5.8.1.1.1 Risk strategy and risk appetite The risk strategy of a.s.r. aims to ensure that management decisions lead to a risk profile that remains in line with the mission of the organisation. The risk strategy entails all processes to manage identified risks and to take advantage of opportunities should they arise. In order to achieve this, a risk appetite is established so that the risk profile can be managed within the limits as determined by the Executive Board and approved by the Supervisory Board. These risk boundaries are set with the goal of remaining a solid insurance company with the right balance between risk and return. The risk appetite describes the level of risk a.s.r. is willing to bear in order to meet its strategic objectives. Risk exposures are actively managed to ensure that the risks will stay within the defined limits. Risk appetite is defined at both group level and at legal entity level for financial and non-financial risks. Risk tolerances, limits and targets are set for all risk appetite statements. Objectives of the risk appetite are: • To serve as an important steering instrument on a daily basis: a pragmatic approach at both group-, legal entity- and business unit level. This helps to develop a vision with respect to risk, which is used in the day-to-day decision-making process; • To link the risk appetite to the strategic goals, in order to indicate a.s.r.’s willingness to take risks.
The risk appetite is based on a.s.r.’s mission, vision and strategy, determined by the Executive Board. The overall mission is to offer transparent insurance solutions as a trusted partner to customers, while creating a sustainable and stable value for a.s.r.’s stakeholders. This mission is translated into the prioritisation of simple and transparent products, clear communication and fair treatment of customers. The strategy is derived from the mission and is based on four pillars: meeting customer needs, pricing discipline and underwriting excellence, cost effectiveness and maintaining a cash generative business model. The group strives to execute these four strategic pillars within all of the group’s segments.
Meeting customers’ needs The group aims to offer customers simple, transparent products that fulfil their needs.
Cash Generating Business Model The group’s objective is to maintain its operation on a cash generative business model backed by a sound investment policy and investment mix to deliver robust, high-quality earnings underpinned by strong capital generation. The strategic pillars are translated in key risk appetite pillars that represent the focus points supporting the realisation of the strategic objectives from a risk management perspective. The figure below illustrates the key risk appetite pillars. Consequently, these risk appetite pillars are the basis for the establishment of risk appetite statements.
Maintaining financial flexibility through solid liquidity. This liquidity position must ensure that a.s.r. is always able to meet its payment obiligations, also in a situation of stress.
Maintaining continuity by accepting only risks that a.s.r. understands and with efficient and sound business operations, reliable financial reporting, controlled outsourcing, secure IT
O p er at io na l In te g ri ty
Positioning of key functions Within the risk governance, the key functions (compliance, risk, actuarial and audit) are organised in accordance with Solvency II regulation and play an important role as countervailing power of management in the decisionmaking process. The four key functions are independently positioned within a.s.r. The risk and actuarial function are positioned under responsibility of the CFO; the compliance and audit function under the responsibility of the CEO. All functions are executed in the central risk committees. None of the functions has voting rights in the committees, in order to remain fully independent as countervailing power. All functions have direct communication lines with the Executive Board and can escalate to the chairman of the Audit & Risk Committee of the Supervisory Board. Furthermore, the key functions have regular meetings with the supervisors of the Dutch Central Bank and/ or The Dutch Authority for the Financial Markets (AFM).
• Responsible for developing risk policies and monitoring the compliance with these policies
Enterprise Risk Management Enterprise Risk Management is responsible for second-line operational (including IT) risk management and the enhancement of the risk awareness within the organisation. The responsibilities with regards to strategic risk management include the development of risk policies, the annual update of the risk strategy (risk appetite), the coordination of the CRSA process leading to the risk priorities and ORSA scenarios and the monitoring of the nonfinancial strategic risk profile. For the management of operational risks, a.s.r. has a solid Risk-Control framework in place that contributes to its long-term solidity. The RMF monitors and reviews the non-financial operational risk profile on a frequent basis. The quality of the framework is continuously enhanced by the analysis of operational incidents, periodic assessments and monitoring by the RMF. Enterprise Risk Management actively promotes risk awareness at all levels to contribute to the vision of staying a socially relevant insurer.
Compliance Compliance is responsible for the execution of the compliance function. An important task of Compliance is to be the countervailing power to the Executive Board and management in managing compliance risks for a.s.r. and its subsidiaries. The mission of the compliance function is to enhance and ensure a controlled and sound business operations where impeccable, professional conduct is self-evident.
Audit The Audit department, the third line of defence, provides an independent opinion on governance, risk and management processes, with the goal of supporting the Executive Board and other management of a.s.r. in achieving the corporate objectives. To that end, Audit evaluates the effectiveness of governance, risk and management processes, and provides pragmatic advice that can be implemented to further optimise these processes. In addition, senior management can engage Audit for specific advisory projects.
Risk committee structure a.s.r. has established a structure of risk committees with the objective to monitor the risk profile for a.s.r. group, its legal entities and its business lines in order to ensure that it remains within the risk appetite and the underlying risk tolerances and risk limits. When triggers are hit or likely to be hit, risk committees make decisions regarding measures to be taken, being risk-mitigating measures or measures regarding governance, such as the frequency of their meetings. For each of the risk committees a statute is drawn up in which the tasks, composition and responsibilities of the committee are defined.
The Audit & Risk Committee has three members of the RvC, one of whom acts as the chairman.
All members of the Executive Board participate in the a.s.r. RC, which is chaired by the CEO. The involvement of the Executive Board ensures that risk decisions are being addressed at the appropriate level within the organisation. In addition to the Executive Board, the CRO, Director of Audit and Director of Integrity are members of the Committee.
Financial statements 2017 | 5.8 Risk management 224 the NFRC takes mitigating actions. The NFRC reports to the a.s.r. RC. The Chairman of the NFRC is one of the COO’s (who is also a member of the Executive Board).
Product Approval and Review Process Board The Product Approval & Review Process Board (PARP Board) is responsible for the final decision-making process around the introduction of new products and adjustments in existing products. The managing Director of the business line Health is appointed as chairman. The committee evaluates if potential risks in newly developed products are sufficiently addressed. New products need to be developed in such a way that they are cost efficient, reliable, useful and secure. New products also need to have a strategic fit with a.s.r.’s mission to be a solid and trustful insurer. In addition, the risks of existing products are evaluated, as requested by the product approval and review process as a result of product reviews.
a.s.r. has a Data Governance and Quality policy in place to support the availability of correct management information. This policy is evaluated on an annual basis and revised at least every three years to keep the standards in line with the latest developments on information management. The quality of the information is reviewed based on the following aspects, based on Solvency II: • Completeness (including documentation of accuracy of results); • Adequacy; • Reliability; • Timeliness.
The preparatory body or department checks the assumptions made and the plausibility of the results, and ensures coordination with relevant parties. When a preparatory body has established that the information is reliable and complete, it approves and formally submits the document(s) to a risk committee.
The management of IT and data risks of the implemented tools, models and systems (including data) is part of the Operational IT risk management.
5.8.1.1.4 Risk policies and procedures a.s.r. has established guidelines, including policies that cover all main risk categories (market, counterparty default, liquidity, insurance, strategic and operational). These policies address the accountabilities and responsibilities regarding management of the different risk types. Furthermore, the methodology for risk measurement is included in the policies. The content of the policies is aligned to create a consistent and complete set. The risk policy landscape is maintained by Group Risk Management and Compliance. These departments also monitor the proper implementation of the policies in the business. New risk policies or updates of existing risk policies are approved by the risk committees as mentioned previously.
5.8.1.1.6 Risk management process The risk management process typically comprises of five important steps: 1) identifying; 2) measuring; 3) managing; 4) monitoring and reporting; and 5) evaluating1. a.s.r. has defined a procedure for performing risk analyses and standards for specific assessments. The five different steps are explained in this chapter.
Evaluating The evaluation step is twofold. On the one hand, evaluation means risk exposures are evaluated against risk appetite tolerance levels and limits, taking (the effectiveness of) existing mitigation measures into account. The outcome of the evaluation could lead to a decision regarding further mitigating measures or changes in risk 1 Based on COSO ERM and ISO 31000:2009.
5.8.1.2 a.s.r.’s risk categories a.s.r. is exposed to a variety of risks. There are six main risk categories that a.s.r. recognises, as described below.
Insurance risk Insurance risk is the risk that premium and/or investment income or outstanding reserves will not be sufficient to cover current or future payment obligations, due to the application of inaccurate technical or other assumptions and principles when developing and pricing products. a.s.r. recognises the following insurance risks: • Life insurance risk • Health insurance risk • Non-life insurance risk
Counterparty default risk Counterparty default risk is the risk of losses due to the unexpected failure to pay or credit rating downgrade of counterparties and debtors. Counterparty default risk exists in respect of the following counterparties: • Reinsurers • Consumers • Intermediaries • Counterparties that offer cash facilities • Counterparties with which derivatives contracts have been concluded
Operational risk Operational risk is the risk of losses caused by weak or failing internal procedures, weaknesses in the action taken by personnel, weaknesses in systems or because of external events. The following subcategories of operational risk are used: • Compliance • Business process • Information technology • Outsourcing • Financial reporting
Strategic risk may arise due to a mismatch between two or more of the following components: the objectives (resulting from the strategy), the resources used to achieve the objectives, the quality of implementation, the economic climate and/or the market in which a.s.r. and/or its business lines operate.
As of 1 January 2016, the Solvency II regime is in place. a.s.r. measures its risks based on the standard model as prescribed by the Solvency II regime. The Solvency Capital Requirement (SCR) for each insurance risk is determined as the change in own funds caused by a predetermined shock which is calibrated to a 1-in-200-year event. The basis for these calculations are the Solvency II technical provisions which are calculated as the sum of a best estimate and a risk margin.
The insurance risk arising from the insurance portfolios of a.s.r. is as follows: Insurance risk - required capital
The insurance risk increased as a result of the lower volatility-adjustment and the lower yield curve. The insurance risk will be discussed in the subsequent subsections.
Lapse risk Measured as the risk of a 10% decrease in lapse rates.
5.8.2.1 Life Insurance risk The life portfolio can be divided into funeral, individual life and group pension. The insurance contracts are sold primarily to retail and wholesale clients through intermediaries.
The products are sold as insurance products in cash or unit-linked contracts. With respect to products in cash, the investment risk is fully borne by the insurer whereas, in the case of unit-linked products, the majority of the investment risk is for the policyholder’s account.
Mortgage Loans Within the individual life portfolio there is a group of policies directly linked to a mortgage loan (‘Spaarhypotheken’). In case the mortgage loan is not provided by a.s.r., but by another party, which is the case for most of these policies, the interest that a.s.r. reimburses to the policyholder is claimed from the party that has provided the mortgage loan. This cashflow of interests from the provider of the mortgage loan to a.s.r. represents an asset. The cashflow and value of this asset depends on the cashflow of the linked savings policy. Therefore, the change in this asset value due to mortality or lapse is taken into account when determining the SCR for life insurance risks.
In 2017 part of the unit linked portfolio is transferred from unit linked to other life insurance (€ 829 million) and insurance with profit participation (€ 2,431 million), because the provisions have a more nominal character. In the valuation the nominal character was already recognised.
Reinsurance Reinsurance and other risk-mitigating measures are used to reduce and contain the volatility of results or to decrease the possible negative impact on value as an alternative to the capital requirement. Reinsurance arrangements have been set up to mitigate the effects of catastrophes on earnings.
Buy out reinsurance The group enters into reinsurance contracts to minimise insurance risks. Reinsurance may be in place for a separate contract or for all or part of the portfolio. In order to optimise 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 € 209 million in pension obligations to Legal and General Re.
Mass lapse cover The required capital (SCR) for a mass lapse event is reduced by the proceeds that are to be expected from a reinsurance arrangement (Mass Lapse Cover) with RGA, Munich Re and some other reinsurers. This arrangement covers the risks of a mass lapse event of parts of the portfolio to the extent that the mass lapse is more than 22% and less than 40%.
Financial statements 2017 | 5.8 Risk management 232 5.8.2.2 Health Insurance risk and non-life insurance risk 5.8.2.2.1 Health insurance risk The Health insurance portfolio of a.s.r. is diverse. The portfolio can be divided into two main product types: • SLT Health portfolio (Similar to Life Techniques) Income Protection, which can be divided into - Individual Disability (Zelfstandigen) - Group Disability (WIA)
The insurance contracts are sold primarily to retail and wholesale clients through intermediaries.
The Health insurance portfolio of a.s.r. contains the following insurance risks: • SLT Health risk - This risk is applicable to the SLT Health portfolio. The calculation is scenario-based. The scenarios are similar to the scenarios that are used to calculate the Life insurance risk.
Disability-morbidity risk Morbidity or disability risk is the main risk to the SLT Health portfolio. The scenario analysis consists of a 35% increase in disability rates for the first year, 25% for subsequent years, combined with a decrease in revalidation rates of 20%.
Technical provision 445 487 5.8.2.2.2 Non-Life insurance risk Non-Life Insurance risk can be broken down into: • Premium and reserve risk • Non-Life catastrophe risk • Lapse risk
Non-Life Catastrophe Risk Module Catastrophe risk is defined as the risk of loss or adverse change in the value of insurance liabilities, resulting from significant uncertainty of pricing and provisioning assumptions related to extreme or exceptional events. The Non-Life SCR Catastrophic Risk Module used consists of natural catastrophe risk (Windstorm and Hail), man-made catastrophe risk (Fire, Motor and Liability) and other Non-Life catastrophe risk. The Non-Life Catastrophe Risk Module is derived at the level of a legal entity based on the Standard Model.
Technical provision 885 859 5.8.2.2.3 Managing health and non-life insurance risk Health and 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.
Concentration risk Geographically, the risk exposure of a.s.r. on its health and non-life portfolio is almost entirely concentrated in the Netherlands. Concentration of insurance risks is particularly prevalent in the fire risk portfolio (i.e. home and content, with storm risk forming the most important factor). Storm risk is managed by means of suitable reinsurance (see also ‘Reinsurance’).
For the liabilities, the extrapolation to the UFR of 4.2% after the last liquid point of 20 years remained unchanged.
The SCR sensitivities stayed almost the same in the past year, except for the interest rate sensitivity. The increase from +1 to +11 in the upward scenario (and from -1 to -10 in the downward scenario) is mainly caused by a change in the interest rate hedge policy.
The sensitivities to interest rates changed almost entirely due to a lower shadow accounting percentage for the productline ‘Pensioenen’. In case the shadow accounting percentage would have remained the same, the sensitivities would have been almost similar to 2016. The trigger for the shadow accounting percentage is based on the not profit-sharing portfolio share below a predetermined discount rate. This share has decreased in 2017. A small impact on profit is due to put options.
The sensitivities of total equity to equities increased in 2017 in line with the higher exposure to equities. The sensitivity of profit in the equity down scenario is due to the impact of the put options (26) and impairments of shares (-50). The sensitivity of profit in the equity up scenario is due to the impact of the put options (-8).
The sensitivities to property increased in 2017 in line with the higher exposure to property. Property held for own use is not taken into account in the sensitivity of profit In the property up scenario.
5.8.3.1 Interest rate risk Interest rate risk is the risk that the value of assets, liabilities or financial instruments will change due to fluctuations in interest rates. Many insurance products are exposed to interest rate risk; the value of the products is closely related to the applicable interest rate curve. The interest rate risk of insurance products depends on the term to maturity, interest rate guarantees and profit-sharing features. Life insurance contracts are particularly sensitive to interest rate risk. The required capital for interest rate risk is determined by calculating the impact on the available capital due to changes in the yield curve. Both assets and liabilities are taken into account. The interest rate risk is the maximum loss of (i) an upward shock or (ii) a downward shock of the yield curve according to the prescribed methodology. a.s.r. applies a look- through approach for investment funds to assess the interest rate risk.
The interest rate risk is calculated by a relative shock up- and downward shock of the risk-free (basis) yield curve. All adjustments (credit spread, volatility adjustment) on this yield curve are considered constant. The yield curve is extrapolated to the UFR. The yield curve after shock is not extrapolated again to the UFR.
Interest rate +1% (incl. UFR 4.2%) -1 -9 +12 +11 +11 +1
Recently, EIOPA announced its decision on the Ultimate Forward Rate. The UFR will decrease since 2018 from 4.2% to 3.65% with steps of 15 basis points per year. In 2018 the UFR will be 4.05%. The decrease of the UFR from 4.2% to 4.05% has limited impact on the Solvency II ratio of a.s.r. The Solvency ratio II at a UFR equal to 4.05% as per 31 December 2017 is three percent points lower than the ratio at a UFR equal to 4.2%, while the ratio at a UFR equal to 3.65% is approximately twelve points lower. Apart from that a positive IFRS LAT margin remains at a UFR level of 3.65%.
Composition of equity portfolio The fair value of equities and similar investments at year-end 2017 was € 2,524 million (2016: € 2,204 million). The increase in 2017 was mainly a result of higher equity prices.
The real estate investments increased due to property transactions and increases in property prices. As a result, the required capital for property risk increased.
Composition of property portfolio The property risk depends on the total exposure to property, which includes both property investments and property held for own use. The fair value of property was € 3,524 million at year-end 2017 (2016: € 3,295 million). The increase in 2017 was a result of both transactions and increases in property prices.
Currency risk has decreased € 12 million. This is mainly caused by a decrease in foreign bonds in externally managed funds.
Specification currencies with largest exposure The foreign currency position is monitored on a quarterly basis. The total net exposure in foreign currency is € 1,071 million (2016: € 1,120 million). The largest net-exposure is in USD, which mainly consists of investment in equities and bonds. The majority of the net currency exposure is related to equities. The following figures show the currencies with the largest exposures, expressed in percentage of the above-mentioned total: Composition currency portfolio
The required capital for spread risk is equal to the sum of the capital requirements for bonds, structured products and credit derivatives. The capital requirement depends on (i) the market value, (ii) the modified duration and (iii) the credit quality category.
In 2017 a.s.r. sold government bonds, both core and non-core and bought corporates and financials. As a result, the required capital for spread risk increased, because the government bonds had no charge.
The required capital for market risk concentrations increased due to short term deposits received as collateral for the interest rate derivatives and a change in the average CQS.
The increase of counterparty default risk is almost entirely due to the increase of Type 1 risk. This is the result of (i) the increased cash position and (ii) the derivative portfolio.
The Loan-to-Value ratio is based on the value of the mortgage according Solvency II principals with respect to the a.s.r. calculated collateral.
Composition savings-linked mortgage loans portfolio 5.8.4.3 Derivatives Over the Counter (OTC) derivatives are primarily used by a.s.r. to manage the interest-rate risks incorporated into the insurance liabilities. Interest-rate derivatives are traded with a well-diversified and qualitative dealer panel with whom there is an established International Swaps and Derivatives Association (ISDA) contract and a Credit Support Annex (CSA) in place. These CSAs include specific agreements on the exchange of collateral limiting market and counterparty risk. The outstanding value of the interest rate derivative positions is matched by collateral received from eligible counterparties, minimising the net counterparty default risk.
5.8.4.4 Reinsurance When entering into reinsurance contracts for fire and catastrophe, a.s.r. requires the counterparty to be rated at least single A. With respect to long-tail business and other sectors, the minimum permitted rating is single A.
Total deposits amounted to € 345 million (2016: € 1,000 million).
In managing the liquidity risk from financial liabilities, a.s.r. holds liquid assets comprising cash and cash equivalents and investment grade securities for which there is an active and liquid market. These assets can be readily sold to meet liquidity requirements. As at 31 December 2017, a.s.r. had cash (€ 2,448 million), short-term deposits (€ 1,346 million), liquid government bonds (€ 10,531 million) and other bonds and shares.
The following table shows the contractual cash flows of liabilities (excluding insurance contracts on behalf of policyholders) broken down in three categories. For liabilities arising from insurance contracts, expected lapses and mortality risk are taken into account. Profit-sharing cash flow of insurance contracts is not taken into account, nor are equities, property and swaptions.
< 5 yrs 5-10 yrs 10-20 yrs > 20 yrs a.s.r. also has saving accounts amounting to € 737 million (2016: € 520 million) with a contractual cashflow of less than 1 year.
The SCR for operational risk amounts to € 184 million at the end of 2017 (2016: € 181 million) and is determined with the standard formula under Solvency II. The operational risk is based on the basic solvency capital requirement, the volumes of premiums and technical provisions, and the amount of expenses.
5.8.7.1 Strategic risk management Strategic risk management aims to identify and manage the most significant risks that may impact a.s.r.’s strategic objectives. Subsequently, the aim is to identify and analyse the risk profile as a whole, including risk interdependencies. The ORSA process is designed to identify, measure, manage and evaluate those risks that are of strategic importance to a.s.r.: Identifying Through the ORSA process, identification of risks is structurally organised through the Control Risk Self Assessments (CRSA’s) and Strategic Risk Analysis (SRA). This approach combines a bottom up (CRSA’s) and top
Financial statements 2017 | 5.8 Risk management 248 1 For example, the SAA-study, analyses in the context of reinsurance renewals, ad hoc sensitivity analyses and/or stress tests.
5.8.7.2 Operational risk management Operational Risk Management (ORM) involves the management of all possible risks that may influence the achievement of the business goals and that can cause financial or reputational damage. ORM includes the identification, analysis, prioritisation and management of these risks in line with the risk appetite. The policy on ORM is drafted and periodically evaluated under the coordination of Enterprise Risk Management. The policy is implemented in the decentralised business entities under the responsibility of the management boards. A variety of risks is encountered with the ORM policy: IT risk, outsourcing, data quality, claim handling etc.
Operational incidents Large operational incidents are reported to Group Risk Management, in accordance with the operational risk policy. The causes of losses are evaluated in order to learn from these experiences. An overview of the largest operational incidents and the level of operational losses is reported to the NFRC. Actions are defined and implemented to avoid repetition of operational losses.
In the pursuit of reasonable assurance, model risk is mitigated and unpleasant surprises are avoided, against acceptable costs.
Financial statements 2017 | 5.9 Capital management 250 5.9 Capital management
Objectives The group is committed to maintain a strong capital position in order to be a robust insurer for its policyholders and other stakeholders. The objective is to maintain a solvency ratio well above the minimum levels as defined in the risk appetite statements and above the relevant solvency targets. Sensitivities are periodically performed for principal risks and annual stress tests are performed to test a.s.r.’s robustness to withstand moderate to severe scenarios. An additional objective is to achieve a combination of a capital position and a risk profile that is at least in line with a ‘single A’ rating by Standard & Poor’s.
Capital requirement The required capital stood at € 3,479 million per 31 December 2017 (2016: € 3,338 million). The required capital (before diversification) consists for 2017 € 2,773 million out of market risk and the insurance risk amounted to € 2,481 million as per 31 December 2017.
a.s.r. (including a.s.r. bank) complied during 2017 with the applicable externally imposed capital requirement. The table below presents the solvency ratio at group level as at the date indicated.
The a.s.r. solvency ratio does not include any contingent liability potentially arising from any of the current and/or future legal proceedings in relation to unit-linked insurance contracts or for other products sold, issued or advised on by a.s.r.’s insurance subsidiaries in the past, the reason being that it is impossible at this time to make reliable estimates because the book of policies of a.s.r. dates back many years, contains of a variety of products with different features and conditions and because of the fact that rulings are diverse.
Standard & Poor’s confirmed the single A rating of ASR Levensverzekering N.V. and ASR Schadeverzekering N.V. on August 10, 2017.
In 2017, the company paid € 187 million in cash dividend over the financial year 2016. Furthermore, a.s.r. participated three times in the sell-down by the Dutch state by buying back 9 million shares for a total consideration of € 255 million. On the 14th of September, the Dutch State sold the last tranche of shares, after which the shareholding of the Dutch State and NLFI came to an end and a.s.r. is a fully privately-owned company again. On September 13th, a.s.r. announced the intended acquisition of Generali Nederland. In view of this acquisition, a.s.r. issued the first Euro-denominated restricted Tier 1 capital instrument on October 12th, 2017. The total issue size was € 300 million. With this transaction, a.s.r. successfully added a new instrument to the capital management toolbox, leaving ample headroom in all capital tiers. The acquisition of Generali was completed on February 6th, 2018.
Financial statements 2017 | 5.10 Company financial statements 254 5.10 Company financial statements 5.10.1 Company balance sheet
Income from subsidiaries and investments Share of profit / (loss) in subsidiaries 5.10.3.3 957 668
Investments in group companies are recognised, using the equity method, in accordance with the accounting policies used in a.s.r.’s consolidated financial statements. The share of profit of group companies is reported in conformity with the accounting policies used in a.s.r.’s consolidated financial statements.
5.10.3.2 Intangible assets The goodwill amounting to € 27 million as at 31 December 2017 (2016: € 27 million) relates for € 23 million to the 2015 acquisition of De Eendragt Pensioen N.V. (2016: € 23 million) and for € 4 million to the 2016 acquisition of BNG Vermogensbeheer B.V (2016: € 4 million).
Financial statements 2017 | 5.10 Company financial statements 256 5.10.3.4 Loans to group companies
5.10.3.7 Other receivables The other receivables are including receivables from group companies, which include the receivable with respect to non-qualifying plan assets (see Chapter 5.5.15) administered by ASR Levensverzekering N.V. amounting to € 2,738 million (2016: € 2,669 million). The plan assets administered by ASR Levensverzekering N.V. include the separate account to fund future inflation indexation amounting to € 335 million as at 31 December 2017 (2016: € 327 million). The remaining portion of the receivables from group companies is payable on demand.
Sh ar e p re m iu m re se rv e
Share capital For a breakdown of the share capital, see Chapter 5.5.12.1.
Distributable items The calculated Available Distributable Items as at 31 December 2017 and 2016 is as follows: a.s.r.’s Distributable Items is an amount equal to (with respect to and as at any Interest Payment Date, without double-counting): (i) the retained earnings and the distributable reserves of a.s.r., calculated on an unconsolidated basis, as at the last calendar day of the then most recently ended financial year of a.s.r.; plus (ii) the profit for the period (if any) of a.s.r., calculated on an unconsolidated basis, for the period from a.s.r.’s then latest financial year end to (but excluding) such Interest Payment Date; less (iii) the loss for the period (if any) of a.s.r., calculated on an unconsolidated basis, for the period from a.s.r.’s then latest financial year end to (but excluding) such Interest Payment Date.
Intro d uctio n 5.10.3.12 Subordinated liabilities Subordinated liabilities can be broken down as follows (see Chapter 5.5.13 for further details).
In 2016, there was no significant difference between the carrying amount of € 10 million debt to group companies and the fair value of these liabilities.
Interest expense on debts to group companies in 2017 is € 0.1 million (2016: € 0.2 million).
In 2016, there was no significant difference between the carrying amount of € 75 million due to banks and the fair value of these liabilities.
The group regularly enters into transactions with related parties during the conduct of its business. These transactions mainly involve loans, deposits and commissions, and are conducted on terms equivalent to those that prevail in arm’s length transactions. These disclosures related to these transactions are included in the relevant note in the company financial statements and in the consolidated financial statements (see primarily Chapters 5.7.3 and 5.7.7).
A statement of joint and several liability under section 403, Book 2 of the Dutch Civil Code has been issued by ASR Nederland N.V. for the companies identified in Chapter 5.7.7 List of principal group companies and associates.
Investment obligations and guarantees ASR Nederland N.V. has issued guarantees to third parties for a total amount of € 120 million (2016: € 271 million) for real estate development projects.
Our opinion We have audited the financial statements 2017 of ASR Nederland N.V. (the Company), based in Utrecht, the Netherlands. The financial statements include the consolidated financial statements and the company financial statements.
In our opinion: • The accompanying consolidated financial statements give a true and fair view of the financial position of
ASR Nederland N.V. as at 31 December 2017, and of its result and its cash flows for 2017 in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRS) and with Part 9 of Book 2 of the Dutch Civil Code; • The accompanying company financial statements give a true and fair view of the financial position of ASR Nederland N.V. as at 31 December 2017, and of its result for 2017 in accordance with Part 9 of Book 2 of the Dutch Civil Code.
Explanation Operating Result is based on the profit before tax adjusted for investment related income for own account of an incidental nature and incidentals. Using Operating Result helps to maintain an appropriate materiality level giving more consideration to the users’ view of the scale of the financial position and operations rather than volatile circumstances. For ASR Nederland N.V. as listed company, financial performance and thus Operating Result is a key metric for its stakeholders and therefore selected as basis for the calculation. In note 5.4.3. of the financial statements a reconciliation is provided from profit before tax to Operating Result.
We are responsible for directing, supervising and performing the group audit. In this respect we have determined the nature and extent of the audit procedures to be carried out for the reporting units by our component teams based on their size and or the risk profile. We included all insurance entities, asset management entities and bank entity in the audit scope for consolidation purposes. We performed for the remaining entities, amongst others, analytical review procedures to corroborate our assessment that there are no significant risks of material misstatement. This resulted in the following coverage: Assets Equity Operational Result
We provided detailed instructions to each component team including areas of audit emphasis. We also executed oversight procedures and engaged in regular communication to confirm that the audit progress and findings for each of the in-scope locations were discussed between the group audit team and the component teams.
The group consolidation, financial and non-financial disclosures and a number of complex items were audited by the group engagement team at the ASR Nederland N.V. level. These included amongst others taxation, pensions, Solvency, goodwill impairment testing, contingent liabilities and the note on the Generali NL (GNL) acquisition. We involved several EY specialists to assist the audit team, including specialists from our tax, valuations and actuarial departments.
Our key audit matters Key audit matters (KAM) are those matters that, in our professional judgement, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the supervisory board. The key audit matters are not a comprehensive reflection of all matters discussed.
Risk ASR Nederland N.V. has insurance and investment contract liabilities of € 40.9 billion representing 82%
The calculation of the Liabilities arising from insurance contracts and the related Liability Adequacy
Test (LAT) is complex and highly judgmental and is based on assumptions that are subject to uncertainties regarding future outcomes. Various economic and non-economic assumptions are being used to estimate these long-term liabilities in the LAT. The assumptions for life contracts used relate to risks regarding interest, mortality, longevity, morbidity, catastrophe, lapse and expense and for non-life contracts liabilities these are the disability, claims and recovery rate assumptions.
Furthermore, the valuation of the Liabilities arising from insurance contracts is affected by and sensitive to government regulations, in particular regarding the claims from workers’ compensations insurance
ASR Nederland N.V.’s LAT is performed in order to confirm that insurance contract liabilities, net of deferred acquisition cost, are adequate in the context of expected future cash outflows. The company has comprehensive procedures and internal controls in place to determine the value of the Liabilities arising from insurance contracts and the related LAT. The LAT discount rate is based on Solvency II
guidance. In notes 5.5.14 and 5.8.3 the company disclosed UFR sensitivities related to the LAT and
The company applies shadow accounting in its financial reporting as disclosed in note 5.3.4 and 5.5.14.
Key observations Based on our procedures performed we consider the methods used for the valuation of the insurance contract liabilities appropriate.
We also found the disclosures related to the valuation and adequacy of the insurance contract liabilities, including UFR sensitivities, in notes 5.3.4, 5.5.14 and 5.8.3, to be adequate.
Risk ASR Nederland N.V. invests in various asset classes, of which 74% (year-end 2016: 75%) is carried at fair value in the balance sheet. Fair value measurement can be subjective, and more so for areas of the market reliant on model based valuation or with less liquidity. Valuation techniques for real estate, private equity investments and for non-listed bonds, equities and derivatives involve setting various assumptions regarding pricing factors. The use of different valuation techniques and assumptions could produce significantly different estimates of fair value. Associated risk management disclosure is complex and dependent on high quality data. Specific areas of focus include the valuation of fair value
The fair value disclosures of investments in note 5.7.1. meet the requirements of EU-IFRS.
Risk In the Capital management section of the annual accounts included in note 5.9.2, ASR Nederland N.V.
N.V. assessed that it is impossible at this time to make reliable estimates because the book of policies dates back many years, contains of a variety of products with different features and conditions and because of the fact that rulings are diverse. Changes to the interpretation of the Solvency II
requirements of the loss absorbing capacity of deferred taxes and the accounting for contingent liability for the unit linked issue can materially impact the Solvency II ratio disclosed.
In addition, ASR Nederland N.V. included the pro-forma impact of the Generali NL (GNL) N.V.
acquisition in its note 5.7.6 Events after the balance sheet date.
We performed additional audit procedures on the calculation of the pro-forma impact of the Generali
N.V.’s solvency ratio as disclosed in note 5.7.6, we have not noted material findings.
Risk Holders of unit-linked products (where the customer bears all or part of the investment risk), or consumer protection organizations on their behalf, have filed claims or initiated proceedings against the Company and may continue to do so. A negative outcome of such claims and proceedings in respect of unit-linked products, settlements or any other actions for the benefit of customers by other insurers and sector-wide measures could have a significant impact for ASR Nederland N.V. relating to compensation. The financial consequences of these legal proceedings cannot be reliably estimated or quantified at this point. Refer to note 5.7.5 to the financial statements.
• Consideration of the recognition and measurement requirements for establishing provisions under
We also considered whether the Company’s disclosures in respect of this legal exposure is compliant with the relevant accounting requirements. We focused on the adequacy of disclosure of the related risks and assumptions in note 5.7.5 to the financial statements.
The disclosure of the exposure in note 5.7.5 describes the related risks and management judgments in compliance with the relevant accounting requirements.
Risk The consideration for the Generali NL (GNL) acquisition was € 145 million. Net assets acquired were valued at € 123 million, resulting in a preliminary excess purchase consideration of € 22 million.
ASR Nederland N.V. is required to perform an initial Purchase Price Allocation (PPA), recognizing GNL’s assets acquired and liabilities assumed at the acquisition-date fair values, 5 February 2018. Since this was before the authorization date of the financial statement, ASR Nederland N.V.’s was required to include certain IFRS 3 disclosures (e.g. initial PPA) related to the acquisition in the 2017 financial statements. Refer to note 5.7.6 Events after the balance sheet date.
Our audit approach The management of ASR Nederland N.V.’s engaged a third-party expert to provide support with respect to the determination of the fair values of GNL’s assets and liabilities under IFRS 3. We deployed a specialist team to audit the initial PPA. Our team included valuation specialists who have extensive experience in the valuation of insurance assets and liabilities.
ASR Nederland N.V. is continuously improving the efficiency and effectiveness of its IT infrastructure and the reliability and continuity of the electronic data processing, including its defense against cyberattacks.
Our audit approach As part of our audit procedures we have assessed the changes in the IT infrastructure and have tested the reliability and continuity of electronic data processing within the scope of the audit of the financial statements.
For that purpose we have included IT auditors in our team. Our procedures included testing of controls with regards to business and IT processes relevant for financial reporting.
Other non-prohibited services provided In addition to the statutory audit of the financial statements of a.s.r. and its subsidiaries, we provided the following services: • Regulatory reporting: We issued auditor’s reports on selected regulatory reporting templates of a.s.r., and of its subsidiaries, to the Dutch Central Bank (DNB); • Corporate responsibility reporting: We issued an assurance report on a.s.r.’s corporate responsibility reporting included in the annual report; • Capital market transactions: We issued a comfort letter in relation to a prospectus prepared in connection with securities offering of a.s.r.; • We issued audit reports on the financial information of a.s.r.’s financial intermediary business; • We issued assurance reports in respect of the administration and internal control of ASR Vermogensbeheer,
Equity. 35.2 The Executive Board may resolve to make interim distributions, provided that interim accounts to be prepared in accordance with Section 2:105(4) of the Dutch Civil Code show that the requirement referred to in Article 35.1 has been met and, in the case of interim profit distributions, taking into account the order priority described in Article 37.1.
Company’s reserves. 36.3 Without prejudice to Articles 36.4 and 37.2, distributions from a reserve shall be made exclusively to the holders of ordinary shares. 36.4 The Executive Board may resolve to charge amounts to be paid up on any class of shares against the
Other information | 6.2 Provisions of the Articles of Association regarding profit appropriation 272
Article 37 37.1 Subject to Article 35.1, the profits shown in the Company’s financial statements in respect of a financial year shall be appropriated as follows, in the following order of priority: a. To the extent that any preferred shares have been cancelled without the payment described in Article 12.2 paragraph b. having been made in full on those preferred shares and without any such deficit subsequently having been paid in full as described in this Article 37.1 or Article 37.2, any such deficit shall be paid to those who held those preferred shares immediately before such cancellation became effective; b. To the extent that any Preferred Distribution (or part thereof) in relation to previous financial years has not yet been paid in full as described in this Article 37.1 or Article 37.2, any such deficit shall be paid on the preferred shares; c. The Preferred Distribution shall be paid on the preferred shares in respect of the financial year to which the financial statements pertain; d. Subject to Article 19.10, the Executive Board shall determine which part of the remaining profits shall be added to the Company’s reserves; and e. Any remaining profits shall be at the disposal of the General Meeting for distribution to the holders of ordinary shares.
Ultimately after the Foundation has held preference shares for a period of 20 months (or for such longer period as the Foundation deems appropriate given the facts and circumstances at hand), the Foundation may request, by means of a notice to that effect, that a.s.r. consider submitting, as soon as practicable, a proposal to the General Meeting for a resolution to cancel all preference shares. a.s.r. is free to propose such a resolution without this being requested by the Foundation if non-cancellation of the preference shares in a timely manner were to result in the Foundation being required to make a mandatory public offer in respect of a.s.r. In addition, if and when a.s.r. has issued preference shares to the Foundation, a.s.r. will convene a General Meeting, to be held within 20 months following such issuance, for the purpose of adopting a resolution on the cancellation of all such preference shares.
The Board of the Foundation met on two occasions in 2017. The matters discussed included the full-year 2016 results of a.s.r., the execution of the strategy, the financing of a.s.r., acquisitions and divestments by a.s.r., developments in the market, and the general course of affairs at a.s.r. At these meetings, a representative of the Executive Board of a.s.r. provided the Board of the Foundation with information on the developments within a.s.r. and the relationship with its shareholders. The Board of the Foundation also monitored the developments of a.s.r. outside of Board meetings, for instance through a Board member’s receipt of press releases issued by a.s.r.
Scope The financial information in this annual report has been consolidated for a.s.r. and all its subsidiaries. All quantitative and qualitative information relates to a.s.r. as a whole, unless a specific business unit is explicitly mentioned. The data from HR (Chapter 2.5 Our people and Annex F), including the total number of FTEs, and the data in Chapter 3.1.3 Performance on non-financial themes (excluding PARP data) are exclusive Van Kampen Groep (VKG), Dutch ID (Felisson and Boval), PoliService, SuperGarant and Corins. Their combined assets account for approximately 0,2% of total assets. Together, the sections 1, 2 and 3 make up the Report of the Management Board.
Presentation of non-financial data In the report, where relevant, the definitions and calculation methods of relevant indicators are presented in the relevant sections and in Annex B.
Closed books Closed books are policies that are no longer sold but are still on the books of a life insurance carrier as premiumpaying policies.
Derivative A financial instrument with all three of the following characteristics: (a) Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided, where a non-financial variable is concerned, that the variable is not specific to a party to the contract (sometimes referred to as the ‘underlying’); (b) It requires no initial net investment or an initial net investment that is lower than would be required for other types of contracts that would be expected to have a similar response to changes in market factors; and
Environmental, social and governance (ESG) Environmental, social and governance (ESG) refers to the three main areas of concern that have developed as central factors in measuring the sustainability and ethical impact of an investment in a company. These areas cover a broad set of concerns increasingly included in the non-financial factors that feature in the valuation of investments in equities, property, and corporate and fixed-income bonds. ESG is the catch-all term for the criteria used in what has become known as socially responsible investment.
Global Reporting Initiative (GRI) The Global Reporting Initiative (GRI) is an international organisation that defines standards for sustainability reporting.
Hedge accounting Hedge accounting recognises the offsetting on profit or loss of changes in the fair value of the hedging instrument and the hedged item.
Investment property Property held to earn rentals or for capital appreciation or both.
Market capitalisation Market capitalisation is the total market value of the outstanding shares of a publicly traded company and is equal to the share price times the number of outstanding shares.
Materiality An aspect is considered material if it is relevant to the stakeholders, has a reasonably estimable economic, environmental, and/or social impacts and can have a major impact on the development of a.s.r. The greater the impact of the aspect on both society and a.s.r.’s business operations, results and strategy, the greater its materiality.
Net Promoter Score (NPS) A management tool that can be used to gauge the loyalty of an organisation’s customers. The question to the customer now places the emphasis on the employee of a.s.r.: How likely is it that you will recommend a.s.r. to family, friends and colleagues based on your experience with me? This used to be: How likely is it that you will recommend us to a friend or colleague?
Calculation of the NPS: With a score of 9 or 10, the customer is seen as a promoter (recommendation). With a score of 7 or 8 the customer gets the predicate passively. He or she will neither recommend nor deny the brand. With a score of 0 to 6, the customer will discourage the brand. The NPS term for this is the detractor (criticaster). The NPS is calculated by subtracting from the percentage of promoters the percentage of detractors. The presented NPS scores reflect the year end scores (Q4).
Provision A liability of uncertain timing or amount. Provisions are recognised as liabilities if it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations (assuming that a reliable estimate can be made).
Socially responsible investment (SRI) Investing with due regard for ethical standards, policies and procedures, in line with the interests of a.s.r. stakeholders, whereby the integration of Environmental, Social and Governance (ESG) criteria is key. To achieve this a.s.r. makes use of multiple ESG approaches such as the exclusion of controversial activities, exclusion of companies and countries due to their ethical performance, the engagement dialogue, the integration of ESG assessments in the portfolio construction and impact investing. A detailed description of a.s.r.’s SRI policy is published on asrnl.com <
Tenant satisfaction a.s.r. calculates a satisfaction rating with respect to the real estate property, the area (for retail units), the (administrative and commercial) services (for retail units and offices) and the maintenance/repair (for offices) based on the weighted average for the four categories of real estate ‘retail units’, ‘offices’, ‘residential units’ and ‘rural’ real estate. The satisfaction surveys for the four categories do not take place in each and the same year. The results therefore partly overlap with the satisfaction ratings of 2016. Most recently satisfaction surveys; Retail units 2016, Offices 2015, Residential units 2017 and Rural real estate 2017.
Value in use Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.
AuM Assets under Management BeZaVa Liability for temporary employees BRC Business Risk Committee BREEAM Building Research Establishment Environmental Assessment Methodology CAGR Compound Annual Growth Rate CCR Counterparty Credit rating (Standards and Poor’s) CDD Customer Due Dilligence CDO Collateralised Debt Obligation CDS Credit Default Swap CE Continuing education CLA Collective Labour Agreement CRSA Control Risk Self-Assessment CoC Cost of Capital CoE Cost of Equity COR Combined ratio COSO Committee of Sponsoring Organisations of the Treadway Commission CSA Credit Support Annex CSR Corporate Social Responsibility DAC Deferred Acquisition Costs DB Defined Benefit DC Defined Contribution DBO Defined Benefit Obligation DNB Dutch Central Bank (De Nederlandsche Bank) DNB LAT Dutch DNB (regulatory) Liability Adequacy Test DPF Discretionary Participation Features ECB European Central Bank ERM Enterprise Risk Management ESG Environmental, Social and Governance Euribor Euro interbank offered rate FiDo Financing Local Governments FIRM Financial Institutions Risk Assessment Method FR Financial risk FRC Financial Risk Committee FSCB Financial Services Complaints Board FTE Full-time equivalent FTK New Financial Assessment Framework GAM Group Asset Management GDP Gross Domestic Product GDPR General Data Protection Regulation GNL Generali Nederland N.V.
GRC Governance and Risk Compliance GRESB Global Real Estate Survey Benchmark GRI Global Reporting Initiative GRM Group Risk Management GWP Gross Written Premiums
This page contains information regarding a.s.r. employees, excluding of employees of Van Kampen Groep, Dutch ID, SuperGarant, Corins and PoliService.
Colophon 102-4 Location of operations Ch. 1.1 At a glance (p. 6-7)
102-5 Ownership and legal form Ch. 4.1 Corporate governance (p. 90-98)
102-7 Scale of the organisation Ch. 1.1 At a glance (p. 6-7)
102-11 Precautionary principle or approach Ch. 2.4 Our stakeholders and material issues (p. 29-33)
Annex D Stakeholder engagement 102-41 Collective bargaining agreements 95.4% of the total employees are covered by collective bargaining agreements 102-42 Identifying and selecting stakeholders
The selection of stakeholders was made by defining groups that have a direct or indirect stake in the organisation.
Annex D Stakeholder engagement 102-44 Key topics and concerns raised through stakeholder engagement
Annex A Notes to the reader 102-47 List of material topics Ch. 2.4 Our stakeholders and material issues (p. 29-31)
102-48 Restatements of information Ch. 5.3.1, 5.3.2 and 5.3.3 (p. 130-153)
(customers, investments): this topic does not contain management information nor is it a material theme for 2017.
New themes: • Diversity: This is one of the three focus areas of the HR policy implemented in 2017, in addition to vitality and sustainable employability.
Colophon 102-54 Claims of reporting in accordance with the GRI Standards
All new products and services are developed according to the PARP process. All existing products and services have been periodically reviewed by the PARP process.
Financial performance 201-1 Economic Performance Direct economic value generated and distributed.
Non-compliance with laws and regulations in the social and economic area.
Number of privacy violations or data leaks by external parties: Total number of complaints: 58
Of which received via regulatory body AFM: 1 Category: - Found justified 41 - Complaint still pending 6
Annexes | EU Directive: disclosure of non-financial information and diversity information 293
How risks are managed. Yes 2.4, 2.5, 3.1.3, 3.2.3 & asrnl.com
How risks are managed. Yes 2.4, 3.1.3, 3.2.3, 2.5 & business/investment
How risks are managed. Yes 2.4, 3.1.3 & 3.2.3 & business/investment
Description of how the policy is implemented. Yes 2.5, 4.1, 4.3
The 2017 Annual Report is published in the English language only. The report can be downloaded as PDF.