified1,2: Eligible own funds 6,129 5,208 4,129
3 Based on the midpoint estimate of the Group solvency ratio.
Eligible own funds were boosted in 2015 by the addition of the profit for the year, value increases in mortgage spreads and the issue of a hybrid loan. The required capital was affected by adjustments to a number of non-economic assumptions and the application of a prudent tax adjustment factor (loss-absorbing capacity of deferred tax). Although the strategic acquisitions increase required capital, they are capital-efficient owing to the natural diversification between the acquired portfolios.
Spread risk Measured by the impact of a 75 bp increase of spread on loans and corporate bonds. At the same time, it is assumed that the volatility adjustment will increase by 21bp
The sensitivities of Solvency II ratio as at 31 December 2015 expressed as impact on the Group solvency ratio (in percentage points) are as follows: Type of risk Impact on group solvency ratio
The sensitivity to a lower UFR can be explained by the fact that the valuation of assets is not impacted by the UFR, whereas the fair value of the liabilities under Solvency II increases significantly. This sensitivity is reflected in the discounting curve for liabilities with maturities longer than 20 years.
Apart from the estimated sensitivities set out above, a.s.r. is also exposed to changes in assumptions with regard to underwriting, expenses and policyholder behaviour as the present value impact on the policyholder liabilities of such assumption changes will be immediately reflected in the available and required capital.
Sensitivities of Solvency II capital are key risks monitored by management and can be different from economic sensitivities. The following table sets out the shocks to parameters used to assess the sensitivities.
The Executive Board plans to distribute € 170 million in dividend on ordinary shares, a 22% increase on 2014.
72a.s.r. 2015 annual report Report of the Executive Board 2.4 Risk management
The notes to the financial statements contain a detailed description of the risk governance structure, the risk profile and the related trends in 2015 (see chapter 5.3.1).
a.s.r. conducted an Own Risk and Solvency Assessment (ORSA) at both group and entity level. The ORSA is an annual process that measures the impact of adverse external developments or internally identified risks and threats to a.s.r.’s solvency position. Various strategic risks are transposed into scenarios that simulate the impact of the occurrence of these risks on the balance sheet, the solvency position and the income statement. Management actions are defined in order to mitigate the impact of potential risks modelled in the various scenarios.
a.s.r. also updated the recovery plan in 2015. The goal of the recovery plan is to ensure that a.s.r. has effective measures in place to deal with potential severe financial stress, resulting from a wide range of causes and various circumstances. The recovery plan enables a.s.r. to improve the chances of successful intervention in such extreme scenarios and ensures that a.s.r. is better prepared for financial crisis situations.
• Solvency increased during 2015 and remained strong. The Solvency I ratio increased from 285% to 305%. The Solvency II ratio rose from approximately 170% to a midpoint estimate of 185%, after proposed dividend distributions. a.s.r. applies a bandwidth of +10%-points and -10%-points around this midpoint estimate reflecting both potential positive and negative factors of which the final impact still needs to be determined, referring to the interpretation of the delegated acts.
• Although model validation is not mandatory for companies reporting on basis of the Solvency II standard model, a.s.r. recognizes the need to be able to report on basis of reliable actuarial and financial models. In 2015, a.s.r. validated the majority of the Solvency II metrics such as the Solvency Capital Requirement and the technical provisions in accordance with its model validation policy and governance structure.
• In 2015, a.s.r. reported QRT according to the preparatory phase requirements as published by EIOPA for a.s.r. as a whole, including its associates.
73a.s.r. 2015 annual report Report of the Executive Board techniques, such as the ORSA and Strategic Asset Allocation studies. These techniques measure the impact of external or internal identified risks and threats to a.s.r.’s solvency position. The 2015 ORSA results again demonstrated a.s.r.’s strong position in terms of capitalization and our ability to carry out our strategy, even in situations of increased financial stress.
Since 30 June 2012, DNB has prescribed the application of the UFR to the yield curve used to discount insurance liabilities, meaning that the yield curve for maturities longer than 20 years gradually approaches a level of 4.2%, which signifies an increase. This represents a considerable boost for a.s.r.’s solvency position. For the sake of prudence, the solvency position was also measured without accounting for the UFR.
a.s.r. periodically assesses whether the technical provisions are sufficient to cover insurance liabilities. These provisions were adequate at year-end 2015. The underlying assumptions for assessing these provisions are periodically adjusted to economic and non-economic developments. Based on the 2015 assessment of the expense assumptions, future expenses were recognized in the best estimate liability and the assumed benefits of scalability were not fully recognized at year-end 2015. With the current level of risk margin, the current technical provisions under Solvency I (best estimate of Solvency I plus risk margin for Solvency I plus impact of surrender floor) exceed the technical provisions under Solvency II (best estimate of Solvency II plus risk margin for Solvency II).
The NFRC monitors whether non-financial risks are adequately managed, determines non-financial risk limits at group and entity level and monitors whether the risk profile stays within the agreed risk limits. If the risk profile exceeds the limits, the NFRC agrees on mitigating actions. The NFRC is mandated by the Executive Board to decide on non-financial risk policies. The NFRC reports to the a.s.r. Risk Committee.
The Dutch market is experiencing stricter regulation and new legislation is being introduced all the time. As a result of this increasing pressure from politics and regulators, there is the risk that: • The reputation of a.s.r. will come under pressure depending on the pace of compliance with the new requirements. • The available resources will be used to align the organization to legislation and cannot be employed to improve and innovate our core customer processes.
• Processes will be less efficient and pressure on the workforce increases.
• a.s.r. will run the risk of fines and penalties if it is not able to meet these new requirements in a timely manner. Although Solvency II became effective on 1 January 2016, there remains uncertainty about the interpretation of Solvency II in the Dutch insurance market. In addition, further changes and reviews are planned. There is a risk that Solvency II regulation may be intensified (e.g. with regard to mortgages, government bonds, UFR) or that a difference in interpretation may exists between a.s.r. and the supervisors, which may have a negative effect on, or create volatility in, a.s.r.’s solvency position.
Following the correction of its financial records to reflect the correct calculation method, the CET1 ratio of the Bank was set to 8.7% at 31 December 2014, which is below the minimum capital requirement of DNB. In addition, the CET1 ratio of the Bank was determined to be negative at the end of January and February 2015.
On 2 March 2016, DNB notified the Bank that it intends to impose and publish an administrative fine because of the negative CET1 ratio in January and February 2015. The Bank is invited to provide its views to DNB before DNB takes its decision whether or not to impose a fine. The amount of the fine, if it is imposed, is not yet known. The base amount for a fine of this nature is € 2,000,000, but this amount may be higher or lower, depending on the circumstances which will be taken into account by DNB.
78a.s.r. 2015 annual report Executive Board Responsibility Statement 3.1 Executive Board Responsibility Statement
As required by section 5:25c paragraph 2(c) of the Dutch Financial Supervision Act, the Executive Board declares that, to the best of his knowledge; 1. The financial statements give a true and fair view of the assets, liabilities, financial positions and earnings of ASR Nederland N.V. and the enterprises included in the consolidation taken as a whole; 2. The Annual Report gives a fair review of the position at the balance sheet date and developments during the year under review and the enterprises included in the consolidation taken as a whole together with a description of the principal risks ASR Nederland N.V. is being confronted with.
The Executive Board submitted the Report of the Executive Board and the financial statements for 2015 to the Supervisory Board. After having discussed the financial statements with KPMG, the independent external auditor, the Supervisory Board agreed to them at its meeting on 4 April 2016. The financial statements were audited by KPMG, who issued an unqualified auditor’s report on them. For the auditor’s report, see page 232. The Supervisory Board has established that the external auditor is independent from a.s.r.
The Supervisory Board will submit the financial statements for adoption by the Annual General Meeting of Shareholders (AGM). The Supervisory Board proposes that the AGM should adopt the financial statements and discharge the members of the Executive Board of responsibility for the policy pursued, and discharge the members of the Supervisory Board of responsibility for their supervision of the policy pursued by the Executive Board and of the general conduct of business at the company and its affiliated entities. For the Executive Board’s profit appropriation proposal to the AGM, which has been approved by the Supervisory Board, see page 239 of this report.
The Supervisory Board addressed the following issues: Routine topics Additional themes
Financial performance The Supervisory Board has met once a quarter to discuss the financial performance, covering standing issues such as developments in earnings, premium income, returns and solvency. The members of the Supervisory Board were satisfied with a.s.r.’s financial performance in 2015. The increase in underlying earnings was due to an improvement in underwriting profit as well as growth, thanks to a number of strategic acquisitions which will contribute to a sustainable increase in profits.
The members of the Supervisory Board are satisfied with the execution of the risk policy. Solvency levels remain acceptable and more than adequate thanks to the organization’s prompt and adequate response to external developments based on the chosen risk appetite and the associated risk-mitigating measures. In the middle of the reporting period, the Supervisory Board followed up the Audit & Risk Committee’s recommendation when it adopted the funding plan, which resulted in further optimization of a.s.r.’s capital position.
The risk appetite was an important criterion for the Supervisory Board in making both tactical and strategic decisions in 2015 too.
The Supervisory Board regularly discussed market developments with the Executive Board and the approach to potential M&As. The Supervisory Board was informed and kept abreast of various issues in this regard, including the acquisitions of AXENT, De Eendragt and Dutch ID, and the portfolio transfer of NIVO.
In addition, specific topics of discussion included developments in the pensions market. These discussions took the form of deep dives, with senior managers giving presentations on current and future developments in the market and a.s.r.’s procedures for defining its strategy.
Risk Management, Integrity and Audit The Supervisory Board discussed the reports of Risk Management, Integrity and Audit on a quarterly basis. Reports issued by and the findings of the external regulators were also reviewed extensively. The Supervisory Board is satisfied with the heightened management focus and discipline to continue the previously initiated policy of accelerating the resolution of issues. In the coming reporting period as well, the Supervisory Board will devote ample attention to testing the quality of the business practices and customer service.
The Supervisory Board performs a self-assessment annually. After the self-assessment was performed with external guidance in 2014, the self-assessment for 2015 was an internal affair, with input from the Executive Board, among other bodies.
82a.s.r. 2015 annual report Report of the Supervisory Board 4.2 Issues addressed by committees
The Committee has a supervisory responsibility for ASR Nederland N.V. and the other supervised entities, i.e. ASR Levensverzekering N.V., ASR Schadeverzekering N.V., N.V. Amersfoortse Algemene Verzekering Maatschappij and Europeesche Verzekering Maatschappij N.V. After the acquisitions of De Eendragt Pensioenen N.V. and AXENT NabestaandenZorg N.V., these companies have come under supervision as well. In 2015, the Committee held six meetings that were attended, in addition to the Committee members, by the CFO, the Director of Group Risk Management, the Director of Finance & Risk, the Director of Audit, the Director of Compliance and the independent external auditor. The standing agenda items included the financial (quarterly) results and the audit, compliance and quarterly risk reports. In addition, the Committee addressed issues specific to the supervised entities, including the impact of changing market conditions and the VANB report.
The Audit & Risk Committee specifically focused on the effectiveness of the audit, compliance and risk management functions within a.s.r. The Committee reviewed and approved the audit plans for 2016 of both internal audit and the independent external auditor. The Committee also discussed and approved the annual plan of the Compliance department and the Risk Management Plan for 2016. The Internal Audit Charter, the Compliance Charter and the Risk Management Charter were also adopted in 2015.
Every meeting held in 2015 devoted extensive attention to the status of the preparations for the Solvency II regime, which was introduced on 1 January 2016. This included discussion of the outcomes of the SCR calculations and the ORSA by the
Committee and the measures taken. The UFR effect within the Solvency I and II frameworks was highlighted in particular. At the beginning of the year, the Audit & Risk Committee also discussed the risk appetite, which is based on a detailed risk assessment. This year as well, the assessment started from the Solvency II regime for both ASR Nederland N.V. and the supervised entities. The effects of the UFR were also considered. The Committee periodically tested the status of the risk appetite during the year, using such tools as the Integrated Risk Dashboard and the status report on the management of risk priorities. The a.s.r. risk appetite is based on a prudent approach to risk management and transposed into requirements for solvency, liquidity and returns; solvency takes priority over profit and profit takes priority over premium income. After the Committee had issued a positive opinion, the risk appetite was approved by the Supervisory Board. As part of the risk appetite, the Committee discussed the solvency targets for 2015.
As in any year, the outlines of the reinsurance programme were discussed, paying attention to the extent of the scale of the programme, diversification opportunities and general market developments in reinsurance and pricing. The internal control structure (Management in Control 2.0) was also a regular item of discussion by the Committee. This structure allows the management of a.s.r. to verifiably manage the principal risks that pose a threat to achieving the company’s strategic targets.
In addition, the Committee covered the developments surrounding a.s.r.’s potential privatization. As part of a potential IPO, the Committee also looked at the future dividend policy and the working capital statement. Furthermore, the accounting policies were explained to the Committee in 2015.
In the Committee’s opinion, a.s.r. has a firm financial foundation. The solvency ratio is robust, both under Solvency I and Solvency II. Sensitivities, for instance to fluctuations in the yield curve and changes in possible future stress scenarios within the various asset categories are within the set parameters. This strong financial foundation allows a.s.r. to continue to be responsible while adapting to the changing insurance market.
Acting for the Supervisory Board, the Audit & Risk Committee supervised the performance and independence of the external auditor. After an extensive selection procedure, it was decided to appoint EY as the independent external audit with effect from the financial year 2016. The AGM of 16 April 2015 passed a resolution to this effect. To facilitate the transition from KPMG to EY, also in view of the upcoming potential privatization, EY has attended the Committee meetings from the close of Q3.
Finally, Annet Aris joined the Audit & Risk Committee in September 2015 as Margot Scheltema’s replacement.
The outcomes were described in a memo that was discussed at an SAR meeting. Based on a memo entitled ‘On the move’, the Committee covered a.s.r.’s policy for sustainable mobility of employees. Management development was debated at length in this context as well.
For the purposes of risk management with respect to the quality and succession of senior managers, the Selection, Appointment & Recruitment Committee discusses the assessment of senior management annually. Nine criteria are used to evaluate senior managers and discuss their individual development and possible follow-up steps. Their potential successors are also identified.
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The Executive Board evaluated its own performance regularly in 2015 by holding what are known as EB team conduct evaluation sessions. Furthermore, a two-day off-site event was held under the guidance of an external agency which served to discuss different roles and forces for the purpose of harnessing the diversity in the team and making the most of the collaboration between the members.
The Audit & Risk Committee has two members, namely Cor van den Bos (Chair) and Margot Scheltema (until 1 September 2015) and Annet Aris (from 1 September 2015). Its meetings are attended by the CFO, the independent external auditor, and the directors of Finance, Audit, Group Risk Management and Integrity. Herman Hintzen joined the Audit & Risk Committee on 1 January 2016.
Education and evaluation Two CE sessions were organized for the members of the Supervisory Board in 2015. One session covered the impact of the low level of interest rates and opportunities in the area of hedging policy. At the second session, the Supervisory Board was educated about the different measurement methods in use at a.s.r. and addressed at length the different aspects of and responsibilities associated with an IPO.
Independence and conflicts of interest In 2009, Cor van den Bos announced that his role as Chairman of the Supervisory Board of CED might cause a conflict of interest if CED-related issues were to be discussed by the Supervisory Board of a.s.r. For this reason, any information relating to the planned sale of SOS International was not shared with him in 2015 and this issue was discussed in his absence.
Besides routine consultative meetings, the Works Council’s executive committee maintains regular contact with the member of the Supervisory Board appointed on the nomination of the Works Council. Two tripartite sessions between the Supervisory Board, the Executive Board, the HR Director and the Works Council was held in 2015 to discuss current affairs. The Supervisory Board was also represented at the annual meeting between the Works Council and the shareholder.
Contacts with shareholder With effect from 29 September 2011, the shareholder has been represented by NL Financial Investments (NLFI), a trust office. In 2015, contacts with NFLI extended beyond the scheduled AGM and EGM; contacts were initiated on various other occasions as well.
The consultative body formed in 2014 to maintain a dialogue between the Board of NLFI and the Supervisory Board of a.s.r. was also active in 2015. Early in 2015, the body discussed whether it would be advisable and possible for consolidation purposes to acquire Vivat. A joint steering group of representatives of the Executive Board of a.s.r. and NLFI management reported to this consultative body.
Appointment and reappointment of executive and supervisory directors Margot Scheltema’s resignation as of 1 September caused a change in the composition of the Supervisory Board in 2015. Cor van den Bos was reappointed for a new four-year term in 2015. There were no changes in the composition of the Executive Board.
Kick van der Pol, Annet Aris and Cor van den Bos were appointed as supervisory directors of AXENT NabestaandenZorg N.V. and De Eendragt Pensioen N.V. in 2015. Herman Hintzen was appointed as a supervisory director of ASR Nederland N.V., ASR Levensverzekering N.V., ASR Schadeverzekering N.V., N.V. Amersfoortse Algemene Verzekering Maatschappij, Europeesche Verzekering Maatschappij N.V., De Eendragt Pensioen N.V., AXENT NabestaandenZorg N.V. and ASR Bank N.V. on 1 January 2016.
Meetings of the Supervisory Board and committees The Supervisory Board met with the Executive Board on ten occasions in 2015. Six meetings were scheduled as routine meetings and four were ad-hoc meetings to discuss specific issues related to a.s.r.’s future potential privatization. The Supervisory Board also held periodic operations meetings.
The Audit & Risk Committee met on six occasions in 2015, while the Selection, Appointment & Remuneration Committee met on four occasions.
Attendance record of supervisory directors (plenary sessions and committee meetings) Kick van der Pol Annet Aris Cor van den Bos Margot Scheltema
Supervisory Board 9/10 10/10 10/10 8/8 Audit & Risk Committee - 2/2 6/6 4/4 Selection, Appointment & Remuneration Committee 4/4 4/4 - -
ASR Nederland N.V. is a two-tier company subject to the so-called ‘partial regime’ because the State, in its capacity as a legal person under public law, has provided the entire issued capital for its own account (Section 155a, Book 2 of the Dutch Civil Code). As a result, the rules for appointing and removing supervisory directors are different from those in effect at companies not subject to the partial two-tier regime. In addition, specific executive decisions mentioned in the law are subject to Supervisory Board approval.
The current Articles of Association and rules of procedure for the Executive Board and the Supervisory Board have been posted on the corporate website: www.asrnl.com. ASR Nederland N.V. and the Dutch State have previously signed a covenant that formalizes the procedural aspects for information provision and decision-making, and policy and parameters for decisions regarding capital reduction and interim and year-end dividend distributions, among other provisions.
The AGM appoints the members of the Executive Board on the (non-binding) recommendation of the Supervisory Board. After having heard the Supervisory Board, the AGM has the power to suspend or remove a member of the Executive Board. After having heard the AGM, the Supervisory Board has the power to suspend or remove a member of the Executive Board.
If the nomination is subject to an enhanced right of recommendation as stipulated in Article 17(7) of the Articles of Association, the Supervisory Board also notifies the AGM and the Works Council of this enhanced right. By virtue of the enhanced right of recommendation, one-third of the Supervisory Board members are appointed after having been nominated by the Works Council, unless the Supervisory Board raises objections because it considers the nominee to be unsuitable for the position of supervisory director or because the composition of the Supervisory Board would not be appropriate if the Works Council’s candidate was appointed. The enhanced right of recommendation applied to the appointment of one of the members of the Supervisory Board.
Although ASR Nederland N.V. – as a non-listed company – is not required to comply with the Dutch Corporate Governance Code, a.s.r. values a transparent governance structure. Accordingly, it complies with the Dutch Corporate Governance Code by applying those principles and best practice provisions that are relevant to it.
The members of the Executive Board, the Supervisory Board and managing directors of ASR Nederland N.V. have taken the professional oath. New executives and managers take the oath when they join the organization. By taking this oath, executives and managers promise to treat customers fairly, act with integrity and observe all laws, rules and regulations, and codes of conduct so as to increase trust in the financial sector. With effect from 1 January 2013, all decision-makers working in the financial sector have been obliged to take this oath in accordance with the Dutch Oath or Affirmation (Financial Sector) Regulation.
Improving and maintaining the integrity and robustness of a.s.r. is key to the remuneration policy, and the focus is squarely on the long-term interests of all our stakeholders. The aim of the remuneration policy is to motivate employees to work for the interests of customers and other stakeholders within the parameters of the duty of care. The remuneration policy is based on the following principles: 1. The remuneration policy is designed to help achieve a.s.r.’s strategy and targets.
4. The remuneration policy is transparent and applicable in terms of structure and method to all layers of a.s.r.’s management and to all employees covered by the collective bargaining agreement (CBA).
7. The target-related remuneration applicable to field representatives, insofar as they are eligible for it, will not exceed 20% of the fixed annual remuneration, and at least 50% of any award will be based on non-financial criteria.
12. The claw-back provisions of Sections 1:126 and 1:127 WFT apply to all a.s.r. employees insofar as they are eligible for any form of variable remuneration.
14. The Annual General Meeting of Shareholders (AGM), the Supervisory Board, the Selection, Appointment & Remuneration Committee (SAR Committee), the Executive Board and the control functions play an important role in adopting, implementing and evaluating the remuneration policy. For details, see section 4.1.
15. a.s.r. does not make use of any constructions that make it possible to evade the remuneration policy.
The agreements with employees falling in groups 1, 2 and 3 have been formalized in their individual employment contracts. Groups 4 and 5 are governed by the industry-wide collective bargaining agreement (CBA) for back-office positions and for front-office positions in the insurance sector respectively, and by the CBAs concluded by a.s.r. itself, i.e.: • CBA selection system for contract hours and pay-andbenefits package; • CBA job classification and pay structure for back-office positions; • CBA job classification and pay structure for front-office positions.
Until 1 July 2014, the income of senior management, higher management and the CBA population (back-office and frontoffice ) consisted of a fixed and a variable component. The Executive Board has received no variable remuneration since financial year 2011 based on Sections 1:128 and 1:129 WFT and the corresponding transitional provisions. Following the CBA negotiations with the trade unions, the variable remuneration for the CBA population was converted as of 1 July 2014 into a salary increase and a fixed supplement. The conversion was also implemented pro rata for a.s.r. as a whole, including higher and senior management. From 1 July 2014 onwards the income of all salary groups including identified staff has consisted only of a fixed salary, with the exception of 115 front-office staff. This group has a fixed pay component and a target-related pay award of up to 20%.
Other employees The fixed pay awarded to employees consists of a fixed gross monthly salary, a fixed allowance (as a result of the conversion of variable pay for those employed at a.s.r. on 1 July 2014), 8% holiday allowance and a 13th salary. The level of fixed pay depends on the weight attributed to an employee’s role, the related salary group and the employee’s general performance rating (assessment of deliverables and agreements on appropriate conduct). Fixed pay is adjusted for structural wage developments in accordance with the CBA for back-office positions in the insurance industry. The objectives pursued as part of how employees perform their duties are extrapolated from a.s.r.’s strategic targets. a.s.r.’s strategy is based on helping by taking action. This is reflected in KPIs relating to such issues as a customer dashboard, the Customer-Oriented Insurance Quality Mark and the Net Promoter Score. These KPIs form the basis of inspiring individual targets.
The remuneration of front-office staff coming under the CBA job classification and pay structure for front-office positions consists not only of fixed pay, but also of a target-related component. The target-related component is determined by an employee’s individual score on quantitative and qualitative targets. The employee and their manager agree on these targets annually. It is established in the following year whether the targets have been achieved. The target-related pay is a percentage of the annual basic pay awarded to the employee. At 1 July 2014, the level of the target-related component was reduced to no more than 20%.
The principal features of the pension scheme were as follows in 2015: • Average-pay pension plan; • Retirement age: 67 years; • Accrual rate for old-age pension: 1.875% for all salary groups; • Pensionable salary: fixed annual salary on 1 January of any year (capped at € 100,000 gross, this is offset by a contribution for accruing a net pay pension); • Partner’s pension: 70% of projected old-age pension; • Orphan’s pension: 14% of projected old-age pension; • Employee contribution: 6% of pensionable earnings; • Flexible elements: early retirement, deferred retirement, exchange, high/low, part-time; • a.s.r. does not allow for the award of discretionary pension.
As a result of statutory pre-pension regulations, a.s.r. removed all pre-pension elements from its pension plans in 2006. Employees who joined a.s.r. before 1 January 2006 were initially compensated for this removal through optimization of their accrual rate and the state pension offset. Where such compensation was inadequate, the employees were awarded a pre-pension allowance, the amount of which varied based on their age and the original pension commitment. The pre-pension allowance for employees who joined a.s.r. after 1 January 2006 was 1% of their pensionable salary.
The supervisory directors take a positive view of a.s.r.’s implementation of the planned cost savings and its simplification of its organizational structure and processes, as well as the company’s approach to consolidation opportunities. Thanks to this firm foundation, a.s.r. will be able to adapt further to ever-changing customer requirements and the rapid changes in the insurance sector, and to do so responsibly and sustainably.
Based on past experience, the members of the Supervisory Board have every confidence that the Executive Board and the employees alike will continue to apply themselves in 2016 to adapting a.s.r. to the changing market and treating customers fairly every single day, thereby helping a.s.r. to develop into a truly socially relevant insurer.
The Supervisory Board Kick van der Pol Annet Aris Cor van den Bos Herman Hintzen
a.s.r. has voluntarily changed its accounting policy. With effect from 1 January 2015, investment property and property for own use are valued at fair value, and all costs incurred to acquire insurance contracts (acquisition costs) will be charged to the income statement generally within one year.
Changes in presentation have also been made to conform to current period presentation.
5.1 Consolidated financial statements 5.1.1 Consolidated balance sheet (before profit appropriation)
Share premium reserve 962 962 962 Unrealized gains and losses 5.14 686 737 581 Actuarial gains and losses 5.14 -467 -634 -107
Liabilities relating to assets held for sale 5.36 38 - -
Gross premiums written 4,092 3,787 3,923 Change in provision for unearned premiums 16 -4 1
Share of profit/(loss) of associates and joint ventures 1 4 15
Attributable to: - Attributable to non-controlling interests 3 -2 -5 - Shareholders of the parent 567 342 214 - Holders of other equity instruments 45 108 44 - Tax on interest of other equity instruments -11 -27 -11 Profit attributable to holders of equity instruments 601 423 247
a.s.r. has voluntarily changed its accounting policy. With effect from 1 January 2015, investment property and property for own use are valued at fair value, and all costs incurred to acquire insurance contracts (acquisition costs) will be charged to the income statement generally within one year. Changes in presentation have also been made. Due to the retrospective treatment the comparative figures for 2014 and 2013 have been restated accordingly (see chapter 5.2.1 for a more detailed description of the changes and the effects on the consolidated financial statements and for an explanation of the inclusion of the 2013 comparative figures).
Remeasurements of post-employment benefit obligation 5.17 220 -704 156 Unrealized change in value of property for own use 5.8 5 - Income tax on items that will not be reclassified to profit or loss -54 177 -39 Total items that will not be reclassified to profit or loss 171 -527 117
Total other comprehensive income for the year, after tax 116 -371 197
Shadow accounting allows a recognized but unrealized gain or loss on an asset to be transferred to insurance liabilities and liabilities arising from insurance contracts (see accounting policy J, chapter 5.2.2).
S h ar e p re m iu m re se rv e
A ct u ar ia l g ai n s an d lo ss e s
Discretionary interest on other equity instruments - - - - -44 -44 - - -44 Tax relating to interest on other equity instruments - - - - 11 11 - - 11
Discretionary interest on other equity instruments - - - - -45 -45 - - -45 Tax relating to interest on other equity instruments - - - - 11 11 - - 11 Capital investment non controlling interest - - - - - - - 5 5 5.1.4 Consolidated statement of changes in equity
Unrealized gains and losses include shadow accounting adjustments (see accounting policy J, chapter 5.2.2). For more detailed information on the unrealized gains and losses, see chapter 5.14.2.
The change in accounting policy is a result of the voluntary changes to the accounting policies for investment property, property for own use and costs to acquire insurance contracts (acquisition costs). See chapter 5.2.1 for a more detailed description of the changes and the effects on the consolidated financial statements.
Cash and cash equivalents as at 1 January 3,135 1,521 2,556
Amortization/depreciation: - Property, plant and equipment 10 9 9 Amortization of investments 79 55 47 Amortization of subordinated liabilities 1 - -
Changes in operating assets and liabilities: Net (increase) / decrease in investment property 310 -94 Net (increase) / decrease in investments 264 -1,666 376 Net (increase) / decrease in investments on behalf of policyholders 107 -284 168 Net (increase) / decrease in derivatives 1,229 -2,529 1,316 Net (increase) / decrease in amounts due from and to customers -1,177 -135 -1,251 Net (increase) / decrease in amounts due from and to credit institutions -1,504 2,483 -1,332 Net (increase) / decrease in trade and other receivables 124 81 8 Net (increase) / decrease in reinsurance contracts -192 -12 38 Net increase / (decrease) in liabilities arising from insurance contracts -37 2,888 -892 Net increase / (decrease) in liabilities arising from insurance contracts on behalf of policyholders 144 787 32 Net (increase) / decrease in other operating assets and liabilities 95 -271 369 Net (increase) / decrease in assets and liabilities relating to held for sale 3 - -
Cash flows from investing activities Investments in associates and joint ventures -7 -10 -4 Purchases of property, plant and equipment -37 -57 -50 Purchases of group companies (less acquired cash positions) -248 - Purchase of intangible assets -1 - -8 Cash flows from investing activities -293 -67 -62 5.1.5 Consolidated statement of cash flows
The table below represents the cash flows from continuing and discontinued operations. Cash flows specifically related to discontinued operations are included in chapter 5.36.
Cash flows from financing activities Issue of subordinated liabilities 498 - Proceeds from issues of borrowings 6 29 27 Repayment of borrowings -40 -8 -57
Discretionary interest to holders of equity instruments -45 -108 -44 Non-controlling interests -4 - Issue of other equity instruments - 497 Redemption of other equity instruments - -311 Costs of issue of other equity instruments - -2 Costs of issue of subordinated liabilities -2 - Cash flows from financing activities 274 -2 -162
Total cash and cash equivalents as at 31 December 2,631 3,135 1,521
With effect from 1 January 2015, all costs incurred to acquire insurance contracts (acquisition costs) are charged directly to the income statement, generally within one year. This voluntary change in accounting policy is effected as it provides the users of the financial statements with more meaningful information, considering the effects of the changes in legislation enacted in recent years. Furthermore, to ensure matching of premium earned and the commission paid within the Non-life segment the prepaid commissions are included in other assets and these expenses are incurred in line with the premium earned, generally within one year. This change in accounting policy will enhance the ability to understand a.s.r.’s financial position taking into account industry trends and cost-benefit considerations and furthermore, retaining consistency in the accounting policy for a.s.r.’s Non-life and Life segment.
Changes in presentation In 2015 a.s.r. changed the presentation of some items, as a result of: • Classification of assets and related liabilities as discontinued operations (please refer to chapter 5.36); • The identified segments for the non-insurance activities; • The inclusion of comparative figures 2013; • Other changes in presentation.
With effect from 1 January 2015 a.s.r. has made changes to its identified segments. The non-insurance activities are presented as four separate segments being the Banking and Asset Management, Distribution and Services, Holding and Other and Real Estate Development segment. This presentation change has been made to provide more detailed information regarding the non-insurance activities, consistent with the market and a.s.r. developments in these segments.
Liabilities arising from insurance contracts 28,223 3 - 28,226 Liabilities arising from insurance contracts on behalf of policyholders 9,779 - - 9,779
Financial impact of changes in accounting policies and changes in presentation The balance sheet is impacted by changes in the accounting policy and the reclassifications as at 1 January 2013, 31 December 2013 and 31 December 2014. The income statement is impacted by the changes in accounting policy and presentation for the year’s ended 31 December 2013 and 31 December 2014.
Realized gains and losses 497 -46 - 451 Fair value gains and losses 533 32 - 565 Result on investments on behalf of policyholders 858 - -17 841 Fee and commission income 35 - - 35
Share of profit/(loss) of associates and joint ventures -4 - 8 4
Attributable to: - Attributable to non-controlling interests -2 - - -2 - Holders of other equity instruments 108 - - 108 - Tax on interest of other equity instruments -27 - - -27 Profit attributable to holders of equity instruments 381 42 - 423
Balance sheet as at 31 December 2013 As reported Changes in accounting policies
Liabilities arising from insurance contracts 23,928 4 -39 23,893 Liabilities arising from insurance contracts on behalf of policyholders 8,992 - - 8,992
Insurance claims and benefits -5,122 1 8 -5,113 Insurance claims and benefits recovered from reinsurers 110 - - 110 Net insurance claims and benefits -5,012 1 8 -5,003
Income tax (expense) / gain -84 10 - -74 Profit after tax from continuing operations 276 -34 1 243
Attributable to: - Attributable to non-controlling interests -5 - - -5 - Holders of other equity instruments 44 - - 44 - Tax on interest of other equity instruments -11 - - -11 Profit attributable to holders of equity instruments 281 -34 - 247
The change in accounting policies in relation to the restated opening balance as at 1 January 2013 not only includes the retrospective 2015 accounting policy change of the DAC and investment property, but also required retrospective changes as a result of new or amended IFRS standards as adopted by the EU.
As a result of the voluntary change in accounting policy the profit after tax for the year 2015 has increased by € 71 million and equity has increased by € 75 million. The increase in profit before tax for the year 2015 primarily relates to the (un)realized gains and losses on investment property (€ 48 million), amortization of investment property (€ 28 million) and amortization of DAC (€ 24 million). The increase in equity is the result of the increase in profit for the year 2015 and the revaluation of the property for own use amounting to € 4 million (€ 5 million gross).
The tables in chapter 5.5 Group structure and segment information, Notes to the consolidated balance sheet and Notes to the consolidated income statement are reconciled to the continuing balance sheet and continuing profit and loss unless stated otherwise. Refer to chapter 5.36 Discontinued operations and assets and liabilities held for sale for further information.
Plans – Employee contributions; • Annual improvements to IFRSs 2010-2012 cycle: a collection of non-urgent amendments to IFRSs, in response to issues; • Annual improvements to IFRSs 2011-2013 cycle: a collection of non-urgent amendments to IFRSs, in response to issues.
Total equity attributable to shareholders 2,676 676 - 3,352 Equity attributable to holders of equity instruments -13 - - -13
Liabilities arising from insurance contracts 25,440 5 -31 25,414 Liabilities arising from insurance contracts on behalf of policyholders 8,926 - - 8,926
Acceptable Methods of Depreciation and Amortisation. • Amendments to IFRS 11: Accounting for Acquisitions of
Interests in Joint Operations. • Amendments to IAS 16 and IAS 41: Bearer Plants. • Amendments to IAS 27: Equity Method in Separate Financial
Statements. • Amendments to IAS 1: Disclosure Initiative. • Annual improvements to IFRSs 2012-2014 cycle: a collection of non-urgent amendments to IFRSs, in response to issues.
These changes have no material effect on the total equity attributable to shareholders or profit or loss for the (interim) reporting period of a.s.r.
A. Statement of compliance The consolidated financial statements of a.s.r. have been prepared in accordance with the International Financial Reporting Standards (IFRS) – including the International Accounting Standards (IAS) and Interpretations – as adopted by the European Union (EU), and with the financial reporting requirements included in Title 9, Book 2 of the Dutch Civil Code, where applicable.
These relate primarily to the following: • the fair value and impairments of unlisted financial instruments (see accounting policy C and F); • the estimated useful life, residual value and fair value of property, plant and equipment, investment property, and intangible assets (see accounting policy D, E and U); • the measurement of liabilities arising from insurance contracts (see accounting policy J); • actuarial assumptions used for measuring employee benefit obligations (see chapter 5.17); • when forming provisions, the required estimate of existing obligations arising from past events; • the recoverable amount of impaired assets (see accounting policy C, F and H).
• these prices represent actual and regularly occurring transactions on an arm’s length basis.
assets or liabilities; • quoted prices for identical or similar assets or liabilities in inactive markets; • input variables other than quoted prices observable for the asset or liability. These include interest rates and yield curves observable at commonly quoted intervals, volatility, early redemptions spreads, loss ratio, credit risks and default percentages.
Other non-financial assets and liabilities For other non-financial assets and liabilities where the fair value is disclosed these fair values are based on observable market inputs, primarily being the price paid to acquire the asset or received to assume the liability on initial recognition, assuming that the transactions have taken place on an arm’s length basis. Valuation techniques using present value calculations are applied using current interest rates where the payment terms are longer than one year.
Fair value for investment property and buildings for own use The following categories of investment properties and buildings for own use is recognized and methods of calculating fair value are distinguished: • residential – based on reference transaction and DCF
method; • retail – based on reference transaction and income capitalization method; • rural – based on reference transaction and DCF method; • offices – based on reference transaction and DCF method
The following valuation methods are available for the calculation of fair value by the external professional appraisers for investment property and buildings for own use: Reference transactions Independent professional appraisers use transactions in comparable properties as a reference for determining the fair value of the property. The reference transactions of comparable objects are generally based on observable data consisting of the land register ‘Kadaster’ and the rural land price monitor as published by the Dutch government ‘grondprijsmonitor’ in an active property market and in some instances accompanied by own use information. The external professional appraisers, valuate the property using the reference transaction in combination with the following valuation methods to ensure the appropriate valuation of the property: • DCF method; • income capitalization method.
‘rural land price monitor’; • 10 Year Dutch Government Bond Yield (%) as published by the Dutch Central Bank.
Goodwill has an indefinite useful life and is not amortized. a.s.r. performs an impairment test annually, or more frequently if events or circumstances so warrant, to ascertain whether goodwill has been subject to impairment. As part of this, the carrying amount of the cash-generating unit to which the goodwill has been allocated is compared with its recoverable amount. The recoverable amount is the higher of a cashgenerating unit’s fair value less costs to sell and value in use. The carrying value is determined as the net asset value including goodwill. The methodologies applied to arrive at the best estimate of the recoverable amount involves two steps.
In the first step of the impairment test, the best estimate of the recoverable amount of the CGU to which goodwill is allocated is determined separately based on Price to Earnings or Price
to EBITDA ratios. The ratio(s) used per CGU depends on the characteristics of the entity in question. The main assumptions in this valuation are the multiples for the aforementioned ratios. These are developed internally but are either derived from or corroborated against market information that is related to observable transactions in the market for comparable businesses.
Value of Business Acquired The Value of Business Acquired (VOBA) represents the difference between the fair value and the carrying amount of insurance portfolios that have been acquired, either directly from another insurer or through the acquisition of a subsidiary. VOBA is recognized as an intangible asset with a finite useful life and amortized over the term of the current insurance contracts at acquisition date, in conjunction with the corresponding obligations. With regard to VOBA, allowance is made for the outcome of the annual compulsory Liability Adequacy Test (LAT) for insurance contracts (see accounting policy J). With effect from 2014, given the structural market developments in the life portfolios, the LAT related to the VOBA is performed at the level of the life insurance contracts and the life insurance contracts on behalf of policyholders. Before 2014 the LAT was performed at the level of the total life insurance portfolio. Amortization charges related to VOBA are included in net claims and benefits.
If there is a change in the designation of property, it can lead to: • reclassification from property, plant and equipment to investment property: at the end of the period of owneroccupation or at inception of an operating lease with a third party; or
• reclassification from investment property to property, plant and equipment: at the commencement of owner-occupation or at the start of developments initiated with a view to selling the property to a third party.
The following categories of investment property are recognized by a.s.r. based primarily on the techniques used in determining the fair value of the investment property: • retail; • residential; • rural; • offices; • other (consisting primarily of parking); • investment property under development.
Property under development for future use as investment property is recognized as investment property. The valuation of investment property takes (expected) vacancies into account.
Borrowing costs directly attributable to the acquisition or development of an asset are capitalized and are part of the cost of that asset. Borrowing costs are capitalized when the following conditions are met: • expenditures for the asset and borrowing costs are incurred; and • activities are undertaken that are necessary to prepare an asset for its intended use.
Borrowing costs are no longer capitalized when the asset is ready for use or sale. If the development of assets is interrupted for a longer period, capitalization of borrowing costs is suspended. If the construction is completed in stages and each
The classification of the financial assets is determined at initial recognition. The classification depends on the purpose for which the investments were acquired. For detailed information on the fair value of the financial assets see accounting policy C.
Loans and receivables are measured at fair value plus transaction costs on initial recognition They are subsequently measured at amortized cost based on the effective interest rate method, less impairment losses where deemed necessary (see also accounting policy H). Loans and receivables are accounted for separately under financial assets.
Financial assets available for sale Financial assets available for sale are financial assets that are not accounted for as financial assets at fair value through profit and loss, or as loans and receivables. On initial recognition, financial assets available for sale are measured at fair value (including transaction costs). They are subsequently measured at fair value, including any unrealized fair value changes in equity, taking into account any deferred tax liabilities. Financial assets available for sale include equities (ordinary and preference shares), bonds, other fixed-income securities, unit trusts, variable-income securities and interests in investment pools.
If, at a later stage, the fair value of the financial assets available for sale should increase and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit and loss, the impairment loss is reversed through the income statement. Impairment losses on equities held for sale are not reversed, and any increases in fair value are recorded in equity.
H. Loans and receivables Loans and receivables are measured at amortized cost based
Receivables from banks Receivables from banks concern business loans, deposits and the savings portion of savings mortgages concluded by a.s.r.
An individually assessed asset is considered as impaired if objective evidence exists that a.s.r. were unable to collect all the amounts due by the counterparty in accordance with the contractual terms and conditions. The amount of the impairment loss is equal to the difference between the asset’s carrying amount and its recoverable amount. The recoverable amount equals the present value of estimated future cash flows, including amounts realized from guarantees and securities furnished, discounted at the financial asset’s original effective interest rate.
I. Derivatives and hedge accounting Derivatives are primarily used by a.s.r. for hedging interest rate and exchange rate risks, for hedging future transactions and the exposure to market risks.
Loss obligations in respect of occupational disability are discounted. The recognized provisions are sufficient to cover the cost of claims and claims handling fees. a.s.r. discounts
obligations for losses only for claims with determinable and fixed payment terms.
The provision for unearned premiums is equal to gross unearned premium income less commissions paid. The provision is determined on a time proportional basis.
Obligations to insurers where a.s.r. qualifies as the reinsurer, and with no significant insurance risk being transferred to a.s.r., are recognized as debts to policyholders.
Life insurance contracts with a discretionary participation features (DPF) Under DPF life insurance contracts, policyholders are assigned, in addition to their entitlement to a guaranteed element, an entitlement to potentially significant additional benefits whose amount or timing is contractually at the discretion of a.s.r. These additional benefits are based on the performance of a specified pool of investment contracts, specific investments held by a.s.r. or on the issuer’s net income. Expected entitlements to discretionary benefits are recorded in equity. Once a decision has been taken for discretionary participation features, any related benefits are recognized as liabilities.
Shadow accounting The Group’s insurance accounting policies include the application of shadow accounting which is a specialized accounting treatment commonly utilized in insurance accounting and is permitted under IFRS. The purpose of shadow accounting is to help reduce potential accounting mismatches which can occur when related assets and liabilities: • are measured on a different basis; or • have changes in their measurements recorded in different
IFRS performance statements (Income Statement or OCI). Under the Group’s shadow accounting, adjustments are made to the insurance liability to reflect the unrealized gain or loss from the financial instruments backing these insurance liabilities.
Shadow accounting is applied to unrealized value changes in fixed-income financial assets available for sale, specific financial assets designated at fair value through profit and loss, and specific derivatives (i.e. swaptions and interest rate and inflation rate swaps).
IFRS Liability Adequacy Test Non-life The Liability Adequacy Test (LAT) is performed at each reporting date to assess the adequacy of insurance liabilities for Non-life.
Where the Property and Casualty (motor, fire and liability) and Health liabilities business is concerned, the LAT is performed using statistical analyses. Any identified losses are used as a basis for estimating future claims arising from an insurance contract from the portfolio on the balance sheet date. This is the best estimate. An appropriate risk margin is added. The risk margin is determined for each homogeneous risk group using the Cost of Capital (CoC) method that is also used for Life. For Non-life a CoC rate of 6% (2014: 6%; 2013: 6%) is used, except for disability - Similar to Life Techniques (SLT) where the Life CoC rate of 5% (2014: 5%; 2013: 4%) is used. The total of best estimate and risk margin is compared to the technical provision recorded in the balance sheet.
Dutch Central Bank Liability Adequacy Test For the De Nederlandsche Bank (DNB, which is the Dutch Central Bank and insurance regulator) solvency (regulatory solvency) a.s.r. uses the Dutch Central Bank Liability Adequacy Test (DNB LAT). As no surrender value floor is applied in the IFRS LAT, the LAT used for IFRS purpose (‘LAT’ or ‘IFRS LAT’), as described above, differs from the DNB LAT.
K. Liabilities arising from insurance contracts on behalf of policyholders Liabilities arising from insurance contracts for the account
and risk of policyholders mainly concern unit-linked contracts. An investment unit is a share in an investment fund that a.s.r. acquires on behalf of the policyholders using net premiums paid by the policyholders. The gain upon maturity of the contract is equal to the current value of the investment units of the fund in question. The current value of an investment unit (unit value) reflects the fair value of the financial assets held by a.s.r.’s investment funds divided by the number of units.
For the LAT relating to the liabilities arising from insurance contracts on behalf of policyholders see accounting policy J.
L. Employee benefits (IAS 19) Pension obligations A number of defined benefit plans for own staff exist. These are schemes under which staff are awarded pension benefits upon retirement, usually dependent on one or more factors, such as years of service and compensation. The defined benefit obligation is calculated at each reporting date by independent actuaries. The majority of employees are formally employed by ASR Nederland N.V. A limited amount of employees are employed by other group companies.
When employee benefit plans are modified and when no further obligations exist, a gain or loss, resulting from the changes are recognized directly in the income statement.
Other post-retirements obligations a.s.r. 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.
• a.s.r. is committed to a plan to sell these assets and has an active programme to locate a buyer; • The sale is expected to occur within one year from the date of classification as held for sale.
N. Acquisitions (Business combinations) Acquisitions are accounted for according to the acquisition method, with the cost of the acquisitions being allocated to the fair value of the acquired identifiable assets, liabilities and contingent liabilities. Goodwill, being the difference between the cost of the acquisition and a.s.r.’s interest in the fair value of the acquired identifiable assets, liabilities and contingent liabilities on the acquisition date, is capitalized as an intangible asset. Any gain on bargain purchase (negative goodwill) is recognized directly in the statement of profit or loss. Any change, in the fair value of acquired assets and liabilities at the acquisition date, determined within one year after acquisition, is recognized as an adjustment charged to goodwill in case of a preliminary valuation. Adjustments that occur after a period of one year are recognized in the statement of profit or loss. Adjustments to the purchase price that are contingent on future events, and to the extent that these are not already included in the purchase price, are included in the purchase price of the acquisition at the time the adjustment is likely and can be measured reliably.
Where applicable in the notes to the financial statements the acquisitions are recognized in the changes in the composition of the group.
Non-controlling interests are initially stated at their proportionate share in the fair value of the net assets on the acquisition date and are subsequently adjusted for the noncontrolling interest in changes in the subsidiary’s equity.
P. Product classification Insurance contracts are defined as contracts under which a.s.r. 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. a.s.r. offers non-life insurance contracts and life insurance contracts.
of costs and risk premium, are invested in unit-linked funds. For some individual contracts, a.s.r. guarantees returns on unit-linked investment funds. In addition, group life insurance contracts with unguaranteed segregated pools (discretionary self-insurance) are classified as life insurance contracts on behalf of policyholders.
Q. Segment information At organizational level, a.s.r.’s operations have been divided into six operating segments. The main segments are the Nonlife segment and Life segment where in all insurance activities are presented. The noninsurance activities are presented as four separate segments being the Banking and Asset Management, Distribution and Services, Holding and Other and Real Estate Development (Discontinued operations) segment. There is a clear difference between the risk and return profiles of these six segments.
Intersegment transactions or transfers are conducted at arm’s length conditions. For detailed information per segment, see chapter 5.5, ‘Segment information’.
R. Transaction date and settlement date All 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 a.s.r. 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 accounting policy I ‘Derivatives and hedge accounting’.
S. Securities lending a.s.r. participates in securities lending transactions, whereby collateral is received in the form of securities or cash. Cash received as collateral is recognized on the balance sheet and a corresponding liability is recognized as liabilities arising from securities lending in ‘Due to banks’. Securities lent remain on the balance sheet. Securities received as collateral are not recognized in the balance sheet.
The statement of cash flows recognizes interest received and paid, and dividends received within cash flows from operating activities. Cash flows from purchasing and selling investments and investment property are included in cash flows from operating activities on a net basis. Dividends paid are recognized within cash flows from financing activities.
U. Property, plant and equipment Property held for own use Property for own use comprises of land and office buildings and is measured at fair value (revaluation model) based on annual valuations, conducted by external, independent valuators with adequate professional expertise and experience in the specific location and categories of properties.
After initial recognition, property for own use is valued at fair value based on the methodology used to determine the fair value of the investment property (see accounting policy C). The purpose of a valuation is to determine the value for which the asset would be transferred between willing parties in a transaction at arm’s length.
Property is classified into the following components and their maximum life: Components (expressed in years)
Repair and maintenance costs are charged to the income statement in the period in which they are incurred. Expenses incurred after the acquisition of an asset are capitalized if it is probable that the future economic benefits will flow to a.s.r. and the cost of the asset can be measured reliably.
Accounting for borrowing costs attributable to the construction of property, plant and equipment is the same as accounting for borrowing costs attributable to investment property. For details, see accounting policy E.
V. Associates and joint ventures Associates Associates are entities over which a.s.r. has significant influence on operating and financial contracts, without having control. Associates are recognized using the equity method of accounting from the date at which a.s.r. 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 a.s.r.’s share of the associate’s comprehensive income. Comprehensive income is adjusted in accordance with the accounting principles used by a.s.r.
If objective evidence of impairment exists, associates are tested for impairment and, if necessary, written down.
W. Reinsurance contracts Contracts that transfer a significant insurance risk from a.s.r. to third parties are accounted for as reinsurance contracts, and are classified as outgoing reinsurance.
X. 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 impairments. 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 the contract revenue cannot be reliably estimated. Contract revenue is then accounted for upon completion of the development (completed contract method).
Y. Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks, cash collateral and other short-term highly liquid investments with original maturities of three months or less.
Z. Equity Share capital and share premium reserve The share capital disclosed in the balance sheet consists of issued and fully paid-up ordinary shares. The share premium reserve comprises additional paid-in capital in excess of the par value of the shares.
AA. Financing On initial recognition, debt instruments and other loans are stated at fair value, net of transaction costs incurred. Subsequent valuation is at amortized cost. Any difference between the proceeds and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method.
GG. Fee and commission income Fee and commission income relates mainly to reinsurance, asset management and distribution and services. These items are generally recognized as income in the period in which the services are performed.
HH. Insurance claims and benefits This item includes changes in liabilities arising from insurance contracts (see accounting policy J) and the related benefits.
Expenses associated with contracts on behalf of policyholders relate to changes in liabilities arising from insurance contracts on behalf of policyholders, including the benefits charged to the liabilities.
JJ. Commission expenses This mainly relates to commissions paid. Commission paid to acquire insurance contracts are charged to the income statement, generally within one year.
KK. Impairments An asset is impaired when its carrying amount exceeds its recoverable amount. Impairment losses are recognized in the income statement as soon as they are identified. For details, see the relevant items of chapter 5.2 as mentioned earlier.
LL. 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 substantively enacted by the end of the reporting period. Income tax is recognized in the period in which the income was achieved.
Insurance risk – Non-life portfolio • The combined ratio of the Non-life segment remained at a good level 94.8% (2014: 95.0%); • For disability there was an improvement in the combined ratio due to our active claim management. Also for P&C the ratio remained well below the 100% despite the summer storms.
Insurance risk – Life portfolio • The acquisitions in 2015 increased both the longevity and mortality risk. The mortality risk present at Axent and the longevity risk present at De Eendragt diversify at group level as a result of their opposite nature; • In order to optimize its balance sheet risks, ASR Levensverzekering N.V. entered into a reinsurance agreement with Legal and General Re (via Hannover Re as fronting reinsurer) in 2015. The agreement entailed the transfer of € 201 million of pension obligations to Legal and General Re; • a.s.r. periodically assesses whether the technical provisions are sufficient to cover insurance liabilities. These provisions were adequate at year-end 2015; • The underlying assumptions for assessing the provision are periodically adjusted to economic and non-economic developments.
Strategic risk • a.s.r. uses scenario analysis tools to be better prepared for potential future and emerging risks. As in previous year, a.s.r. has identified strategic risks and mitigating controls and actions for all business lines and a.s.r. group in its Control Risk Self-Assessment (CRSA) over 2015; • a.s.r. executed an Own Risk and Solvency Assessment (ORSA) at both group and legal entity level. This assessment
Solvency II Delegated Regulation. In addition the Solvency II framework has been elaborated in the EIOPA technical standards and guidelines; • During 2015 a.s.r. implemented the remaining Quantitative Reporting Templates (QRT’s) as published by EIOPA. Preparations were finished in time to start reporting according to the Solvency II standards from 2016 onward; • In preparation for Solvency II a.s.r. performed a dry run for the reporting standards of the Solvency and Financial Condition Report in commission of DNB. This report provides amongst others information on the governance of insurance companies, their capital management and valuation principles. The dry run provided valuable insights to further improve the quality of the report before the first publication in 2017; • A number of transitional measures are added to the Solvency II requirements to smooth the introduction of the new regime for insurance companies. One of the transitional measures concerns the calculation of the equity risk su-module. During the transitional period, the standard parameters to be used for equities that are subject to transitional period shall be calculated as the weighted average of the standard parameter. A.s.r. has decided to apply this transitional measure for the calculation of the equity risk sub-module; • a.s.r. has further improved the scenario analyses and stress testing techniques as part of the Own Risk and Solvency Assessment (ORSA) and Recovery planning. These techniques measure the impact of external or internal identified risks and threats to the a.s.r. solvency position; Capital management and solvency • The solvency ratio including UFR increased due to the decrease of the interest rates in relation to application of the UFR. This movement is in line with the sensitivities as presented in paragraph 5.3.4.
Evaluating 5.3.2.1 Strategy (including risk appetite) a.s.r.’s risk strategy is to ensure that risk taking decisions are made within the boundaries of the risk appetite, as determined by the Executive Board and approved by the Supervisory Board.
Various separate risk appetite statements have been formulated to address these five pillars.
Risk appetite Statement ASR Nederland N.V. 2015 1 ASR Nederland N.V. is now and in the long term a socially desirable organization. Where the governance of ASR Nederland N.V. is established in a way that paramount importance is given to the customer’s interests and that the interests of all stakeholders are carefully and sustainably considered.
6 ASR Nederland N.V.’s employees comply to (internal and external) integrity-, proficiency- and professional demands.
8 ASR Nederland N.V. remains within the bandwidth of the periodically reassessed market risk budgets.
11 ASR Nederland N.V. (Group) has at least a single A-rating according to the S&P Capital model as applied by a.s.r.
13 ASR Nederland N.V. has a maximum double leverage of 135%.
5.3.2.2 Risk governance a.s.r. has a risk governance framework which comprises the duties and the responsibilities of the risk management organization and the risk committee structure. The independent role of risk management and its responsibility as an assurance function are anchored throughout the organization. The objective of the risk committees is to manage the risk profile for a.s.r. group and its business lines.
• The first line is responsible for the identification and management of risk in daily business. The first line has day-to-day responsibility for operations (sales, pricing, underwriting, claims handling, etc.) and is primarily responsible for risk management. The first line is formed by the Executive Board, the management teams of the business lines and their employees; • The second line challenges the first line and supports the first line to achieve its business objectives in accordance with the risk appetite. The second line has sufficient countervailing power to prevent risk concentrations and other forms of excessive risk taking. It is responsible for developing risk policies and for monitoring the compliance with these policies and the broader risk management framework in the first line. The second line of defence is formed at group level and includes both Group Risk Management and the Integrity department; • The third line is responsible for providing independent assurance and oversees and assesses the functioning and the effectiveness of the first two lines of defence. The third line consists of a.s.r.’s Internal Audit department.
Group Risk Management The risk management organization is independently positioned within a.s.r. The Chief Risk Officer (CRO) is responsible for all risk management related activities and reports directly to the CFO. The CRO can report matters directly to the CEO at his own discretion and has a direct and independent reporting line to the Audit and Risk Committee, a sub-committee of the
Group Risk Management is responsible for the execution of the risk management function and the actuarial function. Group Risk Management consists of the following sub-departments: • Enterprise Risk Management; • Financial Risk Management.
Enterprise Risk Management Enterprise Risk Management is responsible for the second line strategic risk and operational (including IT) risk management at a.s.r. The responsibilities with regard to strategic risk management include the development of risk policies, the annual update of the risk strategy (risk appetite), the monitoring of the non-financial risk profile and risk priorities of a.s.r., the execution of ORSA process and the update of our recovery plan. For the management of operational risks, a.s.r has a sound Management in Control system in place that contributes to long-term solidity of a.s.r. The quality of our Management in Control Framework is continuously enhanced by the analysis of operational losses.
Financial Risk Management Financial Risk Management (FRM) is responsible for the second line market risk, counterparty risk, insurance risk and liquidity risk management at a.s.r. and its legal entities. Other responsibilities are monitoring of compliance with Solvency II, model validation and policies on valuation and risk.
Furthermore, the actuarial function monitors the profitability of new business and determines if risks related to the profitability of new products are sufficiently addressed in the product development process.
Chairman of the NFRC is the COO of the SME insurance market (who is also a member of the Executive Board) and members of the Committee include Directors of the business lines P&C, Health, Disability, Life, Pensions, ICT and Directors of Audit and Integrity, the Head of Enterprise Risk Management and the Director of Finance and Risk.
Capital, Liquidity & Funding Committee The Capital, Liquidity and Funding Committee (CLFC) is a subcommittee of the FRC. As such, the CLFC prepares and assesses the technical analysis of capital, liquidity and funding positions, rating policy, rating model reporting, and treasury activities. The Chairman of the CLFC is the Director of Financial Markets; other members of this sub-committee are representatives of various key financial and risk departments and a representative for the actuarial function.
Business Risk Committees The business lines manage and control their risk profile through the Business Risk Committees (BRC). The BRC’s monitor that the risk profile of the business line stays within the risk appetite, limits and targets, as formulated by the Executive Board. The BRC reports to the FRC and the NFRC. The Chairman of the BRC is the Managing Director of the business line and its members include key officers of the business line, Compliance and Audit.
Model Validation Committee The model validation committee (MVC) is responsible for the execution and update of our model validation policy and for the approval of existing or new developed validated models before taken into use. The model validation committee receives all required information for the validation of models (for instance model documentation and validation reports), which information is being prepared by the validation board that assures the quality of the validation process. The chairman of the MVC is the Chief Risk Officer. Members of the MVC are the Director Group Asset Management, the Manager of Financial Risk- and Model Management, the Manager Financial Risk Reporting, the Chief Financial Risk Officers Life and Non-life and other representatives for the actuarial function.
Product Approval Committee The Product Approval Committee is responsible for the decision-making process around the introduction of new products and adjustments in existing products.
5.3.2.3 Systems and data The availability, adequacy and quality of data and IT systems is important in order to ensure that correct figures are reported and risk mitigating measures can be taken in time. Therefore it is considered important that data throughout a.s.r. needs to be managed in accordance with our data quality policy and the operational (including IT) processes are managed in accordance with our Management in Control policy. In 2015 our data quality policy was updated in order to comply with Solvency II. Data quality will be further enhanced in 2016 in order to improve our reporting processes.
5.3.2.5 Risk culture Risk awareness is an important topic at a.s.r to emphasize the human aspect in the mitigation of risks. Risk Management carried out various kind of actions in 2015 in order to raise risk awareness. These actions focused on ‘hard’ elements/controls (risk governance, annual refinement of the risk appetite, monitoring of the risk appetite in risk committees and risk assessments) and ‘soft’ elements/controls (education and communication via intranet).
5.3.3 Risk management classification a.s.r. is exposed to a variety of risks. The six main risk categories that a.s.r. recognizes are described below.
Market risk The risk of changes in values caused by market prices or volatility of market prices differing from their expected values. The following types of market risk are distinguished: • interest rate risk • equity risk • property risk • currency risk • spread risk • concentration risk
Insurance risk Insurance risk is the risk that future insurance claims and benefits cannot be covered by premium and/or investment income, or that insurance liabilities and results are incorrectly determined, because costs, claims and benefits differ from the assumptions used in the development and premium-setting of a product. Four different major types of insurance risk are distinguished; P&C, disability, health and life risk. Also, risk incurred on the employee benefits is categorized as an insurance risk.
Strategic risk Strategic risk is the risk that a.s.r. will not reach its strategic objectives, because risk considerations are not or incorrectly addressed in decision-making processes, incorrect implementation of decisions and/or failure to respond in an adequate way to market developments.
Operational risk Operational risk is the risk of losses resulting from inadequate or failing internal processes and systems, human error or from external events (including legal risk).
Market risk reports are submitted to the FRC at least on a monthly basis. Key reports on market risk include the strategic asset mix report, the economic capital report, the interest-rate risk report and the report on sensitivity of regulatory solvency to major market risks. A summary of sensitivities to market risks for the regulatory solvency, total equity and profit for the year is presented in the tables below.
The sensitivities of regulatory solvency ratio (Solvency I) to market risks are as follows (in %-p): Type of risk 31 December 2015 31 December 2014 31 December 2013
In case the UFR is not applied, the liabilities are more sensitive to interest-rate movements. The shock on the discounting curve for the liabilities is not mitigated and the present value of the cashflow after 20 year is higher. The liabilities excluding UFR are more sensitive than the assets. The solvency ratio excluding UFR decreases with 95% when the interest-rates drop 1%.
The sensitivities to equities increased in 2015 in line with the higher exposure to equities. The changes in the sensitivity of total equity to interest-rate in 2015 are explained by the recognition of the interest-rate sensitivity of the employee benefits. The impact of this recognition is € 332 million in the scenario interest-rate +1% and € -439 million in the scenario interest-rate -1%. The sensitivity of total equity to spread remained limited due to the mitigating effect of shadow accounting. The sensitivities to property did not change much compared to the previous years, in line with the exposure to property. The sensitivity of total equity to foreign currency increased in line with the higher underlying exposure as a result of look-through on the investments funds. The impact of the investment funds on the sensitivity of total equity to foreign currency +10% is € 82 million per 31 December 2015.
5.3.4.1 Interest-rate risk Interest-rate risk is the risk that the value of assets, liabilities or financial instruments will change due to fluctuations in interestrates. Many insurance products are exposed to interest-rate risk; the value of the products is closely related to the applicable interest-rate curve. The interest-rate risk of insurance products depends on the term to maturity, interest-rate guarantees and profit-sharing features. Life insurance contracts are particularly sensitive to interest-rate risk (see chapter 5.3.6).
As a result of the interest-rate risk policy, the Solvency I ratio (including UFR) and the Solvency I ratio excluding UFR move in different directions when interest-rates change.
5.3.4.2 Equity risk The equity risk depends on the total exposure to equities. In order to maintain a good understanding of the actual equity risk, a.s.r. has made a number of adjustments to the IFRS classification for risk purposes. For example, bond funds classified in the statement of financial position under equities are not included here.
The equities are diversified across the Netherlands (including participating interests) and other European countries. A limited part of the portfolio consists of investments in the Pacific and United States.
31 December 2015 31 December 2014 31 December 2013 31 December 2015 31 December 2014 31 December 2013
As a result of disposals and a negative result on property development the exposure to property decreased in 2015. Although impairments on property developments were taken, there are some remaining risks.
The sensitivity the Solvency I ratio to changes in property value is monitored on a monthly basis. Sensitivity of regulatory solvency (Solvency I) to changes in property prices: Change in property prices 31 December 2015 Percentage 31 December 2014 Percentage 31 December 2013 Percentage
The sensitivity of the Solvency I ratio to changes in equity prices is monitored on a monthly basis. Option contracts and the tax exemption of the participating interests are taken into account when calculating sensitivities.
Sensitivity of regulatory solvency (Solvency I) to changes in equity prices.
The net exposure in USD consist both of equities and fixed income investments. The majority of the net currency exposure is related to equities.
a.s.r. has a policy of maintaining a well diversified high quality investment grade portfolio while avoiding large risk concentrations. Going forward, the volatility in spreads will continue to have possible short term effects on the market value of the fixed income portfolio. In the long run the credit spreads are expected to be realised and to contribute to the growth of the own funds.
Spread risk is managed on a portfolio basis within limits and risk budgets established by the relevant risk committees. Where relevant, credit ratings provided by the external rating agencies are used to determine risk budgets and monitor limits. A limited number of fixed-income investments do not have an external rating. These investments are generally assigned an internal rating. Internal ratings are based on methodologies and rating classifications similar to those used by external agencies. The following tables provide a detailed breakdown of fixed-income exposure by rating class, sector, and country of risk and level of subordination for the financial sector. Assets in scope of spread risk are by definition not in scope of counterparty default risk (see chapter 5.3.5). The tables include all bond, fixed income funds, preference shares and loans subject to spread risk according to our risk models.
2015 USD AUD CAD CHF GBP SEK ZAR HKD INR KRW TWD JPY PHP
USD AUD CAD CHF GBP SEK ZAR USD AUD CAD CHF GBP SEK ZAR
Interest-rates increased slightly during 2015 this resulted in lower market values. The market value of the positions in several countries, Germany and France among others, increased. This is be explained by the acquisition of Eendragt and Axent. The holdings in periphery sovereign bonds was reduced for tactical reasons. Supranationals have been reduced due to a change in the desired asset allocation.
In line with our strategic investment plan the exposure to Tier 2 securities was increased at the expense of Tier 1 bonds. All categories in the financial institutions portfolio benefited from tightening credit spreads.
Structured entities 31 December 2015 31 December 2014 31 December 2013
Redemptions are responsible for the decrease in the market value of the Structured Entities and occurred mainly in the MBS portfolios. The revaluations on the structured products portfolio slightly increased in the course of 2015.
Other structured financial instruments (SFI) This part of the portfolio consists of equity tranches of CDO’s, i.e. the most risky tranche in the CDO structure. These ‘first loss’ tranche will be the first to fall in value if losses occur in the assets that back the CDO and are not rated. The portfolio is dominated by two positions that make up 66% of the portfolio. Due to significant redemptions on the two largest positions in this portfolio, the size of this portfolio went down during 2015. The remaining positions in this portfolio are almost all equity pieces of European CLO’s.
Acquisition activities of a.s.r together with upgrade of the Dutch government bonds to AAA category and changes in tactical positioning explain changes in the rating breakdown of the sovereign portfolio. Earlier described sub-sector allocation decisions combined with rating actions by Moody’s and S&P
Loans to intermediaries form a relatively small source of risk for a.s.r. At year-end 2015, the outstanding amount of loans to intermediaries was € 54 million (2014: € 75 million; 2013: € 96 million) and cumulative impairments amounted to € 32 million (2014: € 37 million; 2013: € 53 million). The loans are generally secured by collateralizing an insurance portfolio. At year-end 2015, 24% (2014: 16%; 2013: 20%) of the loans were in arrears.
5.3.4.6 Concentration risk Concentration risk is the risk of an accumulation of exposures with the same counterparty.
As per 31 December 2015, a.s.r. has cash (€ 1,454 million), short term deposits (€ 1,178 million), liquid government bonds (€ 13,840 million) and other bonds and shares.
< 1 year 1-5 year 5-10 year 10-20 year > 20 year
The Loan-to-Value ratio is based on the outstanding principal with respect to the a.s.r. calculated collateral. As a rule, a.s.r.’s mortgage portfolio is secured by collateralizing the linked life insurance contracts. a.s.r. generally does not grant interest-only mortgages.
5.3.5.2 Savings-linked mortgage loans Savings-linked mortgages have been sold with savings-linked contracts carried in a.s.r.’s statement of financial position where the mortgage loan is recognized in the balance sheet of third parties. One of the characteristics of a savings-linked mortgage loan is that the interest on the insurance contract and the interest on the mortgage loan are linked. At the same time, a.s.r. extends loans to these third parties with a nominal value equal to the value of the savings-linked contract and at an interest rate linked to the interest rate on the mortgage. The amortized cost of these loans amounted to € 2,800 million at year-end 2015 (2014: € 2,702 million; 2013: € 2,520 million).
Savings-linked mortgage loans - other 31 December 2015 31 December 2014 31 December 2013
Savings-linked mortgage loans 31 December 2015 31 December 2014 31 December 2013
The remaining 12% of the savings-linked mortgage loans portfolio by credit rating of the counterparty is shown below. Due to a new agreement cessie-retrocessie the exposure to the category AA other was reduced to zero.
The outstanding value of the interest-rate derivative positions is matched by collateral received from eligible counterparties, limiting the net credit risk to a minimum.
An accumulated impairment loss for receivables of € 45 million was recognized in 2015 (2014: € 52 million; 2013: € 35 million).
Insurance risk is the risk that future insurance claims and benefits cannot be covered by premium and investment income, or that insurance liabilities and results are incorrectly determined, because expenses, claims and benefits differ from the assumptions used in the development and premium-setting of a product. Insurance risk manifests itself in both the non-life and the life portfolio. The non-life portfolio covers the property and casualty, disability and healthcare sectors. The life portfolio is a reasonably diversified portfolio consisting of products with either mortality risk or longevity risk.
a.s.r. has assessed the impact of various sensitivities on the regular solvency ratio (Solvency I): 1. Lapse +10%; 2. Expense +10%; These shocks have no impact on the 2015, 2014 and 2013 total equity and the profit for these years, because a.s.r. would still pass the IFRS Liability Adequacy Test (LAT). The sensitivities will result in a decrease of the surplus in de Liability Adequacy Test but the outcome would still be positive. For a description of the IFRS LAT, see accounting policy J, chapter 5.2.2.
Ratings current accounts 31 December 2015 31 December 2014 31 December 2013
5.3.6.1 Non-life insurance portfolio The non-life insurance portfolio of a.s.r. consists of Property and Casualty, Disability and Health. The insurance contracts are sold to retail and wholesale clients through intermediaries, underwriting agents and direct distribution channels. The non-life insurance portfolio focuses mainly on the following categories.
Disability • Disability: disability coverage in the portfolio includes both individual coverage for self-employed persons and (semi-) group coverage for employees. The latter group also qualifies for employees disability cover (WIA, including WGA-ER); • Sickness leave: coverage includes continued salary payments for the first two years of the individual’s incapacity for work.
Health • Health insurance: contracts cover medical expenses incurred by physicians and hospitals, and other medical expenses. Basic coverage (‘Basisverzekering’) is mandatory for all residents of the Netherlands and offers limited coverage as stipulated by the Dutch government. Additional coverage (‘Aanvullende verzekering’) is sold for a higher level of medical care.
Provision for unearned premium income Generally, the provision for unearned premium income is calculated based on the premium for own account, proportionate to the unexpired portion of the premium payments. A separate provision is formed for insurance contracts with increasing risk over the duration of the contract where premiums not related to the age of the policyholder are concerned. For Health insurance the provision has the characteristics of an insufficient premium reserve that is based on estimates of the profitability in 2016. Changes in the provision for unearned premiums are recognized through profit and loss, which means that the income is recognized during the same risk period.
The provision for claims also consists of provision for unexpired risk. A provision for unexpired risk is formed to the extent that future claims and expenses – in respect of current insurance contracts – exceed future contractual premiums, taking into account the current unearned premium reserve.
Provision for claims 767 770 799 Provision for unearned premium 209 200 206
Provision for claims 3,040 3,036 2.682 Provision for unearned premium 155 194 203
The above diagrams illustrate the distribution of gross premium income across the different business lines. For disability insurance contracts, the premium income is relatively low compared to the claims reserve. Due to the rapid settlement of the P&C business in general, which generates 43% of premium income, the P&C business only represents 19% of the total claims reserve.
P&C insurance risk primarily comprises of risks resulting from third-party liability and general third-party liability. Insurance liabilities are formed to cover the scale and the long-term character of the claims.
Disability risk is the risk associated with the uncertainty of claims as a result of higher than expected disability rates and levels in portfolios containing disability insurance products. An additional uncertainty is that recovery or mortality rates might be lower than expected.
Managing non-life insurance risk Non-life insurance risk is managed by monitoring claims frequency, the size of claims, inflation, handling time, benefit and claims handling costs, and biometrical risks (disability, recovery, illness, death). Concentration risk also qualifies as an insurance risk.
The level of retention in the various reinsurance contracts is aligned to the size and the risk profile of the underlying portfolios, taking account of the cost of reinsurance on the one hand and of the risk that is retained on the other. By determining the retention, the impact on the statement of financial position is taken into account as well. The difference in the retention of disability depends on the structure of the contract (basic coverage or indexed).
To limit risk concentration, reinsurance contracts are placed with various reinsurance companies. a.s.r. requires the counterparties to be rated at least single A. The reinsurance programme has remained largely the same as previous years in terms of cover and limits. The most significant reinsured risks are windstorm and individual disability. In 2015, a.s.r. purchased excess of loss reinsurance for accident year 2016 for windstorm in excess of € 30 million with a limit of € 344 million. For individual disability for self-employed policyholders approximately 30% of the inception risk is being reinsured.
In life insurance the provisions are based on assumptions underlying the premium calculation. By applying shadow accounting, recent impact of movements in the interest rates and credit spreads on corporate bonds are recognized in the provisions.
The provision at year-end 2015, 2014 and 2013 can be broken down as follows: Life insurance contracts 31 December 2015 31 December 2014 31 December 2013
Without profit-sharing 6,462 4,897 4,161 Contractual profit-sharing (and interest margin participation) 6,391 6,590 5,984 Discretionary profit-sharing 1,617 2,065 2,150
Adequacy of insurance liabilities The adequacy of the technical insurance liabilities is tested at least every quarter. The a.s.r. testing policy for liabilities complies with IFRS requirements and DNB guidelines (see accounting policy J, chapter 5.2.2).
The overall adequacy of the liabilities arising from insurance contracts at 31 December 2015 has been confirmed by internal actuaries and certified by external actuaries.
Life insurance risk Life insurance risks are the risks related to the events insured by a.s.r. and comprise mortality, longevity, disability, lapse, expense and catastrophe risks. These risks result from the pricing and acceptance of insurance contracts as well as the management and development of the insurance portfolio. Life insurance risk manifests itself in ASR Levensverzekering N.V., AXENT NabestaandenZorg N.V. and De Eendragt Pensioen N.V. The main product lines are life products, pension products and funeral products.
The increase in total life insurance contracts mainly results from the acquisition of AXENT and De Eendragt amounting to € 3,168 million. The development of the provision is explained in chapter 5.16.
predetermined date/interval if the insured is- alive at that time. The uncertainties related to a life insurance contract have to do with the date of death of the insured (mortality, longevity and catastrophe risk), the lapse rate (the possibility that a contract lapses), and the future development of expenses associated with the policy. A specific feature of life insurance contracts is that they usually last for many years. This feature increases the uncertainties with respect to life contracts. The risk that the investment income will be not sufficient is regarded as market risk (see chapter 5.3.4).
The following life risks are distinguishes by a.s.r.: • Mortality risk: the risk of losses due to the possibility that actual mortality exceeds expected mortality; • Longevity risk: the risk of a structural increase in the insured’s life expectancy that leads to an increase in expectations of future annuity and pensions benefits; • Catastrophe risk: the risk of a large-scale one-off loss due to a single event causing high death-claims, such as a pandemic; • Disability risk: the risk associated with the uncertainty of claims as a result of higher than expected disability rates and levels in portfolios containing disability insurance products; • Lapse risk: the risk of losses due to policyholders exercising their rights, if any, to surrender their contracts; • Expense risk: the risk of losses due to a change in the level, development or volatility of company expenses.