Level 2. Fair value based on observable market data Determining fair value on the basis of Level 2 involves the use of valuation techniques that use inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is derived from prices of identical or similar assets and liabilities). These observable inputs are obtained from a broker or third party pricing service and include: • Quoted prices in active markets for similar (not identical) assets or liabilities; • Quoted prices for identical or similar assets or liabilities in inactive markets; • Input variables other than quoted prices observable for the asset or liability. These include interest rates and yield curves observable at commonly quoted intervals, volatility, loss ratio, credit risks and default percentages.
III. Investment property, real estate equity funds associates and buildings for own use The following categories of investment properties and buildings for own use is recognised and methods of calculating fair value are distinguished: • Residential – based on reference transaction and discounted cash flow method; • Retail – based on reference transaction and income capitalisation method; • Rural – based on reference transaction and discounted cash flow method; • Offices – based on reference transaction and discounted cash flow method (including buildings for own use); • Other – based on reference transaction and discounted cash flow method; • Under construction – based on both discounted cash flow and income capitalisation method.
The following valuation methods are available for the calculation of fair value by the external professional appraisers for investment property, including real estate equity funds associates, 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 duration of the cash flows and the specific timing of inflows and outflows are determined by events such as rent reviews, lease renewal and related re-letting, redevelopment, or refurbishment. The appropriate duration is typically driven by market behavior, which depends on the class of investment property. Periodic cash flow is typically estimated as gross rental income less vacancy (apart from the rural category), non-recoverable expenses, collection losses, lease incentives, maintenance costs, agent and commission costs and other operating and management expenses. The series of periodic net operating income, along with an estimate of the terminal value anticipated at the end of the projection period, is then discounted.
E. Investments Based on the amended IFRS 4, effective as of 1 January 2018, a.s.r. meets the criteria of a predominant insurer as of 31 December 2015 as the percentage of the total carrying amount of its liabilities connected with insurance related activities to the total carrying amount of all its liabilities exceeded 90% at that date. The liabilities connected with insurance, that are not liabilities directly arising from contracts within the scope of IFRS 4, have a carrying amount of € 3.3 billion and primarily relate to the derivative liabilities and due to banks as included in the Non-life and Life segments and the subordinated liabilities.
As a result a.s.r. decided to apply the temporary exemption from applying IFRS 9 by deferral until IFRS 17 (new accounting standard for insurance contracts) is implemented. The implementation of amended IFRS 4 had no significant impact on the consolidated financial statements of a.s.r. The additional disclosure requirements are presented in the chapters on Risk management and Other notes. When a.s.r. becomes party to a financial asset contract, the related assets are classified into one of the following categories: • Financial assets at fair value through profit or loss; • Loans and receivables (see accounting policy G); or • Financial assets available for sale.
• Associates for which a.s.r. uses the fair value option under IAS 28.
Impairment of financial assets At each balance sheet date, a.s.r. assesses whether objective evidence exists of financial assets are impaired. Financial assets at fair value through profit or loss are not subject to impairment testing, because the fair value of these assets reflects any impairment losses.
In the case of equity investments available for sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidence of impairment. a.s.r. considers as a significant or prolonged decline to have occurred if the fair value: • Has fallen 25% or more below cost; or • Has fallen below cost for an uninterrupted period of twelve months or longer.
Impairment losses are recognised directly in the income statement and represent the difference between amortised cost and the fair value at the balance sheet date, net of any previously recognised impairments.
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 recognised in profit or loss, the impairment loss is reversed through the income statement. Impairment losses on equities available for sale are not reversed, and any increases in fair value are recorded in equity.
Receivables from customers Receivables from customers are primarily comprised of business loans and mortgage loans.
Impairment losses are charged to the income statement. If, at a later stage, the impairment losses should decrease and the decrease can be related objectively to an event occurring after the impairment was recognised, the decrease in the impairment loss is recognised in the income statement.
I. Liabilities arising from insurance contracts General This includes liabilities arising from insurance contracts issued by a.s.r. that transfer significant insurance risks, and in some cases also FR, from the policyholder to a.s.r.
Liabilities arising from Non-life insurance contracts These liabilities comprise a provision for claims, a provision for current risks, and a provision for unearned premiums. The provision for claims is based on estimates of claims payable. Claims payable relate to unpaid claims and claims handling costs, as well as claims IBNR incurred but not reported.
These financial assets include fixed-income financial assets available for sale, specific financial assets designated at fair value through profit or loss, and specific derivatives (i.e. swaptions, interest rate swaps and inflation rate swaps). The realised gains or losses are amortised based on the remaining maturity period of the disposed financial assets. The realised gains or losses and the amortisation thereof are included in net insurance claims and benefits.
Participating contracts include additional obligations relating to contractual dividends or profit sharing and are stated net of capitalised interest rate rebates. These interest rate rebates are amortised in accordance with actuarial principles to the extent that the expected surplus interest is realised.
Under shadow accounting, adjustments are made to the insurance liability to reflect the unrealised gains or losses from the financial instruments backing these insurance liabilities. For non-participating contracts, adjustments are made to the insurance liability to reflect the unrealised gains from the financial instruments (including derivatives) backing these insurance liabilities. In addition, shadow accounting is applied to the unrealised fair value losses on derivatives held to the extent that they are allocated to the entity.
IFRS Liability Adequacy Test Non-life The LAT is performed at each reporting date to assess the adequacy of insurance liabilities for Non-life. The insurance liabilities for the LAT are calculated in accordance with Solvency II, using the UFR rate prevailing at the reporting date.
The total of best estimate and risk margin for Non-life segment as a whole, is compared to the technical provision recorded in the balance sheet. If there is a deficiency, the Non-life insurance liabilities are increased to adequate levels through a charge to the income statement.
Also unrecognised gains and losses from relevant assets that are not carried at fair value in the balance sheet are taken into account to the extent these assets are allocated to cover the insurance liabilities. The various elements of the LAT are further discussed below.
Best estimate The best estimate of an insurance contract is the net present value of the projected cash flows of benefits and expenses, less the net present value of premiums. These cash flows are estimated using realistic, ‘best estimate’, assumptions in relation to mortality, longevity, lapse rate, expense and inflation. The best estimate assumptions regarding mortality and longevity include recent trend assumptions for life expectancy in the Netherlands, as provided by the Dutch Actuarial Association. The best estimate includes the intrinsic value and the time value of options and guarantees (TVOG) and is calculated using stochastic techniques.
In unit-linked contracts, the best estimate equals the fund value of the contract less the net present value of future margins on mortality and expense. Where unit-linked contracts with a guaranteed minimum benefit on expiration are concerned, the best estimate is increased by a Time Value of Financial Options (TVOG), i.e. the value of that guarantee in accordance with the Black- Scholes model.
Risk margin The risk margin is determined for each homogeneous risk group using the CoC method. For life a CoC rate of 6% (2018: 6%) is used. a.s.r. uses the latest standard Solvency II model, to quantify the risks. The risks that are incorporated in the risk margin are: insurances risks, counterparty default risk related to reinsurance and operational risk. A projection of expected future risks is made and all these risks are projected into the future. The total risk for every future year is determined based on correlations between the risks described in the Solvency II standard model. The projected total risk for every year is multiplied by a cost of capital charge and discounted at the balance sheet date.
K. Employee benefits (IAS 19) Pension obligations A number of defined benefit (DB) 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 DB obligation is calculated at each reporting date by independent actuaries. The majority of employees are formally employed by a.s.r. A limited amount of employees are employed by other group companies.
The liability in respect of DB plans is the present value of the DB obligation at the balance sheet date, less the fair value of the plan assets where the pension plans are insured by third parties.
When employee benefit plans are modified and when no further obligations exist, a gain or loss, resulting from the changes are recognised directly in the income statement. Consistent with the calculation of a gain or loss on a plan amendment, a.s.r. will use updated actuarial assumptions to determine the current service cost and net interest for the remainder of the annual reporting period upon the time of such amendment. The effect of the asset ceiling, if applicable, is disregarded when calculating the gain or loss on any settlement of the plan.
Financial statements 2019 | 6.3 Accounting policies 155 a.s.r. also has defined contribution (DC) plans for a limited number of employees which are employed by entities that operate in the Distribution and Service segment. For these DC plans, a.s.r. pays contributions to privately administered pension insurance plans with a.s.r. leven on a contractual basis. a.s.r. has no further payment obligations once the contributions have been paid. The contributions are recognised as operating expenses in the profit or loss account during the period the services are rendered. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in future payments is available.
Other post-retirements obligations a.s.r. offers post-employment benefit plans, such as arrangement for mortgage loans at a discount (fixed amount, reference date December 2017). 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 DB plans.
Any impairment is restricted to the carrying amount of the non-current assets within the scope of IFRS 5 measurement requirements. The comparative consolidated income statement and consolidated statement of comprehensive income are restated to show the discontinued operations separately from the continuing operations.
Should the impairment exceed the carrying value of the non-current assets within the scope of IFRS 5 measurement, any remaining impairment amount will be presented as a separate provision.
O. 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 FR.
Life insurance contracts on behalf of policyholders Claims from these life insurance contracts are directly linked to the underlying investments. The investment risk and return are borne fully for policyholders (see accounting policy J). Life insurance contracts for the account and risk of policyholders generally consist of contracts where premiums, after deduction 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 contracts with segregated pools are classified as life insurance contracts on behalf of policyholders.
Buildings are depreciated using the straight-line method based on expected useful life, taking into account their fair value amount, the residual value from the time when it is in the location and condition necessary for it to be capable of operating in the manner intended by management. The useful life of buildings is assessed annually for every individual component (component approach).
Upon the sale of a property, the part of the revaluation reserve related to the sold property, within equity, is transferred to ‘other reserves’ and is not reclassified to the income statement. Therefore annually a transfer is also made from the revaluation reserve related to ‘other reserves’ in line with the depreciation recognised in the income statement for the revalued portion.
Equipment Equipment is recognised at cost, less accumulated depreciation and/or any accumulated impairment losses. Cost corresponds with the cash paid or the fair value of the consideration given to acquire the asset.
Right-of-use assets Right-of-use assets are recognised for lease contracts for which a.s.r. is the lessee. For more information reference is made to accounting policy AA.
X. 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. Cash and cash equivalents are subsequently measured at fair value through profit or loss.
Treasury shares are acquired and resold as part of the employee share purchase plan. For more information on the employee share purchase plan, see chapter 6.7.5.
At the commencement date of the lease, a.s.r.recognises a right-of-use asset and a lease liability. The right-of-use asset comprises the amount of the lease liability at initial measurement. The lease liability is measured at the present value of the lease payments that are not paid at the commencement date. For vehicles, the lease payments are discounted using the interest rate implicit in the lease. For other leases a.s.r.’s incremental borrowing rate is used.
Subsequently, the right-of-use asset is valued at cost less any cumulated depreciation and any accumulated impairment losses and adjusted for any remeasurement of the lease liability. The lease liability is increased with interest accrued and reduced for lease payments made. When applicable the lease liability is remeasured for changes in future payments resulting from a change in index or lease term.
The right-of-use assets are presented under property and equipment. The lease liabilities are presented under borrowings.
With respect to financial assets available for sale, realised gains or losses comprise: • The proceeds from the sale or disposal of an asset or liability less the amortised cost of the asset or liability sold; • Impairments previously recognised (except for equity instruments); • Hedge accounting adjustments.
EE. Fair value gains and losses Fair value gains and losses include realised and unrealised changes in the value of financial assets at fair value through profit or loss, derivatives and investment property held at fair value. With respect to derivatives, this is based on the fair value excluding accrued interest (clean fair value).
FF. Result on investments on behalf of policyholders Investments on behalf of policyholders are measured at fair value through profit or loss. Any changes in value are recognised in result on investments on behalf of policyholders. This also includes interest income and dividends received on investments on behalf of policyholders.
GG. Fee and commission income Determining the revenue to be recognised from fee and commission income relating to contracts with customers is based on a 5-step model: Step 1 – Identifying the contract Step 2 – Identify the performance obligation Step 3 – Determining the transaction price Step 4 – Allocating the transaction price to performance obligations Step 5 – Recognising revenue when the performance obligation is satisfied.
HH. Insurance claims and benefits This item includes changes in liabilities arising from insurance contracts (see accounting policy I) and the related benefits. Expenses associated with contracts on behalf of policyholders relate to changes in liabilities arising from insurance contracts on behalf of policyholders, including the benefits charged to the liabilities.
KK. Impairments An asset is impaired when its carrying amount exceeds its recoverable amount. Impairment losses are recognised in the income statement as soon as they are identified. For details, see the relevant items of chapter 6.3.4 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 recognised in the period in which the income was earned.
The a.s.r. group comprises a number of operating and holding companies.
Segment information The operations of a.s.r. have been divided into five (2018: six) operating segments. As of 2019, the Real Estate Development business is no longer a separate segment but is reported within the segment Holding and Other. The comparative figures have been restated accordingly. The Real Estate Development business decreased substantially over 2018 and is no longer considered a part of the a.s.r. strategy.
The main segments are the Non-life segment and Life segment in which all insurance activities are presented. The other activities are presented as three (previously four) separate segments being Asset Management, Distribution and Services and Holding and Other.
Segment Bank and Asset Management was renamed to segment Asset Management as the sale of ASR Bank N.V.’s (a.s.r. bank) savings operations was completed. See chapter 6.4.6.
Insurance activities Insurance entities are entities that accept the transfer of insurance risks from policyholders. The Non-life segment consists of Non-life insurance entities and their subsidiaries. These Non-life insurance entities offer Non-life insurance contracts. The Life segment comprises the life insurance entity and their subsidiaries. These life insurance entities offer financial products such as life insurance contracts and life insurance contracts on behalf of policyholders. The Non-life and Life segments have different levels of profitability and growth opportunities, as well as a different outlook and risk profile. See chapter 6.7.9 for a list of principal group companies and associates in the relevant segments.
Other activities The other activities consist of: • The Asset Management segment involves all activities related to asset management including investment property management, and the discontinued banking activities. These activities include amongst others ASR Vermogensbeheer N.V., ASR Financieringen B.V., ASR Real Estate B.V. (formerly ASR Vastgoed Vermogensbeheer B.V.), ASR Hypotheken B.V. and a.s.r. bank. As of October 2018, all activities of a.s.r. bank are classified as discontinued, and most of these activities were sold during the year. For further disclosure, see chapter 6.4.6; • The Distribution and Services segment includes the activities related to distribution of insurance contracts and include amongst others the financial intermediary business of PoliService B.V., Van Kampen Groep Holding B.V. (and as of September 2019 Melching Groep B.V.), Van Kampen Geld B.V., Dutch ID B.V., SuperGarant Verzekeringen B.V. (and ZZP Nederland Verzekeringen B.V.), Corins B.V., ANAC, All-Finance Nederland Advies-Combinatie B.V., ANAC Verzekeringen B.V. and Loyalis Kennis & Consult B.V; and
Financial statements 2019 | 6.4 Group structure and segment information 166
Financial statements 2019 | 6.4 Group structure and segment information 167 6.4.3 Segmented income statement and operating result
Fair value gains and losses 30 -99 - - - 15 -55
In 2019, incidentals are mainly related to the gain on the acquisition of Loyalis which is partly offset by Loyalis integration costs, restructuring costs and project implementation regulatory costs (project IFRS17/9).
In 2019, a.s.r. has changed the definition of the operating result. The comparative figures have been restated accordingly. For more information see chapter 6.10.
Financial statements 2019 | 6.4 Group structure and segment information 171 6.4.4 Non-life ratios
The combined ratio (COR) decreased to 95.0% (2018: 96.5%) due to improved profitability. P&C experienced a lower impact of calamities such as storms and profitable growth with a lower level of large claims. Disability improved mainly due to premium measures in the sickness leave portfolio.
Acquisitions 2019 Loyalis On 1 May 2019, a.s.r. announced the completion of its acquisition of Loyalis N.V. (Loyalis) by acquiring all issued and outstanding shares for a total consideration of € 436 million paid in cash, financed by a.s.r. with a subordinated Tier 2 liability.
The closing for the transaction of Loyalis took place on 1 May 2019. As a result, a.s.r. fully included the results and the balance sheet positions in the a.s.r. consolidated financial statements from that date.
In addition to the acquisition of Loyalis, ASR Vermogensbeheer N.V. acquired the assets and liabilities of Loyalis Sparen en Beleggen N.V. on 1 May 2019. The assets acquired result in an increase of cash and cash equivalents (€ 1 million) and other liabilities (€ 1 million). The value of these assets and liabilities are included in the disclosure below.
Final fair values of the assets and liabilities acquired on acquisition date
The gain as a result of the purchase is directly recognised as other income in the income statement on the acquisition date. The gain mainly reflects the IFRS requirement to identify and value intangible assets which have previously not been recognised on the balance sheet of Loyalis as these have been internally generated. Through the acquisition accounting under IFRS, these previously unrecognised intangible assets are recognised in the acquisition balance sheet. The gain arose as a result of the vendor making a strategic decision to sell Loyalis, as this fits in the vendors strategy to focus primarily on the realisation of pension value for participants of pension funds operated by the vendor. Furthermore, the remeasurement of the Non-life insurance liabilities to fair value resulted in recognising a VOBA. The gain as a result of the purchase is tax-exempt, attributed to the acquirer a.s.r. and not allocated to the Non-life and Life segments.
The consolidated statement of comprehensive income of a.s.r. for the first year includes € 198 million revenue and € 7 million profit after tax relating to Loyalis for the period commencing 1 May 2019. The revenue and profit of the combined entity for the current period, as though the acquisition date for the business combination of Loyalis had been as of the beginning of 2019, would have been € 300 million revenue and € 14 million profit after tax. The acquisitionrelated costs recognised as expense amount to € 1 million and are included in line item operating expenses in the income statement.
Other acquisitions In September 2019, Certitudo Investments B.V. acquired 100% of the shares of Argon Groep B.V. and Van Kampen Groep Holding B.V. acquired 100% of the shares of Melching Groep B.V. As a result, an amount of € 6 million is recognised as goodwill.
Acquisitions 2018 Generali Nederland In February 2018 a.s.r. acquired 100% of the shares of Generali Nederland N.V. (hereafter Generali) a.s.r. established the final acquisition balance sheet of Generali in December 2018.
In October 2018, the EB of a.s.r. decided to look for a strategic buyer for a.s.r. bank and enter into a programme to sell a.s.r. bank. As a result a.s.r. bank has been classified as ‘held for sale’ and subsequently a.s.r. has presented the assets of a.s.r. bank in the balance sheet on the line item ‘assets held for sale’, and the liabilities on the line item ‘Liabilities relating to assets held for sale’.
On 20 March 2019, a.s.r. bank and Achmea Bank N.V. (Achmea Bank) agreed that Achmea Bank will acquire the savings and mortgage portfolios of a.s.r. bank in an asset / liability transaction. The closing of the transaction took place on 2 December 2019. a.s.r. paid a total consideration of € 160 million in cash.
The assets and liabilities relating to assets held for sale can be summarised as follows: Assets held for sale and related liabilities
Since a.s.r. bank is measured at the lower of its carrying amount and fair value less costs to sell, a provision of € 3 million is remaining since initial recognition of € 48 million in 2018.
Financial statements 2019 | 6.4 Group structure and segment information 177
Total carrying valueLevel 1 Level 2 Level 3 Total Fair Value
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 178 6.5 Notes to the consolidated balance sheet 6.5.1 Intangible assets
Goodwill For the purpose of impairment testing, goodwill is allocated to the CGU of the relevant operating segment.
The results of the annual goodwill impairment test are as follows: Segment Non-life The activities of Generali Non-life (€ 13 million goodwill) have been fully integrated in a.s.r. schade. As such, the goodwill impairment test was conducted at the legal entity level of a.s.r. schade as CGU. The result of the goodwill impairment test, using the multiples methodology, shows an excess recoverable value over the book value. As a result, a second step was not necessary and there is no significant exposure of goodwill impairment for sensitivities in the underlying assumptions. No goodwill impairment was recognised.
Segment Life The activities of Generali Life have been fully integrated in a.s.r. life. The goodwill impairment test has been conducted for the legal entity a.s.r. life as CGU. The outcome of the step 1 impairment test, based on trading multiples of various international peers, showed that the difference between the recoverable amount and the carrying value was limited. This valuation was negatively affected by changing market circumstances such as Brexit and decreasing interest rates.
Management believes that any reasonable possible change in the key assumptions on which all CGU’s recoverable amounts are based would not cause the carrying amounts to exceed their recoverable amounts.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 180
Changes in the composition of the group - - 2 2 9
Gross carrying amount as at 31 December 246 49 25 320 287
Depreciation of property and equipment is recorded in the operating expenses (see chapter 6.6.8).
The fair value of land and buildings for own use based on the external valuations is disclosed in chapter 6.7.1.3.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 181 6.5.3 Investment property
Investment property is leased to third parties and is diversified over the rural, residential, offices and retail sectors in the Netherlands. For more detailed information about the investment property, see chapter 6.7.1. The significant inputs are the net initial yield and market rental value. These inputs are verified with the following market observable data: • Market rent per square meter for renewals and their respective re-letting rates; • Reviewed rent per square meter; • Investment transaction of comparable objects; • 10 Year Dutch Government Bond Yield (%) as published by the DNB.
Purchases in 2019 mainly relates to acquisitions of rural real estate (€ 95 million), Science Park offices (€ 30 million) commercial real estate (€ 18 million) and Offices (€ 6 million). Sales in 2019 mainly relates to commercial real estate (€ 35 million), offices (€ 31 million) and rural real estate (€ 19 million).
Rental income is recognised as investment income. For details, see chapter 6.6.2. In 2019, rentals amounted to € 57 million (2018: € 50 million). The rental income increased due to the expansion of the investment property portfolio.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 183
The total assets of the real estate equity funds consist primarily of investment property, € 3,564 million (2018: € 3,207 million). The total assets of the mortgage equity funds consist primarily of mortgages, € 4,186 million (2018: € 1,885 million).
The interest in the real estate equity funds is as follows: Investments
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 184
Available for sale Fair value through profit or loss Total Available for sale Fair value through profit or loss Total
In 2019, government bonds increased to € 16,132 million (2018: € 11,773 million) mostly due to additional investments (€ 3,676 million) as a result of cash collateral received on derivative instruments which were reinvested into government bonds and the acquisition of Loyalis (€ 739 million). For more information in regards to cash collateral received see chapter 6.5.19. Equities increased to € 3,159 million (2017: € 2,822 million) mainly due to the development of the stockmarket. The increase in the asset-backed securities and the mortgage equity funds held at available for sale are mostly due to the acquisition of Loyalis. The increase in mortgage equity funds held at fair value through profit or loss is due to additional investments in ASR Mortgage Fund and positive revaluation of this fund.
All investments at fair value through profit or loss are designated as such by a.s.r. upon initial recognition. For more detailed information about the fair value valuation of the investments, see chapter 6.7.1.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 185 6.5.5.1 Investments available for sale
The increase in impairments through profit or loss are mainly related to impairments on equities. The reversal of impairments due to disposal are mainly related to the disposal of equity instruments which were impaired in previous years. There is a high degree of uncertainty about the repayment of the remaining collateral debt obligations.
Transfer between investments on behalf of policyholders and investments -11 -5
The increase in investments at fair value through profit or loss is mainly related to additional investments in the mortgage equity funds and a.s.r. real estate funds and revaluation of these funds. Changes in the composition of the group relates to the assets acquired through the acquisition of Loyalis.
Total investments on behalf of policyholders at fair value through profit or loss 9,571 7,771
Changes in the composition of the group relates to the acquisition of Loyalis (2018: acquisition of Generali) (see chapter 6.4.5).
Other changes mainly relates to the change of the cash position.
The total amount due from credit institutions of € 4,092 million (2018: € 3,477 million) mainly increased due to a reverse repurchase agreement.
Total due from credit institutions consists for € 2,801 million (2018: € 2,861 million) of savings-linked mortgage loans.
The claim related to cash collateral paid on derivative instruments, included in total due from credit institutions, amounts to € 51 million (2018: € 15 million).
Based on their contractual maturity, an amount of € 10,853 million (2018: € 10,350 million) of the loans and receivables is expected to be recovered after more than one year after the balance sheet date.
Derivatives consist primarily of derivatives used to hedge interest rate movements. Changes in the fair value of derivatives at fair value through profit or loss are recorded in ‘fair value gains and losses’ (see chapter 6.6.4).
a.s.r. trades both cleared and non-cleared derivatives on the basis of standardised contracts and exchanges cash variation margin with its counterparties. The derivatives are valued daily and cash collateral is exchanged to reflect the change in mark-to-market (MtM) of the derivatives. Because of this periodic margining process, counterparty risk on derivatives is negligible.
The derivatives do not include the derivatives on behalf of policyholders (2019: € 12 million, 2018: € 6 million).
The notional amount increased by € 10,177 million mostly within interest rate contracts (swaps). The increase is mainly due to curve trade transactions within the current hedging strategy. These trades were driven by economic reasons, with a neutral impact on interest rate risk. In addition, notional amounts increased due to the acquisition of Loyalis.
In addition to the use of swaps and options a.s.r. manages interest rate risk by using forward starting swaps, included in interest rate contracts swaps.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 189
The fair value of the interest rate contracts using the above valuation method form the basis for the amount of collateral that is exchanged between a.s.r. and its counterparties in accordance with the underlying contracts. For more information please see chapter 6.8 on risk management.
For the calculation of the net deferred tax position at year end 2019, a rate reduction of the corporate tax has been taken into account. This reduction will be effective in 2021 and thereafter (21.7%). The revised tax rate has been used for deferred taxes which are expected to be recovered in 2021 and later.
The deferred tax asset is mainly caused by additions which have been made to the liabilities arising from insurance contracts and have already been recognised in the income tax expense. The deferred tax asset is not a result of prior year’s tax losses.
Deferred tax assets and liabilities are expected to be recovered after more than one year after the balance sheet date.
Financial assets held for trading -460 -638 - -11 - -1,109
Write-down of deferred tax assets - - - - - 6. 5.10 Other assets
Prepaid costs and other non-financial assets including prepaid commissions for Non-life insurance.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 191 6.5.11 Cash and cash equivalents
All cash and cash equivalents are freely available. The cash components include € 1,774 million (2018: € 2,299 million) related to cash collateral received on derivative instruments and is managed separately from other cash equivalents.
Interest expenses on cash collateral is standardised in the ISDA/CSA’s and based on EONIA, see chapter 6.5.19 due to banks.
In the AGM on 31 May 2018 the resolution was adopted to cancel 6 million treasury shares. The cancellation has been effected on 13 August 2018 (see chapter 6.5.12.4 Treasury shares).
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 192 6.5.12.2 Unrealised gains and losses recorded in equity
Total unrealised gains and losses recorded in equity 913 24 937
Position as at 31 December 2019 2018 Coupon date First possible redemption date
On 17 September 2019, a.s.r. announced it has successfully issued an additional € 200 million perpetual non-call restricted Tier 1 contingent convertible capital instrument. The new issue has the same terms and conditions of the existing restricted Tier 1. The issue was priced at a price of 103.405%, and the amount presented in the table above include transaction costs of € 1.4 million. An amendment, which allows the new issue to become fully fungible with the existing issue, was approved by the holders of the outstanding Tier 1 capital on 8 October 2019. Due to the integration in the existing issue, the new issue is first callable in October 2027, and increased the notional size of the existing restricted Tier 1 instrument to € 500 million.
Basic earnings per ordinary share from discontinued operations (in euros) 0.01 -0.26
Adjusted net profit attributable to holders of ordinary shares for calculating the diluted earnings per ordinary share 926 620
Diluted earnings per ordinary share from continuing operations (in euros) 5.94 4.27
Diluted earnings per ordinary share from discontinued operations (in euros) 0.01 -0.24
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 195 6.5.13 Subordinated liabilities
Life insurance contracts excluding own pension contracts 32,218 28,217 166 174
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 196
Changes in the composition of the group 991 324 68 42
Provision for claims (including IBNR) as at 31 December 5,990 4,674 371 378
Non life insurance contracts as at 31 December 6,337 5,027 405 415
The changes in composition of the group reflect the acquisition of Loyalis (2018: acquisition of Generali) (see chapter 6.4.5).
Claims year at year end gross claims as at 31 december 2019 1,953 1,903 2,096 2,036 1,899 1,970 2,181 2,158 2,108 2,313 gross outstanding claims liabilities other claim liabilities -
Gross claims in the claims development table include the Loyalis and Generali claims from the original date of the claim.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 199 6.5.14.3 Liabilities arising from insurance contracts on behalf of policyholders
Effect of fair value changes related to financial assets 1,528 -354
In 2019 and 2018, the other changes mainly relate to the transfer of insurance contracts to insurance contracts on behalf of policyholders due to new product features provided.
Liabilities arising from insurance contracts on behalf of policyholders also include liabilities where conversions and switches have occurred in the insurance contract administration. The insurance contract still meets the definition of and continues to be classified as an insurance contracts on behalf of policyholders and therefore continues to be included in the insurance contracts on behalf of policyholders administration. However, as a result of the conversion and switches, liabilities arising from insurance contracts on behalf of policyholder amounting to € 2,668 million (2018: € 2,419 million) are - in the classification and subsequent presentation - not backed directly with investments on behalf of policyholders. The related investments are included and presented in investments (available for sale) and loans and receivables.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 200
The costs of the post-employment benefits pensions relate to the DB plans of a.s.r. and Generali, plus the defined contribution plans of the other group companies.
6.5.15.1 Post-employment benefits pensions a.s.r. has a number of DB and DC post-employment benefit plans for its employees and former employees. The majority of employees are formally employed by a.s.r. A limited amount of employees are employed by other group companies. The pension plans of other group companies are disclosed in a separate section in this paragraph.
a.s.r. leven, an insurance company and a group entity, is the insurer of the majority of the post- employment benefit plans, being both the DB plans as well as the DC plans. As this company holds the separated investments that are meant to cover the employee benefit obligation, they do not qualify as plan assets in accordance with IAS 19 and are therefore included in financial assets.
a.s.r. employees The a.s.r. post-employment benefit plans are based on an average-salary pension. All employees who commenced service after 1 January 2006 are included in one post-employment benefit plan (‘Basic plan’). All other employees remain active within the existing plan at the date of first employment. Previous plans for former employees are also still active. The methods and techniques used to calculate the DB obligations are based on IAS 19 requirements and calculated by an independent actuary.
The post-employment benefit plan for former Generali employees is primarily based on the following conditions: • The accrual rate for old age pensions 1.875% (2018: 1.875%); • Retirement age of 68 years (2018: 68 years); • Maximum pensionable salary capped at € 107,593 (2018: € 105,075); • A waiver of premium in the event of incapacity for work; and • The personal contribution for the employee amounts to 4.7% of the pension basis.
Before 1 August 2019, Loyalis had two post-employment benefit plans in place, one DC plan at Stichting Pensioenfonds ABP (‘ABP’), and a defined benefit plan at Stichting Personeelspensioenfonds APG (‘APG’). The transfer of employees to a.s.r. is the event that leads to a curtailment of the defined benefit plan APG, resulting in a past service cost of € 3 million stemming from the recalculation of the present value of the DB obligation. The resulting net DB liability after the curtailment is nil.
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 201
The discount rate was 1.04% at 31 December 2019 (2018: 1.85%), resulting in a € 529 million increase in the DB obligation (2018: € 24 million increase).
As per 31 December 2019 the duration of the DB obligation was 19 years (2018: 18 years).
The change in other assumptions amounts to € -72 million (2018: € -117 million) due to a change in indexation percentage of former employees.
Experience adjustments are actuarial gains and losses that have arisen due to differences between actuarial assumptions. The following table provides information about experience adjustments with respect to qualifying plan assets and the DB obligation:
Financial statements 2019 | 6.5 Notes to the consolidated balance sheet 202
The sensitivity of the above actuarial assumptions to feasible possible changes at the reporting date to one of the relevant actuarial assumptions whilst other assumption remain constant, would have affected the DB obligation by the amounts shown below: Sensitivity of actuarial assumptions
Non-qualifying plan assets The portfolio of global investments (non-qualifying assets) held by a.s.r. leven to cover the employee benefit expense of the DB plans can be broken down as follows: Breakdown of global investments held by a.s.r. leven
For the non-qualifying assets backing the post-employment benefit plans, a.s.r. has drawn up general guidelines for the asset mix based on criteria such as geographical location and ratings. To ensure the investment guidelines remain in line with the conditions of the post-employment benefit obligations, a.s.r. regularly performs Asset Liability Management (ALM) studies. Transactions in the non-qualifying assets are done within the guidelines. As the post-employment benefit
The non-qualifying assets, which are managed by a group company, are not presented as part of the net DB obligation. At year-end 2019, the fair value of these assets amounted to € 2,662 million (2018: € 2,505 million), which includes the separate account to fund future inflation indexation amounting to € 262 million (31 December 2018: € 306 million). As mentioned above, the swaps and swaptions have not been allocated directly to the post-employment benefit obligations; neither are they included as part of the fair value of the non-qualifying assets managed by the group company.
Under IFRS, assets managed by insurance companies that form part of the group do not qualify as qualifying assets. Investment income from these assets has therefore not been included in the above figures but is recognised as investment income separately. Actual investment returns for 2019 amounted to € 67 million (2018: € 77 million), which includes the investment income on the separate account to fund future inflation indexation amounting to € 6 million (2018: € 5 million). These returns have been recognised in investment income (see chapter 6.6.2).
Experience adjustments are actuarial gains and losses that have arisen due to differences between actuarial assumptions. The following table provides information about experience adjustments with respect to qualifying plan assets and the DB obligation: Experience adjustments to defined benefit obligation
In accordance with a.s.r.’s policy, discounts on staff mortgages have been fixated in amounts granted on the reference date December 2017.
Transfer to liabilities relating to assets held for sale - -48
At year-end 2019, the fair value of borrowings was € 47 million (2018: € 39 million). For information regarding the fair value, see chapter 6.7.1.2. The average interest rate payable on loans was 2.10% (2018: 2.26%). The average incremental borrowing rate on the lease liabilities was 2.06% (2018: not applicable).
An amount of € 205 million (2018: € 88 million) of due to customers is expected to be settled more than twelve months after reporting date.
The amounts due to banks increased from € 2,686 million to € 5,520 million primarily as a result of the increase in liability recognised for cash collateral received under ISDAs (International Swaps and Derivatives Association) and CCAs (Client Clearing Agreement) concluded with counterparties (see chapter 6.5.11). There is no significant difference between the carrying amount and the fair value of these liabilities (see chapter 6.7.1.2).
The average interest rate for the cash collateral received in 2019 is -0.38% (EONIA) (2018: -0.36%). There are no specific terms and conditions, because these depend on the development of the value of the underlying instrument. a.s.r. has bonds that have been transferred as a result of reverse repurchase agreements, but do not qualify for derecognition amounting to nil (2018: € 39 million). The asset recognised for cash collateral paid on reverse repurchase agreements is presented under loans and receivables. The liability recognised for cash collateral received on repurchase agreements is presented under due to banks.
The entire amount of the due to banks is expected to be settled less than or equal to twelve months after reporting date.
The other non-financial liabilities of € 448 million (2018: € 449 million) consist, amongst others, of payables, accruals related to investments and construction depots for rural housing mortgages.
There is no difference between the carrying value of other liabilities and their fair value (see chapter 6.7.1.2).
Financial statements 2019 | 6.6 Notes to the consolidated income statement 208
The effective interest method has been applied to an amount of € 742 million (2018: € 794 million) of the interest income from financial assets not classified at fair value through profit or loss. Included within interest income is € 6 million (2018: € 7 million) of interest received on impaired fixed-income securities.
Financial statements 2019 | 6.6 Notes to the consolidated income statement 210 6.6.5 Fee and commission income
The increase in other income is mainly due to a purchase gain as a result of the acquisition of Loyalis (€ 118 million), see chapter 6.4.5.
Financial statements 2019 | 6.6 Notes to the consolidated income statement 211 6.6.7 Net insurance claims and benefits
Financial statements 2019 | 6.6 Notes to the consolidated income statement 212 6.6.8 Operating expenses
The increase in total operating expenses is primarily a result of the acquired activities of Loyalis. Excluding the acquisition, the operating expenses increased as a result of organic growth in the Asset Management segment and acquisitions in de Distribution and Services segment (see chapter 6.4.5).
The operating expenses of a.s.r. bank are excluded from the operating expenses as a result of the classification as ‘held for sale’ (see chapter 6.4.6).
The segmentation of a.s.r.’s internal workforce was as follows at 31 December
Financial statements 2019 | 6.6 Notes to the consolidated income statement 213 6.6.9 Impairments
Total changes in impairments of investments available for sale -16 -33 6.6.10 Interest expense
The interest on borrowings comprises € 0,4 million of interest related to lease liabilities.
Financial statements 2019 | 6.6 Notes to the consolidated income statement 214 6.6.11 Other expenses
The profit is almost entirely earned and taxable in the Netherlands.
The effective income tax rate is 19.8% (2018 restated: 21.7%). The decrease is mainly due to the purchase gain from Loyalis.
From: Level 1: Fair value based on quoted prices in an active market - 262 3 265
Level 3: Fair value not based on observable market data 7 3 - 11
Changes in value of investments, realised/unrealised gains and losses: - Realised gains and losses 15 3 - Recognised in Other comprehensive income (unrealised gains and losses) 8 -33
The main non-observable market input for the asset-backed securities and mortgage equity funds at available for sale are based on quotes published by an independent data vendor. If the quote of the data vendor is not available, values or quotes from other pricing services are obtained, including a check on the validity of the value or quote by an independent third party, to base the fair value on. There is no material difference in the fair value of the asset-backed securities and mortgage equity funds if a quote was used from an alternative data vendor. The main non-observable input for the equities is the net asset value as published by the investee. An increase or decrease in the net asset value of equities classified as level 3 will have a direct proportional impact on the fair value of the investment. The table below discloses the sensitivities to non-observable market inputs for the property portfolio, including real estate equity funds.
Total fair value Total carrying valueLevel 1 Level 2 Level 3
Amounts due to customers and due to banks presented as level 1 primarily comprise savings and the liability recognised for the cash collateral received. The accrued interest included in other liabilities follows the classification of the underlying assets. Level 2 category financial assets relates primarily to savings-linked mortgage loans amounting to a fair value of € 3,921 million (2018 € 3,884 million).
The mortgage loan portfolio consists of high quality mortgages with a relatively fixed return, limited impairments and arrears (see chapter 6.5.7). The mortgage loan portfolio consists only of Dutch mortgages with a limited counterparty default risk in line with the strategic investment plan (see chapter 6.8.4).
Financial statements 2019 | 6.7 Other notes 222 6.7.1.3 Property (including land and buildings for own use) The breakdown of the investment property and land and buildings for own use in accordance with the fair value hierarchy, as explained in accounting policy B, is as follows: Breakdown of the fair value of the investment property and land and buildings for own use
The movements in investment property measured at fair value (recurring basis) that are categorised within level 3 are presented in chapter 6.5.3 and 6.5.2.
Significant inputs to the Level 3 values are the net initial yield and market rental value. These inputs are verified with the following market observable data: • Market rent per square meter for renewals and their respective re-letting rates; • Reviewed rent per square meter; • Investment transaction of comparable objects; • The 10 year Dutch Government Bond Yield (%) rate as published by the DNB.
Financial statements 2019 | 6.7 Other notes 224 6.7.2 Offsetting of financial assets and liabilities
Gross amounts of recognised financial liabilities set off in the statements of financial position
Net amounts of financial assets presented in the statements of financial position
In making this assessment, a.s.r. considers the following: • Variable interest rates; • Prepayment features; • Term extension features; • Contingent events; and • Terms that limit a.s.r.’s claim to cash flows from specified assets – e.g. non-resource asset arrangements.
The tables in this note also comprise the financial assets of a.s.r. bank, which are classified as assets held for sale in the consolidated balance sheet based on their underlying classification being primarily mortgages, bonds and cash and cash equivalents. The asset / liability transaction of a.s.r. bank was concluded on 1 December 2019, which resulted in a decrease of the assets in question.
Financial assets with contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest: Due from customers 8,267 7,507 -792
Fair value of financial assets based on SPPI test results 1 The carrying value of the trade and other receivables is regarded as a good approximation of the fair value, as these assets have a short-term nature. 2 The fair value movement of financial assets recognised as at 31 December 2018, that were either purchased during 2018 or were already recognised as at 31 December 2017. This does not include the fair value movement of the financial assets derecognised in 2018. 3 Other financial assets include the financial assets that fall into the business model held for trading and managed on a fair value basis or those financial assets with contractual terms that do not give rise on specified dates to cash flows that are solely payments of principal and interest.
The fair value movement relates to the revaluations during the year of the financial assets; total movement less the net additions.
The credit risk of the assets not rated, mostly mortgages and savings-linked mortgage loans, are considered low risk. The a.s.r. portfolio consists only of Dutch mortgages with a limited counterparty default risk, as 40% (2018: 45%) are covered by the NHG, 29% (2018: 26%) have a loan to value less than 75%, and only 3% (2018: 6%) have a loan to value more than 100%. The counterparty default risk of the savings-linked mortgage loans (‘Spaarlossen’) is also considered low. For 38% (2018: 45%) of the portfolio, the counterparties are Special Purpose Vehicles. The risk is limited due to the robust quality of the mortgages in the Special Purpose Vehicles in combination with the tranching. For another 59% (2018: 50%) a.s.r. has a cession-retrocession agreement with the counterparty. Effectively, a.s.r. receives the underlying mortgage loans as collateral, mitigating the counterparty default risk of the savings-linked mortgage loans. For more detailed information about the credit risks of a.s.r., see chapter 6.8.3 and chapter 6.8.4.
A related party is a person or entity that has significant influence over another entity, or has the ability to affect the financial and operating policies of the other party. Parties related to a.s.r. include associates, joint ventures, members of the EB, members of the SB, close family members of any person referred to above, entities controlled or significantly influenced by any person referred to above and any other affiliated entity.
The employees purchase the shares at a discount of 18.5%. The fair value of the a.s.r. share with a lock-up of five years at the grant date equals the purchased price by the employee. The ESPP has an impact on equity through the adjustment in the treasury shares and retained earnings. See paragraph 6.5.12.4 Treasury shares for more information.
As for other claims and legal proceedings, against a.s.r. known to management (and for which, in accordance with the defined principles, no provision has been formed), management believes, after having sought expert advice, that these claims have no chance of success, or that a.s.r. can successfully mount a defense against them, or that the outcome of the proceedings is unlikely to result in a significant loss for a.s.r. For further information related to the Unit-Linked Products (beleggingsverzekeringen), see chapter 6.7.6.2.
Background Since the end of 2006, individual unit-linked life insurance products (beleggingsverzekeringen) have received negative attention in the Dutch media, from the Dutch Parliament, the AFM, consumers and consumer protection organisations. Elements of unit-linked policies are being challenged or may be challenged on multiple legal grounds. The criticism and scrutiny on unit-linked life insurance products led to the introduction of compensation schemes by Dutch insurance companies that have offered unit-linked products. In 2008, a.s.r. reached an outline agreement with two main consumer protection organisations to offer compensation to unit-linked policyholders in case the cost charge and/or risk premium charge exceeds a defined maximum. A full agreement on implementation of the compensation scheme was reached in 2012. The total recognised cumulative financial costs relating to the compensation scheme for Individual life in a.s.r.’s income statement until 2019 was € 1,031 million. This includes, amongst other things, compensation paid, amortisation of surrender penalties and costs relating to improved product offerings. The remaining provision in the balance sheet as at 31 December 2019 is solely available to cover potential additional compensation (schrijnende gevallen) and costs relating to the compensation scheme. On the basis of this agreement, a.s.r. offered consumers additional measures such as alternative products and less costly investment funds. In addition to the compensation scheme, a.s.r. has implemented additional measures (flankerend beleid), including the ten best in class principles as formulated by the Dutch Minister of Finance. On 17 July 2015, the Dutch Ministry of Finance published an Order in Council (Algemene Maatregel van Bestuur), pursuant to which insurance companies can be sanctioned if they do not meet the compulsory targets set for approaching policyholders of unit-linked life insurances and prompting them to review their existing policies.
Legal proceedings a.s.r. is subject to a limited number of legal proceedings initiated by individual unit-linked policyholders, in most cases represented by claims organisations. While to date fewer than 15 cases are pending before Dutch courts and courts of appeal and fewer than 125 cases are pending before the Financial Services Complaints Board (FSCB) (the Dispute Committee as well as the Committee of Appeal of the FSCB), there is no assurance that further proceedings will not be brought against a.s.r. in the future. Future legal proceedings regarding unit-linked life insurance policies might be brought upon a.s.r. by consumers individually, by consumer organisations acting on their behalf or in the form of a collective action. Furthermore, there is an ongoing lobby by consumer protection organisations, such as the Consumentenbond and Stichting Geldbelangen, to continuously gain media attention for unit-linked life insurance policies. These organisations argue, amongst other things, that consumers did not receive sufficient compensation based on the compensation scheme.
a.s.r. is currently subject to three collective actions. The claims are all based on similar grounds and have been rejected by a.s.r. and a.s.r. defends itself in these legal proceedings. The timing and outcome of these collective actions is currently uncertain.
Financial statements 2019 | 6.7 Other notes 230 to administrative costs calculated under specific circumstances in a specific product (‘Spaarplan’), because no defence was put forward. Woekerpolis.nl issued a notice of appeal on 16 April 2019.
In December 2019, claim organisation Wakkerpolis initiated a collective action against a.s.r. Although the claim from ‘Wakkerpolis’ is largely based on similar grounds as the other two collective actions, it primarily concentrates on the lack of transparency of cost charges.
Investment obligations and guarantees for a total amount of € 30 million (2018: € 41 million) have been issued, for real estate development projects and the acquisition of property. Those guarantees were issued by principals for the execution of projects for the benefit of clients.
Due to the sale of the mortgage portfolios of a.s.r. bank, a.s.r. had no more irrevocable facilities relating to mortgage offers issued at year end (2018: € 327 million). Furthermore, a.s.r. issued several other guarantees for a total amount of € 3 million (2018: € 10 million).
The investments properties, in retail, residential, offices and rural markets are leased to third parties, consisting of various lease terms in a range between shorter than one year and undetermined period with competitive rents mostly indexed to consumer prices.
6.7.7 Events after the balance sheet date a.s.r. acquires VvAA Life and Veherex On 1 January 2020, a.s.r. and a.s.r. schade completed the acquisitions of VvAA Levensverzekeringen N.V. (hereafter VvAA Life) and Veherex Schade N.V. (hereafter Veherex) respectively by acquiring all issued and outstanding shares for a total consideration of € 58 million. VvAA offers life insurance to healthcare providers and Veherex offers disability insurance for the railway and other public transportation sector. The acquisitions fit into a.s.r.’s strategy to grow through bolt-on acquisitions.
Share buyback programme In February 2020, a.s.r. announced the repurchase of ordinary shares for an amount of € 75 million as an additional capital distributions. The period for the repurchase of shares started on 20 February 2020 and will end no later than 21 May 2020. The impact on the Solvency II ratio of this share buyback programme, which will be included in the interim 2020 figures, is -2%-point.
Coronavirus In December 2019, a pneumonia outbreak was reported in China which in 2020 rapidly developed into what is now commonly referred to as the coronavirus. The virus has resulted in a significant number of confirmed cases of infection in large portions of the world, including the Netherlands. Globally, governments are taking various measures to contain the outbreak and to mitigate its impact on the economy. In the Netherlands, the Dutch government issued a series of far reaching measures to stop the spread of the coronavirus. Both the virus and the countermeasures have a significant impact on Dutch society and economics in the short term. The government has also presented a significant economic relief program to support both companies and individuals that are financially impacted by the corona outbreak. As the number of infections caused by the virus is still increasing, and the result of both the countermeasures to the virus outbreak as well as the economic relief program still has yet to take effect, the impact of the coronavirus is unsure, specifically in the longer term.
At this point in time it is too early to make a realistic and credible assessment of what the impact of the coronavirus will be on a.s.r.’s business and financial performance. The effect on our financial results will depend on a number of factors, including the extent and duration of the period of disruption and the impact on the global economy and financial markets. As published in this report, a.s.r. is financially healthy and its capital position is solid. In the recent weeks, a.s.r.’s Solvency II ratio proved resilient to absorb these extraordinary developments in the financial markets. Based on the closing market position as of 19 March 2020, which is the most recent analysis available at the time of publication of this annual report, a.s.r. estimates its Solvency II ratio, on the standard formula, to be substantially higher than year-end 2019. The ratio reflects observed market movements as at 19 March 2020, but does not yet allow for any change in insurance claims or changes in experience or assumptions that may arise from the corona crisis. The estimate includes the positive impact from the significantly higher volatility adjustment which increased with over 40 bps since year-end 2019, as well as the flattening of the interest rate curve. It also includes the negative impact of the further reduction of the UFR and the € 75 million share buyback that is currently being executed. Because of the current high volatility in the financial markets, the estimated Solvency II ratio may vary substantially from day to day. a.s.r.’s liquidity position of € 1.6 billion at yearend 2019 has also proven resilient. We continue to closely monitor the impact of the corona outbreak on the operating performance of our various business lines. We furthermore continue to monitor the potential IFRS impact relating to the valuation of financial instruments and valuation of technical provisions which are sensitive to developments in the (longterm ) interest rates.
Van Kampen Groep Holding B.V.³ 100.00 100.00 Hoorn Distribution & Services
Brand New Day Premiepensioeninstelling N.V.³,4 50.00 50.00 Amsterdam Holding & Other
6.8.1 Risk management system including the Own Risk and Solvency Assessment Risk Management System
It is of great importance to a.s.r. that risks within all business lines are timely and adequately controlled. In order to do so, a.s.r. implemented a Risk Management framework based on internationally recognised and accepted standards (such as COSO ERM and ISO 31000:2018 risk management principles and guidelines). Using this framework, material risks that a.s.r. is, or can be, exposed to, are identified, measured, managed, monitored and evaluated. The framework is both applicable to a.s.r. group and the underlying (legal) business entities.
Risk Management Framework The Risk Management (RM) framework consists of risk strategy (including risk appetite), risk governance, systems and data, risk policies and procedures, risk culture, and risk management process. The RM framework contributes to achieving the strategic, tactical and operational objectives as set out by a.s.r.
a.s.r.’s risk strategy aims to ensure that decisions are made within the boundaries of the risk appetite, as stipulated annually by the Executive Board and the Supervisory Board (see chapter B.3.1.1 Risk strategy and risk appetite).
Systems and data Systems and data support the risk management process and provide management information to the risk committees and other relevant bodies. a.s.r. finds it very important to have qualitatively adequate data, models and systems in place, in order to be able to report and steer correct figures and to apply risk-mitigating measures timely. To ensure this, a.s.r. has designed a policy for data quality and model validation in line with Solvency II. Tools, models and systems are implemented to support the risk management process by giving guidance to and insights into the key risk indicators, risk tolerance levels, boundaries and actions, and remediation plans to mitigate risks.
The classification of risks within a.s.r. is performed in line with, but is not limited to, the Solvency II risks. Each risk category consists of a policy that explicates how risks are identified, measured and controlled within a.s.r. (see chapter B.3.1.4 Risk policies and procedures).
Within a.s.r. risk culture is an important element that emphasizes the human side of risk management. The Executive Board has a distinguished role in expressing the appropriate norms and values (tone at the top). a.s.r.employs several measures to increase the risk awareness and, in doing so, the risk culture (see chapter B.3.1.5 Risk culture).
6.8.1.1.1 Risk management strategy and risk appetite a.s.r.’s risk strategy aims to ensure that decisions are made within the boundaries of the risk appetite, as stipulated annually by the Executive Board and the Supervisory Board.
Risk appetite is defined as the level and type of risk a.s.r. is willing to bear in order to meet its strategic, tactical and operational objectives. The risk appetite is formulated to give direction to the management of the (strategic) risks. The risk appetite contains a number of qualitative and quantitative risk appetite statements and is defined for both financial (FR) and non-financial risks (NFR). The statements highlight the risk preferences and limits of the organisation and are viewed as key elements for the realisation of the strategy. The statements and limits are defined at both group level and at legal entity level and are determined by the Business Executive Committee – Risk meeting and approved by the Supervisory Board. The statements are evaluated yearly to maintain alignment with the strategy.
Risk appetite statement ASR Nederland N.V. 2019 1 ASR Nederland N.V. places long-term value creation at the forefront of its (strategic) operations. ASR
2 ASR Nederland N.V. ensures that operational risks are controlled efficiently and effectively: a. ASR Nederland N.V. has efficient and effective business processes; b. ASR Nederland N.V. has reliable financial reports; c. ASR Nederland N.V. has controlled internal and external outsourcing; d. ASR Nederland N.V. has IT that processes information reliably; e. ASR Nederland N.V. has controlled (efficient and effective) projects
3 ASR Nederland N.V. complies with current laws, regulations and ethical (and inherent internal) norms. ASR
4 ASR Nederland N.V. has a minimum SCR ratio of 120%. FR
7 ASR Nederland N.V. has a maximum financial leverage ratio of 40%
11 ASR Nederland N.V. generates a robust and high-quality operational ROE, i.e. pursues an overall ROE >
12% and seeks an ROE > 10% for individual investment decisions, where in exceptional cases an ROE > 8%
Risk strategy aims to ensure that management decisions lead to a risk profile that remains within the risk limits. The risk strategy entails all processes to identifying, assessing and managing risks and opportunities. Through a combined topdown and bottom-up Strategic Risk Analysis (SRA) approach, the most important strategic risks are identified. For each of the strategic risks an estimation of the likelihood and impact is made to prioritize the risks. The main strategic risks are translated into ‘risk priorities’ (including emerging risks) at group level and are monitored throughout the year in the BEC – Risk meeting. Output from the SRA, combined with the risk appetite statements, provides insight into the strategic risk profile of a.s.r. and underlying legal entities. The entire risk profile is monitored in the relevant risk committees.
Positioning of key functions Within the risk governance, the key functions (compliance, risk, actuarial and audit) are organised in accordance with Solvency II regulation. They play an important role as countervailing power of management in the decision-making process. The four key functions are independently positioned within a.s.r. In all the risk committees one or more key functions participate. 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 (DNB) and/or The Dutch Authority for the Financial Markets (AFM).
First line of defence Second line of defence Third line of defence
• Responsible for providing dedicated assurance services and oversees and assesses the functioning and the effectiveness of the first two lines of defence
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 other management in managing compliance risks for a.s.r. and its subsidiaries. The mission of the compliance function is to enhance and ensure controlled and sound business operations where impeccable, professional conduct is self-evident.
As second line of defence, Compliance encourages the organisation to comply with relevant rules and regulations, ethical standards and the internal standards derived from them (‘rules’) by providing advice and devising policies. Compliance supports the first line in the identification of compliance risks and assesses the effectiveness of risk management on which Compliance reports to the relevant risk committees. In doing so, Compliance uses a compliance risk and monitoring framework. In line with risk management, Compliance also creates further awareness in order to promote a culture of integrity. Compliance coordinates contacts with regulators in order to maintain an effective relationship and keeps oversight of the current topics.
The Audit & Risk Committee has three members of the Supervisory Board, one of whom acts as the chairman.
Business Executive Committee – Risk meeting The Business Executive Committee – Risk meeting (BEC – Risk meeting) monitors a.s.r.’s overall risk profile on a quarterly basis. At least annually, the BEC – Risk meeting determines the risk appetite statements, limits and targets for a.s.r. This relates to the overall a.s.r. risk appetite and the subdivision of risk appetite by financial and non-financial risks. The risk appetite is then submitted to the a.s.r. Audit & Risk Committee, which advises the Supervisory Board on the approval of the risk appetite. The BEC – Risk meeting also monitors the progress made in managing risks included in the Risk Priorities of the Executive Board.
Non-Financial Risk Committee The Non-Financial Risk Committee (NFRC) discusses, advises and decides upon non-financial risk policies. The most relevant risk policies are approved by the BEC – Risk meeting. The NFRC monitors that non-financial risks are managed adequately and monitors that the risk profile stays within the agreed risk limits. If the risk profile exceeds the limits, the NFRC takes mitigating actions. The NFRC reports to the BEC – Risk meeting. The NFRC is chaired by a member of the Executive Board.
Financial Risk Committee The Financial Risk Committee (FRC) discusses and decides upon financial risk policies. The most relevant financial risk policies are approved by the BEC – Risk meeting. The FRC monitors and controls financial risks (market, insurance (life and non-life) and counterparty default risk). The FRC also monitors whether the risk profile stays within the risk limits. If the risk profile exceeds these limits, the FRC takes mitigating actions. The FRC reports to the BEC – Risk meeting. The Chairman of the FRC is the CFO.
Model Validation Committee The model validation committee (MVC) is a subcommittee of the FRC and is responsible for the execution and update of the model validation policy and the approval of validation of existing or newly developed models. The MVC receives all required information for the validation of models (e.g. model documentation and validation reports) prepared by the validation board (MVB) that assures the quality of the validation process. The chairman of the MVC is the CRO.
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 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. The PARP Board is chaired by the managing Director of the business line Health.
6.8.1.1.3 Systems and data GRC tooling is implemented to support the risk management process by giving guidance and insight into the key risk indicators, risk tolerance levels, boundaries and actions and remediation plans to mitigate risks. 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. It is important to establish under which conditions the management information that is submitted to the risk committees has been prepared and which quality safeguards were applied in the process of creating this information. This allows the risk committees to ascertain whether the information is sufficient to base further decisions upon.
When user defined models (e.g. spreadsheets) are used for supporting the RM Framework, the ‘a.s.r. Standard for End user computing’- in addition to the general security policy - defines and describes best practices in order to guard the reliability and confidentiality of these tools and models. a.s.r. recognises the importance of sound data quality and information management systems. The management of IT and data risks of the implemented tools, models and systems (including data) is part of the Operational IT risk management.
The Executive Board clearly recognises the importance of risk management and is therefore represented in all of the major group level risk committees. Risk Management is involved in the strategic decision-making process, where the company’s risk appetite is always considered. The awareness of risks during decision-making is continually addressed when making business decisions, for example by discussing and reviewing risk scenarios and the positive and/or negative impact of risks before finalising decisions.
In doing so, a.s.r. aims to create a solid risk culture in which ethical values, desired behaviours and understanding of risk in the entity are fully embedded. Integrity is of the utmost importance at a.s.r.: this is translated into a code of conduct and strict application policies for new and existing personnel, such as taking an oath or promise when entering the company, and the ‘fit and proper’ aspect of the Solvency II regulation, ensuring that a.s.r. is overseen and managed in a professional manner.
6.8.1.1.6 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) evaluating 1. 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.
Identifying Management should endeavour to identify all possible risks that may impact the strategic objectives of a.s.r., ranging from the larger and/or more significant risks posed on the overall business, down to the smaller risks associated with individual projects or smaller business lines. Risk identification comprises of the process of identifying and describing risk sources, events, and the causes and effects of those events.
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 risk: • Life insurance risk • Health insurance risk • Non-life insurance risk
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 • Financial reporting • Outsourcing • Information technology • Project risks
6.8.2.1 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 following life insurance risks are involved: Mortality risk Mortality risk is associated with (re)insurance obligations, such as endowment or term assurance policies, where a payment or payments are made in case of the policyholder’s death during the contract term. The increase in mortality rates is applied to (re)insurance obligations which are contingent on mortality risk. The required capital for this risk is calculated as the change in own funds of a permanent increase of mortality rates by 15% for all ages and each policy.
Lapse risk Lapse risk is the risk of losses (or adverse changes in the best estimate of the liabilities) due to an unanticipated (higher or lower) rate of policy lapses, terminations, changes to paid-up status (cessation of premium payment) and surrenders. The effect of the lapse risk is equal to the highest result of a permanent increase in lapse rates of 50%, a permanent decrease in lapse rates of 50% or a mass lapse event (70% of insurance policies in collective pension funds or 40% of the remaining insurance policies). The lapse shocks are only applied to portfolios where this leads to a higher best estimate.
The table below summarises the required capital for abovementioned life insurance risks based on the standard model.
Reinsurance Reinsurance and other risk-mitigating measures are used to reduce 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.
In order to optimise its balance sheet risks, a.s.r. entered into a reinsurance agreement with Legal and General Re in 2015. The share of Legal and General Re is on behalf of a specific buy-out portfolio. Also, for the Generali portfolio, a relatively small reinsurance contract is in force. The total share of the reinsurances for a.s.r. amounts to € 190 million per 31 December 2019.
Financial statements 2019 | 6.8 Risk management 248 6.8.2.2.1 Health insurance risk The Health insurance portfolio of a.s.r. is diverse. The portfolio can be divided into two main product types: I. SLT Health portfolio (Similar to Life Techniques) Income Protection, which can be divided into a. Individual Disability (Zelfstandigen) b. Group Disability (WIA) II. NSLT Health portfolio (Similar to Non-life Techniques), which can be divided into a. Income Protection (Sickness, and Individual and Group Accident) b. Medical Expenses (Basis and Aanvullend)
The SCR for the Health Non-SLT risk differs from the sum of the amounts reported in the OTSO QRTs. This difference is caused due to a diversification benefit on group level.
For the NSLT Health portfolio, the provision at year-end can be broken down as follows under Solvency II.
Premium- and reserve risk The premium risk is the risk that the premium is not adequate for the underwritten risk. The premium risk is calculated over the maximum of the expected written premium for the next year, and the written premium for the current year. The Premium and reserve risk is derived at the level of a legal entity based on the Standard Model. For the calculation of the Premium and reserve risk, several input data and parameters are necessary, as described in the Standard Model. The geographical spread, when a (re)insurer underwrites products in different countries, is not relevant for a.s.r. schade as there is no material exposure outside the Netherlands.
Lapse risk The lapse risk is the loss of basic own funds, caused by the discontinuance of 40% of the policies for which discontinuation would result in an increase in the basic own funds. The lapse risk is calculated as follows: I. Effect of expired future profits on existing contracts (which are already taken into account in the Best Estimate calculation of premium provision) by: a. Deriving the level of (Solvency II) Line of Business (LOB) based on the assumption of a 40% lapse; b. Solvency II LOB contains a group of products with the same risk profile which are modelled together; c. Taking (Solvency II) LOBs into account in case of lapse with an increase in the provision. II. Effect of continuous fixed costs is not taken into account.
For the Non-life portfolio, the provision at year-end can be broken down as follows under Solvency II: Non-life portfolio - technical provisions per segment
Financial statements 2019 | 6.8 Risk management 253 6.8.3 Market risk
The main market risks of a.s.r. are spread, property and equity risk. This is in line with the risk budgets based on the strategic asset allocation study. Market risk increased mainly driven by re-risking of the investment portfolio (including scaling back the interest rate hedge).
The value of investment funds at year-end 2019 was € 4,427 million (2018 € 3,650 million). a.s.r. applies the look through approach for investment funds to assess the market risk.
The diversification effect shows the effect of having a well-diversified investment portfolio.
Interest rate risk – UFR Measured as the impact of a lower UFR. For the valuation of liabilities, the extrapolation to the
(incl. UFR 4.05%/3.90%) Measured as the impact of a parallel 1% upward and downward movement of the interest rates. For the liabilities, the extrapolation to the UFR (3.90 for 2019 and 4.05% for 2018) after the last liquid point of 20 years remained unchanged.
Measured as the impact of an increase of spread on loans and corporate bonds of 75 bps. At the same time, it is assumed that the VA will increase by 18bps (2018 was 20 bps) based on reference portfolio.
The Solvency II sensitivities stayed almost the same in the past year, except for the credit spread. The decrease of the credit spread sensitivity from +21 to +15 is mainly caused by the fact that the interest rate down becomes dominant in this scenario, whereas the interest rate up was dominant previous year. This led to a smaller diversification in the market risk module and therefore to a lower impact of the Solvency Capital Requirement (SCR) on the ratio.
The sensitivities to interest rates changed mainly due to (i) a higher shadow accounting percentage and (ii) the lower yield curve. A small impact on profit is the result of put options.
The sensitivity of total equity to foreign currency increased due to a higher exposure the foreign currencies. The sensitivity of profit includes the impact of both derivatives and bonds.
6.8.3.1 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.
SCR interest rate risk 386 238 a.s.r. has assessed various scenarios to determine the sensitivity to interest rate risk. The impact on the solvency ratio is calculated by determining the difference in the change in available and required capital.
An interest rate risk policy is in place for the Group as well as for the registered insurance companies. All interest rate- sensitive balance sheet items are in scope, including the employee benefit obligations of the Group. In principle, the sensitivity of the solvency ratio to interest rates is minimised. In addition, the exposure to interest rate risk or various term buckets is subject to maximum amounts.
6.8.3.2 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. applies the look through approach for investment funds to assess the equity risk.
a.s.r. applies the transitional measure for equity risk for shares in portfolio at 31 December 2015. The SCR equity shock was 22% at 31 December 2015 and linear increasing in 7 years to (i) 39% + equity dampener for type I shares and (ii) 49% + equity dampener for type II shares. This resulted in a reduction of the average risk charge of equity risk of about 3.4% per 31 December 2019.
In case the transitional measure would not be used, SCR equity risk would increase to € 924 million.
Composition of equity portfolio The fair value of equities and similar investments at year-end 2019 was € 2,421 million (2018: € 2,191 million). The increase in 2019 mainly due to the positive returns on the equity markets.
Since the third quarter of 2019 EIOPA allows to apply the look through approach for participations. a.s.r. applies the look through approach for participations which activities are primarily real estate investments.
Scenario (%-point) 31 December 2019 31 December 2018 31 December 2019 31 December 2018 31 December 2019 31 December 2018
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 € 4,524 million at year-end 2019 (2018: € 4,111 million). The increase in 2019 was a result of both transactions and increases in property prices.
Composition property portfolio 6.8.3.4 Currency risk Currency risk measures the impact of losses related to changes in currency exchange rates. The table below provides an overview of all currencies with the largest exposures. a.s.r. has currency risk to insurance products in American dollars (USD), Australian dollars (AUD) and South African Rands (ZAR). The policy of a.s.r. is in principle to hedge the currency risk excluding investments in equities and investments that are externally managed. However, certain currency exposures are permitted from a tactical perspective within a specific risk budget.
Currency risk has increased € 33.1 million. This is mainly caused by an increase in foreign stocks and a decrease in the liabilities.
Specification currencies with largest exposure Foreign stocks have substantially increased in the following currencies: USD, AUD, CHF. The liabilities have substantially decreased in USD and AUD.
Composition of fixed income portfolio 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 the fixed-income exposure by (i) rating class and (ii) sector. Assets in scope of spread risk are, by definition, not in scope of counterparty default risk.
Composition fixed income portfolio by rating 6.8.3.6 Market risk concentrations Concentrations of market risk constitute an additional risk to an insurer. Concentration risk is the concentration of exposures to the same counterparty. Other possible concentrations (region, country, etc.) are not in scope. The capital requirement for concentration risk is determined in three steps: 1. determine the exposure above threshold. The threshold depends on the credit quality of the counterparty; 2. calculation of the capital requirement for each counterparty, based on a specified factor depending on the credit quality; 3. aggregation of individual capital requirements for the various counterparties.
The total capital requirement for counterparty risk is an aggregation of the capital requirement for type 1 exposure and the capital requirement for type 2 exposure by taking 75% correlation.
The Counterparty risk type 1 has decreased a) due to decrease of cash position and b) due to new regulation for derivatives exposure. The counterparty risk type 2 has decreased a) due to the lower volume of the receivables from intermediaries that have been due for more than three months; b) due to the overall decrease of type 2 exposures. The total counterparty risk has decreased by € 91 million.
6.8.4.4 Reinsurance a.s.r. collaborates with reinsurers for fire and catastrophe risk. 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.
The table below shows the exposure to reinsurers per rating. The total exposure to reinsurers at year-end 2019 was € 539 million (2018: € 549 million).
a.s.r.’s liquidity management principle consists of three components. First, a well-diversified funding base which is necessary in order to provide liquidity for cash management purposes. A portion of assets must be invested in unencumbered marketable securities that can be used for collateralised borrowing or asset sales. Second, the strategic asset allocation should reflect the expected and contingent liquidity needs of liabilities. Finally, an adequate and up-todate liquidity policy and contingency liquidity plan are in place to enable management to act effectively and efficiently in times of crisis.
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 2019, a.s.r. had cash (€ 1,599 million), short-term deposits (€ 1,566 million) and liquid government bonds (€ 16,314 million). Furthermore a.s.r. has access to committed cash facilities and an unsecured revolving credit facility in order to meet its liquidity needs in times of stress.
Payable on demand < 1 years 1-5 years 5-10 years > 10 years
When the amount payable is not fixed the amount reported is determined by reference to the conditions existing at the reporting date.
Measuring All risks in the risk-control frameworks are assessed on likelihood of defaults and impact. Where applicable, the variables are quantified, but often judgments of subject matter experts are required. Based on the estimation of the variables, each risk is labelled with a specific level of concern (1 to 4). Gross risks with a level of concern 3 or 4 are considered ‘key’.
Monitoring and reporting The effectiveness of operational risk management is periodically monitored by the business risk manager at each business line or legal entity. For each key control in the risk-control framework a testing calendar is established, based on accounting standards. Each control is tested regularly and the outcomes of the effectiveness of the management of key risks are reported to the management board. Outcomes are also reported to the NFRC and BEC – Risk meeting.
Operational incidents Operational incidents are reported to GRM, 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.
ICT Through IT risk management, a.s.r. devotes attention to the efficiency, effectiveness and integrity of ICT, including End User Computing applications. The logical access control for key applications used in the financial reporting process remains a high priority in order to enhance the integrity of applications of data. The logical access control procedures also prevent fraud by improving segregation of duties and by conducting regular checks of actual access levels within the applications. Proper understanding of information, security and cyber risks is essential, reason for which continuous actions are carried out to create awareness among employees and management.
Business Continuity Management Operational management can be disrupted significantly by unforeseen circumstances or calamities which could ultimately disrupt the execution of critical and operational processes. Business Continuity Management enables a.s.r. to continue its daily business uninterruptedly and to react quickly and effectively during such situations.
Critical processes and activities and the tools necessary to use for these processes are identified during the Business Impact Analysis. This includes the resources required to establish similar activities at a remote location. The factors that can threaten the availability of those tools necessary for the critical processes are identified in the Threat Analysis.
There is a central crisis team led by member of the board. Each business line has their own crisis team led by the director of the management team. The continuity of activities and the recovery systems supporting critical activities are regularly tested and crisis teams are trained annually. The objective of the training is to give the teams insights into how they function during emergencies and to help them perform their duties more effectively during such situations. The training also sets out to clarify the roles, duties and responsibilities of the crisis teams. One important training scenario used is a scenario that includes cyber threats.
Reasonable assurance and model validation a.s.r.aims to obtain reasonable assurance regarding the adequacy and accuracy of the outcomes of models that are used to provide best estimate values and solvency capital requirements. To this end, multiple instruments are applied, including model validation. Materiality is determined by means of an assessment of impact and complexity. Impact and complexity is expressed in terms of High (H), Medium (M), or Low (L).
The solvency ratio stood at 194% as at 31 December 2019 after distribution of the proposed dividend and is based on the standard formula as a result of € 7,828 million eligible own funds and € 4,035 million SCR. As a result of organic growth, the issuance of a Tier 2 loan and a Tier 1 loan, the acquisition of Loyalis, the increase in equity markets, lower interest rates and spread tightening on credits the eligible own funds increased. These effects were partially offset by a lower UFR, tightening of the VA, the redemption of Tier 1 loans and the interim and proposed final dividend. This increase in SCR is mainly due to the acquisition of Loyalis, lower interest rates and an increase in equity risk due to rising stock prices.
Management Overall capital management is administered at group level. a.s.r. currently intends to consider investing capital above the management target Solvency II ratio (calculated based on the standard formula) of 160% with the objective of creating value for its shareholders. If and when a.s.r. operates at a certain level (which may change over time) that is considerably above the management target, and it assesses that it cannot invest this capital in value-creating opportunities for a prolonged period of time, a.s.r. may decide, but is not obliged, to return (part of this) capital to its shareholders.
In accordance with a.s.r.’s dividend policy, the liquidity of the underlying entities is not taken into account for the liquidity position of the group. However, the capital is recognised in the capital position of the group, since a.s.r. has the ability to realise the capital of this OTSO, for example by selling the entity. Specifically regarding ASR Basis Ziektekostenverzekeringen N.V. in 2019, no dividend or capital withdrawals have taken place.
Ratings Standard & Poor’s Type Rating Outlook Rating and outlook since
On 19 July 2019, a.s.r. announced the intended acquisition of the life-insurance portfolio of VvAA to bolster its Life insurance portfolio. This transaction was closed after the reporting date of this annual report, on 1 January 2020, and has a limited impact on the solvency ratio of a.s.r.
On 23 August 2019, a.s.r. announced the intended acquisition of Veherex to strengthen its disability proposition. This transaction was closed after the reporting date of this annual report, on 1 January 2020, and has a limited impact on the solvency ratio of a.s.r.
2. Capital Market transactions On 25 April 2019, a.s.r. issued a € 500 million subordinated Tier 2 capital instrument. The bond has a fixed rate coupon of 3.375% and has a scheduled maturity date at 2049 and is first callable on the date falling 3 months prior to the first reset date of 2 May 2029.
a.s.r. redeemed € 17 million Fixed Rate Perpetual Capital Securities on 30 September 2019 and a further € 192 million on 26 October 2019. The two redemptions were the remaining parts of two grandfathered Restricted Tier 1 instruments, with a notional coupon of 7.25% and 10.0%, respectively.
Financial statements 2019 | 6.9 Capital management 272 3. Share buyback programme In the second half of 2019 a.s.r.’s capital policy was reviewed and adjusted, in particular with regard to the possibility of additional capital distributions. a.s.r. takes into account the level of solvency, organic capital creation (OCC) and potential opportunities for allocating capital for acquisitions or re-risking. a.s.r. has the intention for the medium term to make an additional capital distribution of € 75 million per year, on top of the progressive regular dividend. Any additional capital distribution shall be conditional upon our Solvency II ratio (based on the standard formula) to remain above 180%, as a.s.r. aims to maintain a robust balance sheet. The additional distribution will be financed from the available OCC, taking into account the regular dividend, room for potential bolt-on acquisitions and re-risking. If there are opportunities for larger acquisitions, this may have implications for the annual additional capital distribution a.s.r. is aiming for. a.s.r. will assess the possibility of an additional distribution on an annual basis.
4. Dividend a.s.r. intends to pay € 267 million total dividends over full year 2019 (2018: € 245 million) of which € 99 million has already been paid as interim dividend (2018: € 92 million), leaving a final dividend of € 169 million.
It is current market practice for insurers to use an operating result to measure the underlying business performance, however the various current operating result definitions in the market seem to diverge. The a.s.r. operating result definition has limited deviations from the IFRS result. Following the implementation of IFRS 17 the operating result definitions need to be revised which may provide the opportunity to enhance the comparability of the operating result definition in the market.
Due to the definition change the operating result in 2018 is restated from € 742 million to € 749 million.
The investment related incidentals in both 2018 and 2019 consist mainly of capital gains on equity instruments and revaluation of real estate investments. As equity markets soared, the level of these capital gains in 2019 was significantly higher than in 2018.
In 2019, incidentals are mainly related to the gain on the acquisition of Loyalis which is partly offset by Loyalis integration costs, restructuring costs and project implementation regulatory costs (project IFRS17/9) (for more information see chapter 6.4.3).
Financial statements 2019 | 6.11 Company financial statements 275 6.11 Company financial statements 6.11.1 Company balance sheet
Financial statements 2019 | 6.11 Company financial statements 276 6.11.2 Company income statement
Company income statement 1 Comparative figures for 2018 have been restated. For details see chapter 6.11.3.1.
6.11.3 Notes to the company financial statements 6.11.3.1 Accounting policies The company financial statements are prepared in accordance with Title 9, Book 2 of the Dutch Civil Code. The consolidated financial statements of a.s.r. for 2019 have been prepared in accordance with IFRS – including the IAS and Interpretations – as accepted within the EU and with part 9 of the book of the Dutch Civil Code. In accordance with Section 362(8), Book 2 of the Dutch Civil Code, the ASR Nederland N.V. EB has decided to apply the same accounting policies to the company financial statements as applied to the consolidated financial statements. This has been the practice since 2005.
Changes in EU endorsed published IFRS standards and interpretations effective in 2019
IFRS 16 Leases IFRS 16 is EU endorsed and became effective as of 1 January 2019. Under this standard a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for a consideration. The main items a.s.r. leases, under operating lease agreements, are vehicles and buildings. For contracts that contain a lease component and one or more additional lease or non-lease components a.s.r. applies the practical expedient not to separate non-lease components from lease components.
Incremental borrowing rate applied at the date of initial application: For vehicles leased a.s.r. uses the borrowing rate supplied by the lease company, which is 0.9%. The weighted incremental borrowing rate of a.s.r. as a lessee applied to the leased land and buildings for own use and other property and equipment is 2.9%.
Annual improvements to IFRS standards 2015-2017 cycle: IAS 12 amendment The IAS 12 amendment clarifies that the income tax consequences of dividends on financial instruments classified as equity should be recognised according to where the past transactions or events that generated distributable profits were recognised. These requirements apply to all income tax consequences of dividends.
6.11.3.2 Intangible assets The intangible assets as at 31 December 2019 amounted to € 103 million (2018: € 74 million) and consist for € 74 million (2018: € 74 million) of goodwill. The goodwill relates to the acquisition of De Eendragt Pensioen N.V. in 2015 (€ 23 million), to the acquisition of BNG Vermogensbeheer B.V. in 2016 (€ 4 million), and to the acquisition of Generali in 2018 (€ 47 million). The € 29 million increase relates to the identified intangible assets as a result of the acquisition of Loyalis.
The right-of-use assets includes property and equipment that is leased by a.s.r. Land and buildings owned by subsidiary relates mainly to the a.s.r. head office, which is owned by a.s.r. leven.
The loans to group companies consist primarily of deposits with group companies of € 16.5 million (2018: € 61 million) with an average interest rate of 1.73% (2018: 1.80%) repayable within one year and loans of € 24.5 million (2018: € 22 million) with a maturity term longer than one year and an average interest rate of 5.2% (2018: 3.7%). Interest income on loans to group companies amount to € 1 million (2018: nil).
Issue of other equity instruments - - - - - - - 207 207
Change in reserves required by law - - - 429 -429 - - - -
Legal reserves The legal reserves relate to the revaluation of investments in group companies. The legal reserves are maintained in relation to the (not yet received as dividend) share in the result (and other additions to equity) of group companies accounted for using the equity method since initial recognition reduced with the amount of dividend that a.s.r. is able to distribute without restrictions. The legal reserves are not freely distributable. See chapter 6.9 for more information on the regulatory restrictions.
Other equity instruments The other equity instruments relate to two (2018: four) different hybrid Tier 1 and Tier 2 instruments classified as equity. The first instrument (issue date 2014) features a perpetual non-call 10 year restricted Tier 2 capital instrument. The second instrument was issued in two stages. In 2017, a.s.r. issues a perpetual non-call 10 year restricted Tier 1 contingent convertible capital instrument. In 2019, an additional € 200 million of Restricted Tier 1 capital was issued and was fully integrated in the outstanding Restricted Tier 1 2017 issue, increasing its notional size to € 500 million.
Distributable items 3,199 2,937 6.11.3.11 Employee benefits Employee benefits can be broken down as follows (see chapter 6.5.15 for further details): Employee benefits
6.11.3.13 Subordinated liabilities Subordinated liabilities can be broken down as follows (see chapter 6.5.13 for further details).
On 2 May 2019 a.s.r. issued € 500 million subordinated liabilities in the form of Tier 2 notes. The bond has a maturity date of 2049 and is first callable 3 months before the first reset date of 2 May 2029. The coupon is fixed at 3.375% and paid annually on 2 May. After the reset date the interest is calculated based on the 5 Year Mid Swap Rate plus a margin of 4.00 per cent and updated once every five years. The proceeds of the bond are primarily used to finance the acquisition of Loyalis.
The lease liabilities consist primarily (€ 207 million) of the lease of the a.s.r. head office from a.s.r. leven. The maturity of this contract is 36 years, which includes the total of five extension options of five year each.
Financial statements 2019 | 6.11 Company financial statements 282 6.11.3.15 Debts to group companies Debts to group companies of € 84 million (2018: € 40 million) contains two deposits due to group companies of € 39 million and € 30 million (2018: € 39 million) with an average Interest rate of 0.6% (2018: 0.6%). The maturity of the deposits is 12 months.
There is no significant difference between the carrying amount of € 84 million (2018: € 40 million) debt to group companies and the fair value of these liabilities.
The interest expense on debts to group companies in 2019 is € 0.2 million (2018: € 0.1 million).
6.11.3.20 Auditor’s fees With reference to Section 2:382a(1) and (2) of the Dutch Civil Code, the following fees for the financial years have been charged by EY Accountants LLP to the Company, its subsidiaries and other consolidated entities. • Fees for audit engagements: these include fees paid for the audit of the consolidated and company financial statements, quarterly reports and other reports.
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 6.7.4 and 6.7.9). The remuneration of the a.s.r. EB and SB members are discribed in chapter 5.3.
Investment obligations and guarantees As in 2018, a.s.r. has issued no guarantees to third for real estate development projects.
About the object This carving comes from the facade of the De Utrecht office building, designed by architect Jan Verheul in the 1899-1903 period. The building was richly decorated, both inside and out, with images including dragons, eagles and lions. This carving of an eagle was a facade element that stood high above the building.
Our opinion We have audited the financial statements for 2019 of ASR Nederland N.V., based in Utrecht, the Netherlands. The financial statements include the consolidated financial statements and the company financial statements.
The consolidated financial statements comprise: • The consolidated balance sheet as at 31 December 2019; • The following statements for 2019: the consolidated income statement, the consolidated statements of comprehensive income, changes in equity and cash flows; and
The company financial statements comprise: • The company balance sheet as at 31 December 2019; • The company income statement for 2019; and • The notes comprising a summary of the accounting policies and other explanatory information.
We are independent of ASR Nederland N.V. in accordance with the EU Regulation on specific requirements regarding statutory audit of public-interest entities, the ‘Wet toezicht accountantsorganisaties’ (Wta, Audit firms supervision act), the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO, Code of Ethics for Professional Accountants, a regulation with respect to independence) and other relevant independence regulations in the Netherlands. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA, Dutch Code of Ethics).
We start by determining materiality and identifying and assessing the risks of material misstatement of the financial statements, whether due to fraud, non-compliance with laws and regulations or error in order to design audit procedures responsive to those risks, and to obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
We incorporated elements of unpredictability in our audit. We considered the outcome of our other audit procedures and evaluated whether any findings were indicative of fraud or non-compliance. If so, we reevaluate our assessment of fraud risk and its resulting impact on our audit procedures.
Our audit response related to risks of noncompliance with laws and regulations We assessed factors related to the risks of non-compliance with laws and regulations that could reasonably be expected to have a material effect on the financial statements from our general industry experience, through discussions with the management board, the business line CFRO’s and the compliance officer, reading minutes, inspection of internal audit and compliance reports, inspection of Systematic Integrity Risk Analyses (SIRA) reports and performing substantive tests of details of classes of transactions, account balances or disclosures.
Other information | 7.1 Report on the audit of the financial statements 2019 included in the annual report 288
Going concern In order to identify and assess the risks of going concern and to conclude on the on the appropriateness of management’s use of the going concern basis of accounting, we consider based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion.
Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company to cease to continue as a going concern.
General audit procedures Our audit further included among others: • Performing audit procedures responsive to the risks identified, and obtaining audit evidence that is sufficient and appropriate to provide a basis for our opinion; • Evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management
Our key audit matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements. We have communicated the key audit matters to the SB. The key audit matters are not a comprehensive reflection of all matters discussed.
The key audit matter Generali Nederland N.V. acquisition which was included in our last year’s auditor’s report, is not considered a key audit matter for this year as the acquisition was finalised in 2018 and presented in the annual report of 2018.
Additionally, the valuation of the insurance contract liabilities is affected by and sensitive to government regulations, in particular regarding the claims from workers’ compensations insurance (WGA-ER) and in the healthcare insurance domain.
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. As disclosed in note 6.5.14 the UFR has a significant impact on the LAT.
Additionally, key audit procedures included assessing ASR Nederland N.V.’s methodology for calculating the insurance liabilities, assessing the company’s approach to liability adequacy testing and an assessment of internal controls in this respect, including the analyses of the movements in insurance contracts liabilities and technical provisions adequacy surplus during the year. We assessed whether the movements are in line with the changes in assumptions adopted by ASR Nederland N.V., our understanding of developments in the business and our expectations derived from market experience. We audited the main assumptions used for the determinations of the insurance liabilities and LAT calculations. We assessed the internal control regarding determination of the insurance liabilities and LAT calculations.
Based on our audit procedures performed, we consider the methods used for the valuation of the insurance contract liabilities appropriate.
We consider the assumptions used to be within a reasonable range.
We determined that the company applied shadow accounting (including the accounting for realised results)
in accordance with their accounting policy and consistent with previous years.
The use of different valuation techniques and assumptions could produce significantly different estimates of fair value.
We assessed and tested the design and operating effectiveness of the controls over valuation, including independent price verification and model approval. We performed additional procedures on the valuation and fair value level classification of the investments. This included, where relevant, involving our valuation specialists, comparison of judgments made to market practice and re-performance of valuations on a sample basis. We also assessed the impact of other sources of fair value information including gains or losses on disposal.
Based on our audit procedures performed, we consider the fair value of investments to be within a reasonable range.
Other information | 7.1 Report on the audit of the financial statements 2019 included in the annual report 291
These disclosures provide information on the capital position of ASR Nederland N.V. on a regulatory basis
Further, in the calculation of the Solvency II ratio, ASR Nederland N.V. has not provided for a contingent liability in respect of the unit-linked issue in the Netherlands. ASR Nederland 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.
Risk Holders of unit-linked products (where the customer bears all or part of the investment risk), or consumer protection organisations on their behalf, have filed claims or initiated proceedings against the company and may continue to do so.
We performed audit procedures in this area, which include: • An assessment of ASR Nederland N.V.’s governance, processes and internal controls with respect to unitlinked exposure; • A review of the documentation and enquiries about the unit-linked exposures with management and its internal legal advisor. These procedures took into account ASR Nederland N.V.’s specific developments as well as broader market developments in 2019; • Obtaining a legal letter from ASR Nederland N.V.’s external legal advisor; • Consideration of the recognition and measurement requirements for establishing provisions under IFRS.
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 6.7.6.2 to the financial statements.
Risk In the second half of 2019 ASR Nederland N.V. finalised its Purchase Price Allocation (PPA) regarding its acquisition of Loyalis N.V. as per 1 May 2019, in accordance with IFRS 3 Business Combinations. The final consideration for the Loyalis N.V. acquisition was € 436 million. Net assets acquired were valued at € 554 million and a bargain purchase (badwill) of € 118 million was recognised.
ASR Nederland N.V. and comparing the approach with accepted industry practice; • Assessing the appropriateness of key assumptions; • Confirming consistency of assumptions with other areas of the financial statements; • Analysing the reconciliation between purchase price, Business Enterprise Value and IFRS 3 fair value of net assets acquired; • Recalculating the consideration and badwill amount.
To meet clients’ needs and business requirements 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 cyber-attacks.
Other information | 7.1 Report on the audit of the financial statements 2019 included in the annual report 293
In response to the increased frequency and severity of cyber incidents and heightened concerns from regulators and other stakeholders about cybersecurity attacks and breaches, we have evaluated cybersecurity risks as part of our annual audit procedures. Our main focus during this audit was to gain an understanding of the cybersecurity risks at ASR Nederland N.V. and the actions taken by ASR Nederland N.V. to address these risks.
We have included IT auditors in our team in performing our audit procedures.
Based on our procedures performed with regards to Cyber Security we did not identify a significant risk impacting our financial statement audit. Our audit was not aimed at making a statement about the cybersecurity of ASR Nederland N.V.
Classification and valuation of ASR Bank N.V. as held for sale and discontinued operation
Risk Management of ASR Nederland N.V. has decided on 10 October 2018 to label ASR Bank N.V. as a non-core component. As a consequence, ASR Nederland N.V. has classified the component ASR Bank N.V. as held for sale and as a discontinued operation in its 2018 and 2019 financial statements in accordance with IFRS 5
IFRS 5 requires an entity to measure a non current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell. As a consequence, an impairment loss of € 36 million was recorded in the 2018 financial statements. The closing of the sale agreement on 1 December 2019 resulted in an immaterial adjustment to the carrying amount. Refer to Note 6.4.6.
As part of our audit procedures, we have assessed the held for sale, valuation and discontinued operation classification and related disclosures of ASR Bank N.V. by investigating if the requirements of IFRS 5 are met.
We performed audit procedures in relation to the impairment, which included: • An audit of the transaction with Achmea Bank N.V.; • An inspection of the agreement with Van Lanschot Kempen N.V.; • Validating the fair value less cost to sell; • Recalculating the revaluation.
The developments surrounding the Corona (Covid-19) virus have a profound impact on people’s health and on our society as a whole, as well as on the operational and financial performance of organisations and the assessment of the ability to continue as a going concern. The financial statements and our auditor’s report thereon are snapshots. The situation changes on a daily basis giving rise to inherent uncertainty. ASR Nederland N.V. is confronted with this uncertainty as well, that is disclosed in the Report of the Management Board, chapters 1.2 CEO Statement and 4.2 Risk management and the disclosure about Events after the balance sheet date (note 6.7.7). We draw attention to these disclosures. Our opinion is not modified in respect of this matter.
In addition to the financial statements and our auditor’s report thereon, the annual report contains other information that consists of: • Report of the Management Board, including the remuneration report; • Other information pursuant to Part 9 of Book 2 of the
Management is responsible for the preparation of the other information, including the Report of the Management Board in accordance with Part 9 of Book 2 of the Dutch Civil Code, other information required by Part 9 of Book 2 of the Dutch Civil Code and the remuneration report in accordance with Section 2:135b of the Dutch Civil Code.
Engagement We were engaged by the general meeting of shareholders as auditor of ASR Nederland N.V. on 16 April 2015, as of the audit for the year 2016 and have operated as statutory auditor ever since that date.
No prohibited non-audit services We have not provided prohibited non-audit services as referred to in Article 5(1) of the EU Regulation on specific requirements regarding statutory audit of public-interest entities.
Other non-prohibited services provided In addition to the statutory audit of the financial statements of ASR Nederland N.V. and its subsidiaries, we provided the following services: • Regulatory reporting: We issued auditor’s reports on selected regulatory reporting templates of ASR Nederland N.V., and of its subsidiaries, to the Dutch Central Bank (DNB); • Corporate responsibility reporting: We issued an assurance report on ASR Nederland N.V.’s corporate responsibility reporting included in the annual report; • We issued audit reports on the financial information of ASR Nederland N.V.’s financial intermediary business; • We issued assurance reports in respect of the administration and internal control of ASR Vermogensbeheer, ASR Real Estate, ASR Mortgages, ASR Pensions and ASR ITC; We issued assurance reports on the cost price models for financial products prepared by ASR Nederland N.V.’s insurance subsidiaries; • We issued reports of factual findings on statements prepared by ASR Nederland N.V. to meet contractual obligations with its customers.
Responsibilities of management and the Supervisory Board for the financial statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with EU-IFRS and Part 9 of Book 2 of the Dutch Civil Code. Furthermore, management is responsible for such internal control as management determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.
Other information | 7.1 Report on the audit of the financial statements 2019 included in the annual report 295 or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the company’s ability to continue as a going concern in the financial statements.
Communication We communicate with the SB regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant findings in internal control that we identify during our audit.
35.6 The parties entitled to a distribution shall be the relevant shareholders, usufructuaries and pledgees, as the case may be, at a date to be determined by the EB for that purpose. This date shall not be earlier than the date on which the distribution was announced.
35.7 The General Meeting may resolve, subject to Article 31.1, that all or part of such a distribution, instead of being made in cash, shall be made in the form of shares in the Company’s capital or in the form of the Company’s assets.
35.8 A distribution shall be payable no later than thirty days after the date on which such distribution was declared, unless the EB sets a different date. If it concerns a distribution in cash, such distribution shall be payable in such currency as determined by the EB.
35.9 A claim for payment of a distribution shall lapse after five years have expired after the distribution was declared.
35.10 For the purpose of calculating any distribution, shares held by the Company in its own capital shall not be taken into account. No distribution shall be made to the Company in respect of shares held by it.
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 EB may resolve to charge amounts to be paid up on any class of shares against the Company’s reserves, irrespective of whether those shares are issued to existing shareholders.
Company’s annual accounts in respect of a financial year shall be appropriated as follows, and 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;
About the object This filing cabinet comes from the Personnel Department of Levensverzekering Maatschappij Utrecht and contains the personnel administration for the period from 1883 to 1963.
Report of the Stichting Continüiteit ASR Nederland | 8.1 Report of Stichting continuiteit ASR Nederland 300 8.1 Report of Stichting continuiteit ASR Nederland
Stichting Continuïteit ASR Nederland (the ‘Foundation’) was established on 26 May 2016 in connection with a.s.r.’s listing on Euronext Amsterdam.
The Foundation is an independent legal entity for the purpose of Section 5:71(1)(c) of the Dutch Financial Markets Supervision Act.
1 The Dutch Transparency Benchmark takes place on a bi-annual basis. Due to a new methodology, the 2019 result can not be compared to the result in 2017.
Euronext Vigeo Eiris (Eurozone 120) included included NA Vigeo Eiris NA 52 NA
No, not fully but follow up is clear to me 546 470 555
No, not fully and the follow up is unclear to me 193 205 205
% of all a.s.r. staff working from the Utrecht location (FTE/HC) 90% 95% 96%
Total spending on training and development (in € million) 6.4 6.8 5.4
Employees have completed an individual coaching programme (#) 487 486 266
Employess were giving guidance in the context of redundancy (#) 157 154 182
The annual total compensation for the highest-paid individual consists of base salary and fringe benefits, including the maximum social security contributions.
Assets under management in SRI funds and mandates (end of period) (in %) 100 100 100
Number of screened companies (#) excluded due to: Human rights violations 7 6 3
Closing price as at 31 December € 33.36 € 34.58 € 34.31
Shareholder return including dividend reinvested in a.s.r. shares 1.8 6.7 58.6
Long-term value creation requires companies to steer on the financial- and non-financial aspects of business. Certain non-financial aspects contribute directly or indirectly to financial performance, and often have a greater impact over the medium to long term. a.s.r. believes that an integrated approach towards performance management is key to ensuring the company creates stakeholder value in the long run. In this integrated annual report, a.s.r. provides a transparent overview of its activities and results in 2019. In addition, this report describes the relationship between its mission, strategy, governance and the social and economic context in which it operates. More information about a.s.r. can be found at www.asrnl.com.
Process Relevant topics and boundaries for this report were selected on the basis of a materiality analysis involving both internal and external stakeholders. A dialogue was held with senior management, including the CEO, to define a.s.r.’s material topics. The process is described in chapter 2.3 (Stakeholders and material topics). The information in the Management report is based on reports from the business lines and the results of questionnaires and interviews. For the preparation of the annual report, a Steering Group (SG), a Working Group (WG), and a Review Group (RG) have been set up to guide the process and review the content of the texts. The annual report SG agrees on the different tasks, roles and responsibilities relating to the preparation of the annual report. The SG represents the CEO, the Director Finance, Risk & Performance Management and the Director Corporate Communications. The following disciplines are represented in the WG: Finance, Risk and Performance Management, Group Balance Sheet Management, Investor Relations & Ratings, Corporate Communications (including CSR), Human Resources, Group Risk Management, and the Company Secretary.
Standards The consolidated financial statements of a.s.r. have been prepared in accordance with IFRS – including the IAS and Interpretations – as adopted by the EU, and with the financial reporting requirements included in Title 9, Book 2 of the Dutch Civil Code, where applicable.
The Solvency II figures in this report are based on the standard formula. In addition to the information in this report, a.s.r. also publishes a separate Solvency and Financial Condition Report (SFCR).
As an UN Global Compact signatory since 2011, a.s.r. reports annually through an online submission its progress of implementing the ten UN Global Compact principles. These principles are related to human rights, labor, environment and anti-corruption. Please see for more detailed information.
Building Research Establishment Environmental Assessment Methodology BREEAM, which was first published by the Building Research Establishment (BRE) in 1990, is the world’s longest established method for assessing, rating, and certifying the sustainability of buildings.
• The mortgages carbon footprint data are based on 2016 numbers as these are the most recent numbers available.
Closed books Closed books are policies that are no longer sold but are still on the books of a life insurance carrier as premium paying policies.
Discretionary Participation Feature A contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are likely to be a significant portion of the total contractual benefits, the amount or timing of which is contractually at the discretion of the issuer, that are contractually based on the performance
of a specified pool of contracts or type of contract, realised and/or unrealised investment returns on a specified pool of assets held by the issuer, or the profit or loss of the company, fund or other entity that issues the contract.
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.
a.s.r. applies impact investing in its business activities: asset management and mortgages. Impact investing includes investments in listed equity (funds), private equity, listed bonds, private bonds and sustainable mortgages. a.s.r. selects impact companies and impact bonds (green bonds) for its investments.
Institution for Occupational Retirement Provision IORP is a pension vehicle in the form of a separate legal entity that can operate a DC pension scheme on a separate account basis during the pension accrual phase. When an employee reaches his or her retirement age, the IORP transfers the accrued capital to a pension insurer of the employee’s choice to pay the pension benefits. Employers wishing to insure any additional risks (such as survivors’ pensions) can do so through an IORP.
International Financial Reporting Standards As of 1 January 2005, these standards have been the generally accepted international accounting policies that apply to all listed companies in the EU. They make annual results easier to compare and offer a better understanding of a company’s financial position and performance.
Living Wage The United Nations’ Universal Declaration of Human Rights (1948) states that ‘everyone who works has the right to just and favorable remuneration ensuring for himself and his family an existence worthy of human dignity’. A living wage can be defined as: the remuneration received for a standard work week by a worker in a particular place sufficient to afford a decent standard of living for the worker and her or his family. Elements of a decent standard of living include food, water, housing, education, health care, transport, clothing, and other essential needs including provision for unexpected events. A living wage may therefore differ from one country, region or even city to the next.
Net Promoter Score A management tool that can be used to gauge the customer satisfaction 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? The NPS is calculated after customers had been in contact with one of the agents. 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 passive. He or she will neither recommend nor discourage the brand. With a score of 0 to 6, the customer will discourage the brand. The NPS term for this is detractor (criticaster). The NPS is calculated by subtracting the percentage of detractors from the percentage of promoters. The NPS scores presented reflect the year end scores.
Operating lease A lease that does not transfer substantially all the risk and rewards incidental to ownership of an asset.
Operating Return on equity A measure of financial performance calculated by dividing the operating result (after hybrid costs and net of taxes) by the average adjusted equity attributable to shareholders for the reporting period.
Organic capital creation The sustainable creation of capital from both the change in the EEOF and the change in the SCR on Solvency II basis. To express the change in SCR in EOF-equivalent terms, the change in SCR is multiplied by the Solvency II ratio. The OCC consists of three elements: (1) Business Capital Generation,
(2) Release of Capital and (3) Technical Movements. In this definition sustainable means: generated by the company on its own account, net of external and one-off effects. This results in a view on the Solvency II figures that is comparable with the definition of the operational result on IFRS basis.
Return on equity A measure of financial performance calculated by dividing the net result attributable to holders of equity instruments by the average equity attributable to shareholders for the reporting period.
Stakeholders Stakeholders are persons or organisations that have an interest of whatever nature in an organisation. They have a link with its activities, share in its earnings, influence its performance and assess its ESG effects. a.s.r.’s main stakeholder groups are customers, employees, investors and the society as a whole.
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.
Transaction date The date at which a.s.r. enters into the contractual terms of an instrument.
Value Of Business Acquired The present value of future profits embedded in acquired insurance contracts. VOBA is recognised as an intangible asset and amortised over the effective life of the acquired contracts.
Environmental Assessment Methodology BVPA Dutch Association for Public Affairs CAK Central Administration Office CBS Statistics Netherlands CCB Climate, Community and Biodiversity
Analysis CRO Chief Risk Officer CSA Credit Support Annex CSR Corporate Social Responsibility DB Defined Benefit DC Defined Contribution DCRF Dutch Core Residential Fund DGBC Dutch Green Building Council DMOF Dutch Mobility Office Fund DNB Dutch Central Bank DPF Discretionary Participation Features
DPRF Dutch Prime Retail Fund DSPR Dutch Science Park Fund EFRAG European Financial Reporting Advisory
Interpretations Committee IFRS International Financial Reporting Standards IFSR Insurer Financial Strength Rating (Standard &
Development OIS Overnight Indexed Swap ORM Operational Risk Management ORSA Own Risk and Solvency Assessment OTC Over The Counter OTSO Supervised entity P&C Property and Casualty PARP Product Approval & Review Process PCAF Platform Carbon Accounting Financials PLWF Platform Living Wage Financials PSO Performance Ladder for Social Business PV Photovoltaics RAS Risk Appetite Statements RM Risk management RMF Risk Management Framework ROE Return on Equity RT1 Restricted Tier 1 bond S&P Standard & Poor’s
SAA Strategic Asset Allocation SaaS Software as a Service SBT Science Based Targets SCR Solvency Capital Requirement SDGs Sustainable Development Goals SME Small and medium-sized enterprises SRA Strategic Risk Analysis SRI Socially Responsible Investment STA Social Team Activity TCFD Task Force on Climate-related Financial
Persons WIA Work and Income Act WnP Employee’s pension WWF World Wildlife Fund ZZP Nederland Dutch self-employed representative organisation
On the topic of climate change, a.s.r. participated in several events and initiatives like the Round Table on adaptation for physical climate risks organised by the Dutch Association of Investors for Sustainable Development (VBDO) and the Global Center of Excellence on Climate Adaptation (GCA). Furthermore, a.s.r. participated in the climate pilot of Ortec to integrate climate scenario’s in Strategic Asset Allocation and sharing good practices with peers and colleagues of a.s.r. asset management by providing several presentations about the PCAF methodology. a.s.r. also helped smaller insurance companies develop climate policies regarding their investments. In order to align its own (climate related) investment activities with the requirements of its stakeholders, a.s.r. had meetings with pension clients like World Wildlife Fund for Nature (WWF) and the Plastic Soup Foundation. In addition, a.s.r. spoke with Greenpeace regarding its policies to align investments with the Paris Agreement.
Materiality analysis 2019 Compared to the materiality matrix of 2018, the following adjustments were made: • The theme ‘cyber security’ is one of the top five a.s.r.
risk priorities for 2019 and falls under the material theme ‘risk management’ in this report; • The solvency of a.s.r. is an indicator of its ‘financial performance’, reflecting the ability to fulfil short- and long-term obligations and commitments to all its stakeholders. In this report ‘solvency’ falls under the material theme ‘financial performance’; • Legal compliance and integrity have been merged because both topics form one department within a.s.r. The theme ‘privacy’ has been added to the title ‘Compliance, integrity and privacy’ as a result of increased attention from stakeholders and new legislation (GDPR) regarding this topic; Annexes | Materiality analysis and stakeholder dialogue 321
• Responsible procurement is not a priority topic of a.s.r. or its stakeholders and has therefore been removed from the material topic list.
• In the previous annual report the topic ‘Climate change’ was described as a trend. Since the reporting of trends has been replaced by a SWOT analysis in this report and due to rapid developments and increasing expectations of stakeholders regarding this topic, this theme has been added as a separate material theme. Climate change and energy transition is also included as one of the three strategic pillars of the sustainability strategy of a.s.r.
Suppliers • Consultation at strategic (2-4 times per year), tactical (monthly) and operational (daily) level
102-2 Activities, brands, products, and services Ch. 1.1, 3.2 (p. 9, 36)
102-7 Scale of the organisation Ch. 1.1, 4.1, 6.2 (p. 9-11, 64, 134-140)
Ch. 3.3 (p. 39-43) Annex A Facts and figures 102-10 Significant changes to the organisation and its supply chain 102-11 Precautionary principle or approach Ch. 4.2, 4.4 (p. 84-88, 90-95)
102-12 External initiatives www.asrnl.com/about-asr/sustainable-business/codes-and-guidelines 102-13 Membership of associations www.asrnl.com/about-asr/sustainable-business/codes-and-guidelines 102-14 Statement from senior decision-maker Ch. 1.2 (p. 12-13)
102-16 Values, principles, standards, and norms of behaviour 102-17 Mechanisms for advice and concerns about ethics 102-40 List of stakeholder groups Ch. 2.3 (p. 24) Annex E Materiality analysis and stakeholder dialogue
Annex E Materiality analysis and stakeholder dialogue 102-43 Approach to stakeholder engagement Ch. 2.3 (p. 24)
Annex E Materiality analysis and stakeholder dialogue 102-44 Key topics and concerns raised through stakeholder engagement 102-45 Entities included in the consolidated financial statements
Annex B About this report 102-46 Defining report content and topic boundaries
Annex B About this report 102-47 List of material topics Ch. 2.3 (p. 25-26)
Compliance, integrity and privacy 419-1 Socioeconomic Compliance Non-compliance with laws and regulations in the social and economic area.
Percentage and total number of significant investment agreements that include human rights clauses or that have undergone human rights screening.
Percentage of assets subject to positive and negative environmental or social screening.
Principle risks in own operations and within value chain. Yes Ch. 4.2 (p. 84-88)
The outcome of those policies. Yes Ch. 3.4, 3.5 (p. 44-48,
Principle risks in own operations and within value chain. Yes Ch. 4.2, 4.4, 6.8 (p. 84-88,
Non-financial key performance indicators. Yes Ch. 1.1, 2.3, 2.4, 3.4, 3.5 (p.
Annexes | EU Directive: disclosure on non-financial information and diversity information 327
Climate change A description of the policies pursued, including due dilligence.
Non-financial key performance indicators. Yes Ch. 1.1, 2.3, 2.4, 3.4, 3,5
Principle risks in own operations and within value chain. Yes Ch. 3.5 (p. 51-52)
The outcome of those policies. Yes Ch.3.5, 4.3, 5.1 (p. 54-55,
Non-financial key performance indicators. Yes Ch. 3,4, 3.5 (p. 44, 54-55)
A description of the policies pursued. Yes Ch. 2.3, 3.3, 5.1 (p. 26, 41-
Description of how the policy is implemented Yes Ch. 3.3, 5.1 (p. 41-42, 108)
Results of the diversity policy Yes Ch. 1.1, 2.3, 3.3, 5.1 (p. 11,
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