Chapter 2 - Report of the Executive Board 2.1 Themes in 2014 24 2.2 Financial Performance 29 2.2.1 ASR Nederland N.V. 29 2.2.2 Non-life segment 33 2.2.3 Life segment 37 2.3 Capital management 45
Chapter 5 - Report of the Supervisory Board 5.1 Report of the Supervisory Board 80 5.1.1 Financial statements and profit appropriation 80 5.1.2 Issues addressed by committees 83 5.1.3 Management and supervision 85 5.1.4 Corporate governance 90 5.1.5 Remuneration policy 92 5.1.6 Closing remark from the Supervisory Board 95
8a.s.r. 2014 annual report a.s.r. at a glance 1.1 Profile and key figures
ASR Nederland N.V. and its subsidiaries, hereinafter jointly referred to as a.s.r., together form the Dutch insurance company for all types of insurance. Via the a.s.r., De Amersfoortse and Ditzo brands, and specialist labels such as Europeesche Verzekeringen and Ardanta, a.s.r. offers a wide range of financial products covering non-life, life and income protection insurance, group and individual pensions, health insurance, travel and leisure insurance, and funeral insurance. Except for a number of funeral portfolios in Belgium, a.s.r. has a presence in the Dutch market only.
a.s.r. offers people certainty in uncertain circumstances. a.s.r. achieves this by ensuring financial continuity in people’s lives and by allowing them to take out insurance for risks that they are unable or unwilling to carry alone, and by helping customers grow their assets for the future.
In its policies, a.s.r. takes account of the interests of its customers and employees, and a broad group of external stakeholders (business partners, shareholders, regulators, politicians, regional governments, industry associations, trade unions, non-governmental organizations (NGOs) and local communities).
a.s.r.’s main office is located at Archimedeslaan 10 in Utrecht, the Netherlands. Other branches in the Netherlands are located in Amersfoort, Amsterdam and Enschede, and at Pythagoraslaan in Utrecht. Thanks to the New World of Work, a.s.r.’s nearly 3,893 employees have been given the opportunity to choose their own time and place of work.
Organizational structure a.s.r. is managed by an Executive Board that bears full responsibility for the three reporting segments: Non-life, Life and Other.
The Other segment comprises the banking business, a.s.r. vastgoed ontwikkeling (real estate development), a.s.r. vastgoed vermogensbeheer (real estate investment management), SOS International (emergency assistance) and the holding companies. The banking business develops mortgages and savings and investment products.
Financial Markets and the real estate investment management business manage an investment portfolio worth more than € 40 billion for a.s.r., policyholders and institutional investors. They invest these assets in a responsible manner so that a.s.r. can meet its obligations at any given time.
The investment portfolio is broadly diversified and consists of holdings in equities, government and corporate bonds, mortgages and real estate. This type of risk diversification and the pursuit of an integrated investment policy that is geared to insurance liabilities allow a.s.r. to maintain its robust financial position and guarantee the obligations towards its customers.
Sustainable footing 2014 was a good year for a.s.r. in many respects, a year in which we have been able to focus even more on embedding the principle of treating customers fairly in our business practices. The outlines of our future as a sustainable insurance company, which demonstrates visibly that it has defined continuity and security for customers as its main priorities, are becoming increasingly clear. Not only are our products becoming easier to understand and better tailored to customer requirements, but our robust financial position also contributes to the trust that our customers have in us.
Looking at the insurance market, not much has changed over the past few years. Margins continue to be under pressure and the life portfolio is contracting. In addition to trust in the product and the insurer, pricing is becoming more and more important for consumers in their shopping behaviour. It is for this reason that a.s.r. has gone to great lengths over recent years to offer consumers value for money.
All segments of the business are developing well. Premium income from Non-life was virtually stable; this segment’s combined ratio is structurally below 100% for all product lines. We are pleased that the Vernieuwde Voordeelpakket, a package of non-life policies for private individuals, is a favourite among consumers. Sales of this package have increased significantly over the past year.
We managed to improve our position in the pension market. The new Werknemers Pensioen (Employee Pension) meets a need in this market. 700 employers opted for this employee pension contract in 2014. We are also doing well at retaining existing customers. The buy-out of Stichting Chevron Pensioenfonds (the Chevron pension fund), which involved € 370 million in plan assets, put a perfect close to the year and represented a success for our pension business.
The life insurance market, which is contracting, continues to demand our attention. We are adapting the organizational structure of our life business to developments in this market. As a result, we eventually plan to let go of half our people in this business. This has been a difficult decision, but it needed to be taken to have our costs keep pace with the rate of contraction in this portfolio. Total costs will drop if we maintain the current price level for each policy.
Unit-linked policies continued to be a priority in the life business in 2014. We have now reached nearly 90% of our unit-linked policyholders. In the last quarter of 2014, we managed to catch up considerably 1.2 Message from the CEO
With a view to strengthening our balance sheet and capital position even more, we issued a hybrid bond loan of € 500 million in 2014. a.s.r. now not only amply meets the solvency II requirements, but this loan has also helped to optimize our capital structure and created the conditions for reducing our interest expense. The interest that investors showed in subscribing for the loan tells us that the market has faith in a.s.r.
The renovation of the a.s.r. building is in full swing. The entire building will have been renovated by the end of 2015. By that time, virtually all a.s.r. employees will have a workstation at Archimedeslaan 10 in Utrecht. This inspiring workplace will undoubtedly contribute to the provision of even better customer services. We are now entering the last phase of the renovation. Sustainability was the most important criterion in the award for Best Office Building in the Netherlands in 2014 received by a.s.r.
We can look back at two successful support campaigns. The online platform doorgaan.nl welcomed dozens of business owners with great business ideas, which we not only facilitated with crowdfunding, but also provided financial support to (to some of this business ideas). Over 2,000 investors raised more than € 500,000 in project finance. This helped various businesses to get their venture off to a successful start. Andere Spelen (Alternative Games) is an a.s.r. initiative that was launched in 2014. Its aim is to encourage more children to participate in physical exercise by introducing them to lesser known sports. In this context, a large event was organized in Utrecht in November.
a.s.r. is on its way towards an autonomous and healthy future. We made great strides in that respect in 2014 too. All things considered, I look back on the past year with a sense of contentment. The process of exploring a potential merger with VIVAT/REAAL has also left positive memories. After due deliberation and thorough investigation, we ultimately decided not to submit a final bid. In dialogue with NLFI, our shareholder, we will now continue to prepare for our privatization. The privatization process will start as soon as the Minister of Finance has informed the Dutch Parliament on his decision and after it has been discussed with the Parliament. We are confident about this process, not least because of the great interest that many investors have shown in a.s.r.
But there is a lot more to do of course, in 2015 too. We are proud of, and thankful for, our employees’ tremendous commitment to our customers and the professionalism they exhibit on a daily basis. We are also happy to see a rise in our employee satisfaction rating. We will continue to invest in the personal development and professional competence of our people. After all, we need motivated and qualified employees to help ensure the future of our organization.
The occupational disability business launched a new product especially designed for self-employed persons, featuring a limited life and an attractive premium. In 2014, the funeral expenses business introduced webcam consultations to make it more convenient for people who are interested in taking out funeral expenses insurance to talk to an adviser when and where it suits them.
Together with a consortium of selected investors, a.s.r. thoroughly reviewed the options for submitting a bid. Based on the findings, it was ultimately decided in February 2015 not to submit a final bid. In dialogue with the shareholder NFLI, a.s.r. will now continue to prepare for a future in private hands and decide on a time schedule leading up to the privatization.
Credit rating Standard & Poor’s confirmed a.s.r.’s A rating for its core insurance companies and awarded a BBB+ rating to the holding company (ASR Nederland N.V.). All ratings have a stable outlook.
• Andere Spelen. This is an initiative to get children to lead more active lives. Rather than supporting large sports such as football or field hockey, this programme showcases smaller, relatively unknown sports in particular, including bossaball, frisbeeing, fierljeppen (jumping a body of water using a pole), sword-fighting and wall-climbing. A large event featuring these sports was organized in Utrecht on 9 November. The highly successful, sold-out event enabled more than 10,000 visitors to familiarize themselves with various alternative sports.
Other highlights of 2014 1. The amended employment conditions were formalized in a collective bargaining agreement. One of the new features is that variable pay has been eliminated for all employees as of 1 July 2014. With effect from 1 January 2015, there will be no more employee discounts on new mortgages and the pension scheme will be adjusted. For more details, see page 59.
2. The pensions business is set to outsource some of its processes to Infosys. This means that 87 colleagues will be transferring to Infosys, which specializes in administrating and improving knowledge-intensive processes. The purpose of this outsourcing is to reduce costs on a structural basis and to improve the quality of the administrative processes. It will also help to make costs more predictable and flexible.
3. Chris (H.C.) Figee (41) joined the a.s.r. Executive Board in the role of CFO on 1 May. He succeeded Roel Wijmenga, who left a.s.r. after five years. Chris (H.C) Figee’s previously worked at Achmea, where he served as Director of Group Finance. Earlier in his career, Chris Figee held positions at Aegon and McKinsey.
• MoneyView also gave the maximum of five stars to a.s.r.’s Lijfrente Spaarrekening (annuity savings account) and Extra Pensioen Uitkering (extra pension benefits). These products were regarded highly because of their pricing.
• The Ditzo Kijk kanker de wereld uit (Fighting Cancer) campaign, which was initiated in 2013, received various awards: - SAN Accent. The campaign received the only communication industry award for and by advertisers.
• a.s.r.’s sustainable investment policy earned the highest rating awarded by the Fair Insurance Guide twice in 2014. a.s.r. does better than others in this survey, particularly when it comes to increasing the sustainability of investments. In the annual VBDO (Dutch Association of Investors for Sustainable Development) survey, a.s.r. achieved a top three position for the fourth year in a row.
• Elsevier magazine again named a.s.r. vastgoed ontwikkeling as one of the best employers in the Netherlands. The real estate development business was awarded the highest score in the construction sector.
2014 annual report a.s.r. at a glance 1.4 Strategy and positioning a.s.r. offers people certainty in uncertain circumstances. a.s.r. achieves this by ensuring financial continuity in people’s lives and by allowing them to take out insurance for risks that they are unable or unwilling to carry alone, and by helping customers grow their assets for the future. Customer trust is an important part of a.s.r.’s ambition. But trust goes further than the customer alone. It applies equally to successful cooperation with intermediaries, to offering employees an inspiring and interesting working environment, and to giving the shareholder the prospect of attractive returns based on responsible risk.
Everyone at a.s.r. works each day according to the guiding principle that they can help make the insurance business better for customers. They use alternative business models and start from an alternative mindset. Back to the roots of insurance: helping people. Back to the mindset that collaboration provides certainty for all. Insurance is the essence and providing certainty is a.s.r.’s reason for being. Helping people by taking action. The legal predecessors of a.s.r. have put service in insurance on the map in the Netherlands. Our history goes back to 1720, and sharing risk was the founding principle. It still is for a.s.r. today.
De Amersfoortse is the brand for business owners. Its portfolio comprises income protection, health and pension insurance. De Amersfoortse’s priorities are offering peace of mind, now and in the future, advice from a trusted adviser and convenience through online management and services. De Amersfoortse’s products and services are sold through intermediaries only. Income protection insurance is sold exclusively via De Amersfoortse on the basis of business owners. Business owners are made a competitive offer when they are accepted for occupational disability and income protection insurance. De Amersfoortse also offers health insurance to private individuals.
Ditzo is the online provider of non-life and health insurance policies for people who like to arrange things online. Customers can take out household contents insurance, third-party liability insurance, residential premises insurance, travel and car insurance, and health insurance online. Ditzo is good at questioning things that do not seem logical and taking action to rectify them. Over the past few years, Ditzo has actively contributed to the public debate about healthcare in the Netherlands and invested in research by undertaking such initiatives as ‘Kijk kanker de wereld uit’ (Fighting Cancer) in 2013 and ‘Zorgmee’ (Care Too).
Ardanta is a specialist in funeral insurance. It mainly offers its products through independent insurance intermediaries. In addition, Ardanta has launched a website by the name of www.doodgaanendoorgaan.nl (in Dutch), which educates customers well in advance about funeral arrangements and related issues.
Europeesche Verzekeringen specializes in travel and leisure insurance. Europeesche Verzekeringen sells insurance policies through the intermediary channel and through specialist partners, which not only include tour operators, health insurers and insurance agents, but also federations, clubs and associations, such as the Dutch Ski Federation.
24a.s.r. 2014 annual report Report of the Executive Board 2.1 Themes in 2014
The Executive Board met at least weekly in 2014 for consultation. The following themes were given priority in the meetings of the Executive Board in 2014: Routine topics Specific issues
MH17 air disaster The crash of Malaysia Airlines flight 17 on 17 July killed all of its 298 passengers and crew. Some
25a.s.r. 2014 annual report Report of the Executive Board passengers had taken out policies with a.s.r., De Amersfoortse, Ditzo, Europeesche Verzekeringen and Ardanta. Immediately after hearing about the crash, the Executive Board decided that a.s.r. would not invoke the war clause. In dialogue with the Dutch Association of Insurers, the rest of the sector decided to do the same. a.s.r. formed a special team right after the air disaster; the team did all it could to help surviving relatives cope with the financial implications efficiently and make the necessary arrangements. Given the special circumstances of the crash, the Executive Board discussed on a regular basis how a.s.r. could be of as much assistance as possible to the surviving relatives.
We want our policy to be unambiguous and transparent, and we took up the challenge in 2014 to find a system that strikes the right balance between trust in the intrinsic motivation of all a.s.r. employees on the one hand and clear performance targets and employee appraisals on these targets the other. The Executive Board believes that a.s.r. can only be a sustainable organization and a socially relevant insurer if we employ the right motivated people; the focus should be on professional skills and financial incentives should not be leading. For this reason, we decided in 2014 to change our pay-and-benefits package and eliminate variable pay for nearly the entire staff base and converted, in line with an agreement with the trade unions, the variable part for a smaller fixed allowance. We are confident that a.s.r.’s pay-and benefits package is a good offering overall that will enable us to attract and retain good people.
Unit-linked policies Unit-linked policies are a recurring theme in Executive Board meetings; while the discussion is also about the financial impact of the issue, much more attention is devoted to investigating and offering alternatives to unit-linked policyholders.
27a.s.r. 2014 annual report Report of the Executive Board are formulated in line with S&P requirements, regulatory requirements and a.s.r. ambition levels. At year-end 2014, a.s.r. had adequate capital to meet the limits formulated in the a.s.r. risk appetite.
Solvency levels remain acceptable and more than adequate thanks to the organization’s prompt and adequate response to external developments based on the chosen risk appetite and the associated risk-mitigating measures. The risk appetite was again an important criterion for the Executive Board in making both tactical and strategic decisions in 2014.
Developments in premium income/cost ratio In order to secure the sustainable provision of insurance and banking products and high-quality services, total costs need to be managed, especially against the backdrop of contracting and highly changeable markets in terms of volume and well as fiercely competitive pricing. A survey conducted by the Dutch Central Bank (DNB) in 2014 only served to confirm this picture of the Dutch insurance market.
The Executive Board is seeking to make costs more flexible and to reduce them on a structural basis, while continuously working to improve service quality. To that end, the Executive Board has decided to use IT solutions (software as a service or SAAS) at low and variable costs for the back-office processes of new pension and health insurance propositions, to outsource some of the back-office processes of the existing pension portfolio and to migrate some of the back-office processes of the life portfolio to a SAAS solution.
The insurance market is fiercely competitive. Cutting costs is not enough; to stay relevant, a.s.r. not only needs to be able to offer its customers attractive prices, but also provide attractive service levels, both now and going forward. After all, insurance is all about creating a safety net for unforeseen circumstances. The Executive Board considers it of great importance that a.s.r.’s product and service offering remains of high quality in the future.
Works Council The Executive Board values its relationship with the Works Council, which is characterized by great openness. The Works Council is informed of many issues at an early stage, allowing it to use its influence on the decision-making process in an effective manner. The Executive Board is highly appreciative of the constructive and open discussions, and of the time and energy that the Works Council spends on issues that are impactful for a.s.r. Key themes that were discussed with the Works Council in 2014 included the amendment of the pay-and-benefits package and the process of studying a potential bid for VIVAT/REAAL.
Governance, shareholder and supervision The governance structure of some supervised entities has changed with effect from 1 January 2014. The executive and supervisory bodies of the supervised entities met at least four times in 2014. The seven relevant supervised entities are ASR Levensverzekering N.V., ASR Schadeverzekering N.V., N.V. Amersfoortse Algemene Verzekering Maatschappij, Europeesche Verzekering Maatschappij N.V., ASR Basis Ziektekostenverzekeringen N.V., ASR Aanvullende Ziektekostenverzekeringen N.V. and ASR Bank N.V. The standing agenda items included the financial (quarterly) results and the audit, compliance and risk reports. Other topics of discussion were entity-specific issues, including the impact of the changing markets for various entities.
- Life segment: lower profit for the year due to incidental expense items despite stable performance.
- Other segment: improvement in earnings because of de-risking in real estate development business.
• Gross written premiums down 3% to € 3,787 million (2013: € 3,923 million) due, in particular, to contraction of life portfolio. • DNB solvency I ratio continually robust at 285% (2013: 268%).
Profit/(loss) for the year, Life segment 258 367 Profit/(loss) for the year, Other segment (including eliminations) -25 -91 Profit/(loss) for the year 381 281 2
Cost-premium ratio, insurance business 9.8% 10.9% Return on equity (IFRS) 12.4% 10.6%
2 In 2013, this included the additional WGA-ER expense item of € 137 million.
Total number of internal FTEs 3,513 3,789 1 The unrealized revaluation of real estate included in total equity amounted to € 806 million at year-end 2014 and to € 784 million at year-end 2013.
a.s.r. managed to improve its position in the pension market, where the new Werknemers Pensioen (Employee Pension) meets a need. 700 employers opted for this employee pension contract in 2014. a.s.r. is also doing well at retaining existing customers too. The buy-out of Stichting Chevron Pensioenfonds (the Chevron pension fund), which involved € 370 million in plan assets, put a perfect close to the year and represented a success for the pension business.
The success of the ASR Dutch Prime Retail Fund was another financial milestone. After a fourth placement in 2014, the Fund’s total externally placed assets rose to over € 530 million.
In the Non-life segment, profit for the year soared from € 5 million in 2013 to € 148 million, thanks to better claims prevention and claims handling procedures, lower operating expenses and the incidental WGA-ER expense item in 2013. The combined ratio improved from 104.6% in 2013 to 94.9% in 2014. The skills and expertise of our people and our employee leaning and development programme are clearly bearing fruit.
Gross written premiums Premium income was down 3% from 2013, falling to € 3,787 million (2013: € 3,923 million). This fall was mainly observed in the Life segment, which dropped by 7%. Besides being attributable to market developments, the fall was also caused by the impact of previously introduced measures in the motor vehicles, fire and other P&C portfolio in order to improve returns. The occupational disability and health insurance portfolios showed limited growth.
Solvency and total equity The DNB solvency I ratio continued to be robust, rising from 268% at year-end 2013 to 285% at 31 December 2014. Based on the standard model, the Solvency II ratio (SCR), which was calculated using the parameters known to date, was circa 175%. The final required parameters will be adopted at European level in 2015 and 2016, which is why the Solvency II ratio at year-end 2014 was somewhat uncertain.
Finally, a.s.r. issued a new Tier 2 hybrid loan of € 500 million in the second half of the year in the context of the capital optimization drive. Of the original hybrid Tier 1 capital of € 515 million, € 209 million remained at year-end 2014.
In mid-2014, Dutch Finance Minister Dijsselbloem decided to postpone the dual-track approach to a.s.r.’s privatization in order to allow a.s.r. to explore whether or not to submit a bid for VIVAT/REAAL. Together with a consortium of investors, which had been formed for the purpose of funding a potential bid, a.s.r. thoroughly investigated every aspect of a possible bid. Based on the findings of this investigation, it was ultimately decided in February 2015 not to submit a bid for VIVAT/REAAL.
a.s.r. has always taken the view that opportunities for consolidation within the Dutch insurance market need to be seriously considered. At the same time, a.s.r. is confident that it is perfectly capable of executing its strategy on its own. In dialogue with NLFI, the shareholder, a.s.r. will now continue to prepare for its privatization. Over the coming period, a.s.r. will consult with the shareholder to decide on a time schedule leading up to the privatization within the parameters of the dual-track approach that the Finance Minister shared with Parliament earlier.
The guiding principle in this process remains that, in the interest of all stakeholders, a.s.r. will continue on the same path in terms of strategy, positioning, corporate culture and business practices, and that a.s.r. will build itself up for a successful return to private hands, in whatever form.
33a.s.r. 2014 annual report Report of the Executive Board 2.2.2 Non-life segment
Market developments Although there are signs of economic recovery, the non-life business is still faced with increased levels of insolvencies and/or policy cancellations. In the Non-life segment, the motor vehicles, fire and other P&C insurance portfolio was virtually stable. The occupational disability insurance business continues to suffer the consequences of the economic crisis, which has led to a fall in spending power for employers and self-employed persons. New policies sold are primarily comprised of renewals. Health insurance policies are increasingly being taken out online. Customers mainly opt for relatively cheap policies and a high deductible. Coverage is more limited for top-up health insurance, resulting in lower premiums per policy. In the health insurance market, 6.8% of insured persons switched to a different insurance company in 2014. The travel insurance business is on a downward slope.
Profit for the year Profit for 2014 stood at € 148 million (2013: € 5 million). Profit for the year improved for all product lines, thanks in part to a proactive claims prevention policy and a reduction in operating expenses.
The combined ratio in the occupational disability insurance business improved to 91.4% (2013: 118.0%), which was attributable mainly to the great expertise of our people in pricing risks, as well as in acceptance, prevention and reintegration, and claims handling.
The combined ratio in the health insurance business was stable at 98.9% (2013: 98.8%). Similar to previous years, the health insurance business did not distribute any dividend to ASR Nederland N.V. in 2014. Instead, earnings were used to limit premium increases for customers in 2015.
The combined ratio in the motor vehicles, fire and other P&C insurance portfolio dropped to 95.0% (2013: 98.9%). Thanks, in part, to the prevention policy and risk reassessments, the average amount of large – or top – claims was down on last year. The number of top claims was the same as the relatively low number filed in 2013. The mild weather in the first few months of 2014 contributed to the reduction in claims compared with last year.
Operating expenses Operating expenses fell to € 215 million (2013: € 240 million). This decrease was the result of our continuous focus on costs. The expense ratio improved to 9.4% (2013: 10.5%) as a result.
Gross written premiums Gross written premiums stood at € 2,359 million (2013: € 2,392 million). This slight drop mainly stems from active portfolio management and tighter acceptance procedures. Overall, the number of new policies was up in all non-life portfolios, particularly because of a lower rate of policy cancellations. The motor vehicles, fire and other P&C insurance portfolio saw the largest rise in premium income thanks to better pricing and the introduction of revamped products.
Gross written premiums also increased in the health insurance business thanks to the Ditzo online sales channel. Developments in sales of top-up health insurance policies reflect that customers are increasingly opting for policies with lower coverage at lower prices.
In the motor vehicles, fire and other P&C insurance portfolio, gross written premiums were down from last year as a result of measures designed to improve returns. The decision to focus on value creation has led to a higher underwriting result and a better combined ratio. Thanks, in part, to improved pricing and revamped products, more new policies were sold in the motor vehicles, fire and other P&C insurance portfolio.
After the introduction of a new pricing strategy for car insurance in mid-June, the number of applications for car insurance increased by nearly 50% in the second half of 2014, compared with the first six months of the year. In a contracting recreation insurance market, Europeesche Verzekeringen, a.s.r.’s travel and leisure insurance business, was named Best Travel Insurance Company in 2014.
a.s.r. has offered home owners the option of extending their home contents and liability cover to include letting cover since 2009. This cover was further broadened in 2014 and marketed more explicitly now that consumers are increasingly listing their homes as vacation rentals.
Outlook for 2015 In the Netherlands, the economic outlook for 2015 is slightly better than for 2014. Consumers will remain critical of investments and businesses will weigh their options for self-insurance. The market
36a.s.r. 2014 annual report Report of the Executive Board for non-life products for private individuals will continue to be characterized by comparison shopping, which will force us to create adequate premium volumes by offering standardized products at competitive prices. Our home contents and buildings insurance will be updated in 2015 to include cover for solar panels and charging stations for electric cars. We will also overhaul our legal assistance insurance.
The occupational disability business wants to keep the combined ratio in check in 2015 too by seeking quicker and more frequent contact with business owners and self-employed persons who report an occupational disability. This will reduce the period of absenteeism. De Amersfoortse will continue to host the doorgaan.nl platform in 2015. In 2014, 2,000 interested parties jointly invested € 500,000 in 13 different business ideas. De Amersfoortse contributed € 50,000 itself.
In the travel and leisure market, the decrease in holiday bookings and replacement purchases of recreational items will continue, which will have a direct effect on the travel and leisure insurance business. Customer services will increasingly be provided by colleagues with a personal preference for the product line they are in.
37a.s.r. 2014 annual report Report of the Executive Board 2.2.3 Life segment
The surrender rate of unit-linked policies dropped after the peak in 2012; it has now returned to same level as before 2011. Income from single premiums saw a limited increase in individual immediate annuities, which was attributable in particular to a successful pilot project for online sales allowing customers to purchase a product directly and without having to seek advice.
Profit for the year In the Life segment, profit for the year fell from € 367 million to € 258 million due, in particular, to incidental expense items, including an impairment loss of € 70 million after tax on the VOBA of previously acquired unit-linked insurance portfolios. Disregarding incidental expense items, earnings showed a limited increase thanks to higher investment income. Furthermore, cost reductions helped to cancel out the lower contribution to profit for the year as a result of portfolio contraction. The underwriting result was stable.
Operating expenses Operating expenses were down 11%, falling by € 21 million to € 178 million. This caused the costpremium ratio to improve. This is in line with the policy of bringing about structural cost reductions and increasing cost flexibility, which is designed to have costs fluctuate with developments in premium income. In addition, steps have been taken to further reduce the variety of procedures that are being used for keeping policy records and running processes. Despite the contraction in the portfolio, the administrative expenses per policy were down. While premium income fell, the cost-premium ratio improved by 0.9%-points to 10.7% (2013: 11.6%).
In the pension business, premium income showed an 8% fall to € 626 million as a result of a lower indexation rate for existing pension contracts, a reduction in the cap on tax-facilitated pension accrual (from 2.25% to 2.15%) and the raising of the statutory retirement age to 67.
Brand New Day Premiepensioeninstelling N.V., an IORP that is a 50% subsidiary of a.s.r., doubled in size in 2014 now that it counts nearly 1,000 employers among its customers (year-end 2013: just over 500).
The contraction in the Dutch individual life insurance market, which has dragged on for some years now, continued on into 2014. In a report about the viability of Dutch life insurers that was published in November 2014, the Dutch Central Bank, i.e. the regulator, expressed the expectation that this trend will continue and that the market will undergo major changes over the next decade. Regular written premiums fell in this market. Premium income from single premiums increased for immediate individual annuities thanks to a successful pilot for online sales. In addition, we offer savings or bank savings products to customers whose policies are about to expire. More and more customers are deciding to stay with a.s.r.
The pension business organized Het Amersfoortse Pensioenprogramma, a programme for pension advisers in 2014. They need to take continuing education courses in order to meet the training requirements under the Dutch Financial Supervision Act. The programme consists of a combination of a series of knowledge sessions and software training, and is designed primarily for pension advisers from relatively small organizations. a.s.r. also promotes research into pension communications. As a sponsor of, and participant in, Netspar, a network of academics, government officials and pension administrators, a.s.r. contributes to the drive to improve pension communications with pension plan members. In 2014, a.s.r. also organized a youth debate with representatives of political parties, trade unions and pension specialists to engage in a dialogue about the future of the Dutch pension system.
Reflecting developments across the market, a.s.r. is also seeing contraction in its individual life business. The drop in regular premiums written is due to routine surrenders, expiry and a fall in demand for life insurance products. Income from single premiums saw a limited increase in individual immediate annuities.
The individual life business focused on three initiatives in 2014. The first was cost flexibility by streamlining systems, products and processes. The number of policies falls by 8% to 10% every year. Total costs will drop if we maintain the current price level for each policy. Costs per policy will eventually also be reduced. The second initiative was customer retention. By working in close collaboration with a.s.r. bank, the individual life business tries to get customers to deposit freed-up assets from expiring policies with a.s.r. bank or to retain them for the life business. It does so by gaining an understanding of customers’ financial situation and advising them on the options that a.s.r. has on offer. This is an example of ‘helping by taking action’. The third initiative was designed to spur customers who hold non-accruing policies into action. By focusing specifically on this group of customers in 2014, a.s.r. had managed to contact more than 80% of them by the end of the year. Over 90% of all unit-linked policyholders had been reached by the end of 2014.
The Dutch funeral insurance market contracted by 13% in the first half of 2014. This is the fifth consecutive year that this market is showing a decline. Ardanta managed to grow its market share to 17.9% in a contracting funeral insurance market.
Outlook for 2015 The low interest rates are expected to persist, which will have an adverse effect on the pension market. The law for pension communications will be amended; the initial letter will be replaced by Pension 1-2-3, which is intended for new, existing and prospective members of pension plans. This document is required to be provided by the pension plan administrator or the member’s employer. Pension 1-2-3 is a joint initiative of the Federation of Dutch Pension Funds and the Dutch Association of Insurers. Research by the sector and by the Ministry of Social Affairs & Employment has shown that Pension 1-2-3 is an easy-to-understand, complete and attractive alternative to the initial letter.
In the context of the continuous improvement of customer services and structural cost reductions, a.s.r. has outsourced the back-office processes involved in administrating a.s.r.-label pension plans to Infosys BPO with effect from 1 April 2015. 87 a.s.r. employees will transfer to Infosys BPO.
To provide even better customer services, the individual life business will undertake extra efforts in 2015 to encourage the last group of customers with non-accruing policies, customers with mortgage-linked policies and customers with pension annuities to come forward. These customers have been actively approached before. By spurring them into action, a.s.r. wants to educate them about the product they have purchased and explain to them what action they could take if the product no longer meets its original objective.
The individual life business will also try to retain customers, whether for a.s.r. bank or for the life business, by telling them about available options. a.s.r. wants to prevent customers from surrendering their policies by contacting them and offering them appropriate advice. Customers will also be contacted to tell them about options that are available once their policy expires in order to retain the freed-up assets for a.s.r.
a.s.r. will streamline its funeral insurance business in 2015. The Onderlinge hulp uitvaartverzekering label will be dropped; the business will continue under the Ardanta label. Doodgaanendoorgaan.nl and Ardanta will be linked up more explicitly. Doodgaanendoorgaan.nl will be integrated into the Ardanta website; it will be included in the practical platform where Ardanta customers can arrange their insurance business.
• Loss for the year reduced to €-25 million (2013: a loss of €-91 million), thanks mainly to a better performance of property development business and incidental income item as a result of amendments to own pension scheme.
• Increase in operating expenses to € 148 million (2013: € 108 million) due, among other factors, to costs associated with preparing for privatization, costs of own pension scheme and new strategic initiatives.
Profit/(loss) for the year -28 -96 Profit/(loss) for the year attributable to non-controlling interests 3 5
Profile The Other segment comprises all non-insurance business lines, including the banking and mortgage businesses (a.s.r. bank and a.s.r. hypotheken), the emergency assistance desk (SOS International), the financial intermediary business (Poliservice), the real estate development and asset management businesses and holding companies.
Margins at a.s.r. bank were virtually stable thanks, in part, to an increase in volumes and active focus on the interest rate policy. Sales of new WelThuis Hypotheek mortgages amounted to € 1,033 million in 2014 (2013: € 1,411 million). The average market share of new mortgage products sold declined to 2.2% (2013: 4.3%). In the Dutch mortgage market, the benchmark for mortgages in arrears for more than 90 days is 1.0%. At a rate of arrears of just 0.43%, the quality of a.s.r. bank’s WelThuis Hypotheek mortgage portfolio definitely qualifies as good. In line with the current trend, customers also made extra repayments on their WelThuis Hypotheek mortgages.
Earnings from the real estate development business improved in 2014. The growth of the Dutch economy in 2014 and increased consumer confidence had a positive effect on the housing market, which the real estate development business saw reflected in the sale of new residential units. By contrast, the retail market contracted, which resulted in a drop in shop rents and hence lower sales proceeds from shopping malls under development.
Outlook for 2015 a.s.r. bank will continue on its chosen path of moderate and sustainable growth in 2015. This approach is based on the strategy that a.s.r. bank aspires to be: a small and reliable savings and investment bank that offers transparent and easy-to-understand alternatives to annuities and asset-building products. a.s.r. bank sees potential for growing its tax-efficient bank savings products. The growth potential mainly stems from expiring annuities; holders of such annuities are actively approached. Given the market, investment returns will probably continue to be squeezed in 2015. Interest rates on savings deposits are expected to come under pressure. In addition to pursuing balance sheet expansion, a.s.r. bank will keep focusing on cost cuts. The cost reductions associated with the simplification of the system landscape will first manifest themselves in 2015. As a result, a.s.r. bank expects to operate on a cost-neutral basis in 2015.
43a.s.r. 2014 annual report Report of the Executive Board 2.2.5 Investments
In 2014, a.s.r.’s investment policy was aimed at striking a balance between generating returns and preventing risks. Protecting the solvency position is an important factor in this context. Overall growth in market value of the investment portfolio was nearly 22% in 2014 (from € 27.7 billion to € 33.6 billion). Of this increase of € 5.9 billion, € 5.2 billion was attributable to fixed income and € 0.7 billion to mortgages and other loans. The exposures to equities and real estate were similar to those at year-end 2013.
Fixed income (fair value) 24,060 18,791 Equities (fair value) 1,925 1,957 Real estate (fair value) 2,965 2,849 Mortgages/other loans (carrying amount) 5,636 4,909 Adjustment of fair value vs. carrying amount (real estate & loans) -1,066 -1,035
About three-thirds of the government bond portfolio of € 11.7 billion has been invested in Dutch and German sovereign bonds. In the course of 2014, the exposure to German government bonds was increased at the expense of Dutch debt instruments. The exposure to government bonds issued by peripheral eurozone countries (Italy, Ireland and Spain in particular) mounted to € 716 million.
The total fixed-income portfolio grew from € 18.8 billion to € 24.1 billion, which was chiefly attributable to the fall in interest rates. In 2014, the mortgage portfolio showed a 15% increase to € 5.6 billion. The interest rate risk on assets versus liabilities is actively hedged via an overlay portfolio. Because of the sharp fall in interest rates, the derivatives portfolio showed a major increase: its market value rose from € 0.5 billion to € 3.0 billion. At about € 2.0 billion, the equity portfolio was stable compared to last year, while the property portfolio climbed to nearly € 3.0 billion in terms of market value.
These steps have clearly benefited a.s.r.’s robust solvency position and reduced the sensitivity of the balance sheet to market risks over the past few years.
By creating property funds, a.s.r. has increased the flexibility of its investment property portfolio without affecting the portfolio’s critical mass that has been built up in more than a hundred years. Boasting funds and in-house asset and property management specialists, the real estate investment management business has broad experience and a good reputation in the Dutch property market.
The fourth placement of the ASR Dutch Prime Retail Fund was closed in 2014. As a result, the total share of the fund that has been placed since its creation now stands at over € 530 million. Early in 2015, there was a fifth closing, lifting the placed portion of the fund to nearly € 0.8 billion. The ratio of placed assets to a.s.r.’s assets was 41% to 59% at year-end 2014. After the fifth placement, this ratio stood at 60% to 40%.
The ASR Dutch Core Residential Fund was created on 1 January 2013. This fund offers a portfolio of apartments and single-family homes in the Netherlands with a fair market value of approximately € 750 million. The fund will see its first placement early in 2015.
a.s.r.’s portfolio of rural real estate continued to grow in 2014; its value rose above € 1 billion. Rural real estate is a sound investment and the quality of the portfolio is reflected in positive developments in value. The increase in the portfolio stems from growing interest in long-lease financing, in which process a.s.r. purchases agricultural land and leases it out to farmers.
45a.s.r. 2014 annual report Report of the Executive Board 2.3 Capital management
Available solvency rose by € 802 million in 2014. The increase in the UFR effect as a result of the fall in interest rates played a major role in this rise. In accordance with regulatory requirements, the UFR has been applied since June 2012. The DNB solvency ratio (incl. UFR) stood at 285% at year-end 2014 (2013: 268%). The solvency ratio (excl. UFR) fell from 236% to 204%. This high solvency ratio is a reflection of a.s.r.’s robust foundation. Based on the standard model, the Solvency II ratio (SCR), which was calculated using the parameters known to date, was circa 175%.
In the calculation of the sensitivity of the solvency ratio including UFR to interest, the UFR is kept constant. The shock on the discounting curve for the liabilities is mitigated for maturities longer than 20 year through the application of the UFR. As a result, the assets are more sensitive than the liabilities including UFR. The solvency ratio including UFR increases with 34% when the interest-rates drop 1%.
In case the UFR is not applied, the liabilities are more sensitive to interest-rate movements. The shock on the discounting curve for the liabilities is not mitigated and the present value of the cashflow after 20 year is higher. The liabilities excluding UFR are more sensitive than the assets. The solvency ratio excluding UFR decreases with 59% when the interest-rates drop 1%.
U nr ea liz ed re va lu at io n
d iv id en d a nd hy b rid c ap ita l
As an insurer with a robust capital and liquidity position, a.s.r. has only limited need for external funding. As a result, a.s.r. makes limited use of money and capital markets. a.s.r. does aspire to have access to a broad and balanced spectrum of funding options. Access and costs of the money and capital markets may vary over time. Given that a.s.r. always has a range of funding options, it can guarantee its strong liquidity position, even when the markets are poor and the business is under stress. This is in keeping with the prudent policy and financial robustness that a.s.r. pursues.
At present, a.s.r. achieves this both in terms of secured and unsecured financing by keeping its programmes up-to-date. This ensures access to the money and capital markets, which means that a.s.r. has plenty of options for meeting its financing requirements with the necessary flexibility where needed and appropriate.
Over the past year, the market lent itself very well to raising liquidity and capital because of record low interest rates. a.s.r. also saw opportunities for renewing the duration of its capital, and hence creating capital security, and for optimizing its capital structure. As a result, a.s.r. decided in 2014 to raise new capital; the issue of a € 500 million hybrid loan marked a successful step towards further balance sheet optimization within the scope of Solvency II. The proceeds from the bond loan were used mainly to repurchase existing bonds. In addition to a capital increase under all capital regimes (Solvency I, Solvency II, ECAP and S&P), the market transactions also resulted in lower average finance costs for a.s.r. overall and in further expansion of its already robust balance sheet.
The Executive Board intends to distribute € 138.9 million in dividend on ordinary shares. As in previous years, this represents 40% of the profit for the year after regular distributions on preference shares and hybrid instruments.
Ratings a.s.r. seeks to secure an ‘A’ rating from Standard & Poor’s for the required capital of ASR Levensverzekering N.V. and ASR Schadeverzekering N.V. On 15 August 2014, Standard & Poor’s confirmed the ‘A’ rating of ASR Levensverzekering N.V. and ASR Schadeverzekering N.V.
a.s.r. is exposed to the following types of risks: market risk, counterparty default risk, insurance risk (life and non-life), strategic risk and operational risk. The risk appetite is formulated at both group and legal entity level and establishes a framework that supports an effective selection of risks.
In 2014, the exposure to market risk changed slightly. The exposure to equities and real estate remained (more or less) stable. The hedge of the interest-rate risk was improved over the maturity buckets by restructuring the portfolio of swaps and swaptions. The outstanding amount of mortgages increased by € 750 million during 2014.
Since 30 June 2012, DNB has prescribed the application of the UFR to the yield curve used to discount insurance liabilities, meaning that the yield curve at maturities of more than 20 years gradually approaches a level of 4.2%, which signifies an increase. This represents a considerable boost for the solvency position for a.s.r. For the sake of prudence, the solvency position is also assessed without the UFR.
a.s.r. periodically assesses whether the technical provisions are sufficient to cover insurance liabilities. These provisions were adequate at year-end 2014. The underlying assumptions for assessing the provision are periodically adjusted to economic and non-economic developments. Part of future expenses was modelled with a shorter duration than the portfolio and full scalability was assumed. Based on the 2014 assessment of the expense assumptions, all future expenses are recognized in the best estimate liability and the assumed benefits of scalability are not fully recognized at year-end 2014. a.s.r. also made changes to the calculation of the risk margin for Solvency I. The changes resulted in an increase of the risk margin. With this level of risk margin, the current Solvency I technical provisions (best estimate of Solvency I plus risk margin for Solvency I plus impact of surrender floor) exceed the Solvency II technical provisions (best estimate of Solvency II plus risk margin for Solvency II). As a result of the increase in life expectancy, the mortality table of the Dutch actuarial society (‘De Prognosetafel AG2014’) used for assessing the provision was updated in 2014.
The NFRC monitors whether non-financial risks are adequately managed, determines non-financial risk limits at group and legal entity level and monitors whether the risk profile stays within the agreed risk limits. If the risk profile exceeds the limits, the NFRC takes mitigating actions. The NFRC is mandated by the Executive Board to decide on non-financial risk policies. The Chairman of the NFRC is the COO of the SME insurance market (member of the Executive Board). The NFRC reports to the a.s.r. Risk Committee.
In 2014 efforts were devoted to further aligning the risk profile of a.s.r. group and its business lines with the defined risk targets. The non-financial risk dashboard describes the performance of a.s.r. group, the underlying legal entities and business lines on certain key risk indicators. It is a tool that can be used by management to assess and identify key risk issues. The risk profile and performance of each business line on internal control are discussed on a quarterly basis with senior management in the business risk committees.
The risk priorities of a.s.r. are defined annually by the Executive Board. Defining risk priorities is a bottom-up process. Risk priorities are based partly on the CRSAs of the business units. The actual status of the risk priorities and progress on the defined actions is reported to the a.s.r. Risk Committee on a quarterly basis.
2014 annual report Report of the Executive Board legislation is taking place rapidly. As a result of this increasing pressure from politics and regulators, there is the risk that: • The reputation of a.s.r. will come under pressure depending on the timeliness of compliance with the new requirements; • The available resources will be devoted to organizational adjustments to legislation and cannot be employed to improve and innovate our core customer processes; • Processes will be less efficient and pressure on the workforce increases; • a.s.r. runs the risk of fines and penalties if a.s.r. is not able to meet these new requirements in a timely manner.
In anticipation of the implementation date of 1 January 2016, EIOPA has published Preparatory Guidelines, in particular regarding Pillar 2 topics such as the System of Governance and Forward Looking Assessment of Own Risks and Pillar 3 Reporting guidelines. DNB has adopted these guidelines which apply to Dutch insurance companies as of 1 January 2014.
In October 2014, the European Commission adopted the Delegated Acts containing implementing rules for Solvency II, which were approved by the European Parliament and Council in January 2015 and will become applicable in 2016. With the introduction of the Preparatory Guidelines and the Delegated acts, a.s.r. will continue with the preparations for Solvency II readiness as of 1 January 2016. a.s.r. will also adopt the Implementing Technical Standards and the guidelines that will be published in the course of 2015. a.s.r. is confident it will become Solvency II-compliant before the end of 2015.
• In 2015 a.s.r. will implement the remaining QRTs as published by EIOPA and prepare to comply with qualitative Solvency II reporting requirements in 2016, as prescribed by the regulator.
2014 annual report Corporate social responsibility 3.1 Sustainable business practices a.s.r. takes account of sustainability in its business operations wherever possible. This is in keeping with the role that a.s.r. wants to play in society as a responsible insurer.
Offering certainty to our customers is our reason for being. Customers need to be able to rely on a.s.r. always meeting its financial obligations because we enter into long-term liabilities such as pension contracts. That is why sustainable financial robustness is essential and one of a.s.r.’s top priorities.
The products and services a.s.r. offers meet the needs of our customers; in addition to being subject to in-house testing (PARP), they are also reviewed by consumers and employers or a selection of customers. Market surveys, social media, customer behaviour surveys and customer panels are just some of the instruments a.s.r. uses to find out about its customers’ needs.
a.s.r. attaches great value to offering the most transparent products and services. That is why a.s.r. is open and honest about its rating in the AFM’s Treating Customers Fairly Dashboard. This survey by the regulator annually benchmarks the extent to which Dutch financial institutions focus on customer
Continuous improvement a.s.r. is continuously looking to improve the processes that are in place to help customers, for instance by helping unit-linked policyholders and by simplifying the product offering. a.s.r. is constantly making sure that prospective and existing customers can access and understand the information a.s.r. provides. The customer information improvement plan outlines the steps that a.s.r. is taking to make information more accessible and easy-to-read. a.s.r. does so by rewriting its style guides and offering training courses in language level B1/customer-friendly information. The a.s.r. core values and the various rules of conduct for sustainability in actions and habits contribute to this too. a.s.r. has already developed a number of new products that tie in perfectly with this ambition.
Product Approval & Review Process (PARP) All new product propositions introduced at a.s.r. go through the PARP process, which ensures that they are developed in such a way as to meet the needs of customers and square with treating customers fairly in a number of different scenarios. An important element of the process is making sure that a proposition is geared to the target group. The duty of care and the duty to inform are also part of the process. A similar, but different process is in place for existing products, which are assessed on the basis of a risk assessment. Even products no longer being offered are evaluated using today’s set of standards.
The PARP Board meets every six weeks to discuss products that are up for their biennial review. In 2014, ten new propositions and 20 product adjustments were submitted to the PARP Board for approval. The review of six existing products was also submitted to the PARP Board for approval. These products are also tested for their cost effectiveness, usefulness, safety and reliability. A review also takes place to establish whether the cover, costs and benefits of products and services are relevant and whether they are clearly explained and understood. If not, the product is adjusted accordingly.
Customer research All new or substantially revised texts are first tested among customers, using qualitative reading tests, among other tools. The tested documents are rated for how easy they are to read by being assigned a colour label (green, orange or red). Every colour comes with an action point: • If a document is assigned a green label, it is easy to read and only minor adjustments are needed. • Orange-labelled documents are not hard to understand for the most part, but several significant passages need to be changed. Depending on the impact of the findings, the edited passages are tested again or submitted to an expert.
Customer appreciation rating In order to gauge how customers perceive a.s.r.’s products and services, a.s.r. uses the Net Promoter Score (NPS), among other tools. In winter 2014/2015, a.s.r.’s NPS stood at -41, the same as in winter 2013/2014. Just like last year, this is the highest score a.s.r. has achieved since the first rating in 2009. These results are not satisfactory to a.s.r. and a.s.r. will continue to work to improve them.
Tying in with a.s.r.’s core values of accountable and personal, the complaints handlers seek out personal (i.e. verbal) contact with customers whenever they can. This allows customers to clarify their complaint and the complaints handler to discuss the suggested resolution with customers. Among banks and insurance companies, a.s.r. receives the best customer ratings for complaints handling on Klachtenkompas.nl, an online complaint platform initiated by the Dutch Consumers Association: 73% of people who rated the handling of their complaint were satisfied with how it was resolved.
2014 annual report Corporate social responsibility 3.1.2 a.s.r. as an employer a.s.r. encourages employees to make the most of their potential. a.s.r. connects customers, the business and Human Resources to allow every employee to be a proud representative of the organization, both internally and externally. a.s.r. aspires to be a sustainable employer by: • recruiting, developing and retaining the best people; • creating an environment of objective and transparent leadership, allowing responsibility to be given and taken; • ensuring a focus on trust, so that engagement and performance go hand in hand; • investing in the empowerment and sustainable mobility of people, both within and outside the organization.
Diversity At a.s.r., diversity comes in various shapes and forms. Employees are encouraged to be active in all manner of business networks in order to broaden their horizons and advance their personal growth. a.s.r. also makes an effort to create jobs for people from vulnerable groups. It had 18 young people on disability benefits on its payroll in 2014 (nine of whom work as gardeners at Archimedeslaan). In addition, a group of women was hired to work as receptionists or catering assistants. This initiative is part of a job creation programme launched by Stichting Taal doet meer, a foundation for Dutch language acquisition, and the Utrecht Volunteer Centre to help unemployed women on benefits find gainful employment.
Women in senior management (pay scale 13 and above) 24 (29%) 25 (25%) Women on the Executive Board 1 (25%) 1 (25%) Women on the Supervisory Board 2 (50%) 2 (50%)
Rules of conduct a.s.r. has rules of conduct setting out guidelines on how employees should interact with customers, other stakeholders and each other, and how they should approach specific situations. These include an integrity code, rules on handling price-sensitive information and private investment transactions (insider rules), and a whistle-blowing procedure. a.s.r. also supports the industry’s codes of ethics (such as the Dutch Insurance Code). In addition, internal codes are in place relating to various themes, including Customer Due Diligence (know your customer before doing business with them), an Intermediaries Code (which includes an obligation to report suspicions of inappropriate conduct by an intermediary) and a Financial Services Code (which includes a duty of care and an incentives policy).
Fraud prevention Fraud undermines the public trust in a.s.r. and in the financial sector as a whole. a.s.r. attaches great value to its integrity and good reputation as a financial services provider, as well as to preventing fraud. a.s.r. subscribes to the sector-wide policy that insurance companies have adopted to combat crime.
Insurers. This policy promotes compliance with relevant laws, regulations, ethical standards and the related internal procedures. The policy is designed to prevent, recognize, report and investigate fraud and/or unethical conduct, and to address it uniformly and adequately.
Engagement The engagement scan is a key indicator of how employees feel about a.s.r. at a time of transition as we prepare for the imminent privatization. Committed employees are an essential condition if we are to be an insurer that is trusted by our customers. In addition to asking questions about employee engagement, trust and team dynamics, in 2014 the scan also surveyed how employees interpret the concept of treating customers fairly and how they put it into practice.
Results in 2014 In 2014, the engagement scan was completed by 80.2% of employees. 49.5% responded that they feel committed to a.s.r. Although this is a 5.6-percentage point drop from 2013 (55.1%), the level of trust employees have in a.s.r. has risen substantially: 33.9% of employees indicated that they rate their trust in a.s.r. as 9 out of 10 (10 being the highest score), up from 20.6% in 2013. Employees also said that they are free to treat customers fairly (7.3) and that their managers actively encourage them to do so (7.5).
Health and vitality Employees were given the opportunity to take part in a vitality scan in 2014. The scan – a preventative medical test – is designed to test employees’ general health, but also covers issues such as employees’ level of perceived support (both at home and at work), their own performance and their job satisfaction. This tells a.s.r. something about their work/life balance and helps a.s.r. understand what invigorates them and what drags them down. Every employee who took part was given individual feedback with tips and advice for improving his or her vitality. If warranted by the test results, employees were invited to meet with a representative of ArboNed, a nation-wide occupational health and safety board specializing in absenteeism, prevention and sustainable employability. Managers only received feedback at aggregated level.
Work/life balance a.s.r.’s partially renovated offices at Archimedeslaan in Utrecht offer an inspiring and pleasant work environment. The New World of Work (NWW) provides a better work/life balance and increases employees’ motivation. Most a.s.r. employees have had the resources to work where they want and whenever they want since the end of 2013. On average, 1,000 employees log onto the network remotely every day.
Training and development Besides the standard offering of required or role-related courses, similar to 2013, each employee has a budget of up to € 500 to spend on courses of his or her own choosing in the area of sustainable employability, such as workshops on verbal complaints handling and language courses designed to help employees to write better and clearer letters and emails when communicating with customers.
Talent development A new training programme got off the ground on 1 May 2014. Over the course of one year, seven trainees will take on three different projects within a single business line. This will allow the trainees, who are university-educated, to build up specific knowledge and experience. The programme has been divided into an insurance and a finance curriculum because these two areas are the pillars of the a.s.r. organization. This two-way split was also motivated by the outcome of prior talks with the management of these business lines about the scope for the trainees after completing the programme in May 2015.
Recruitment & Selection a.s.r. has a base of broadly employable and flexible employees because it encourages mobility in the organization. It gives priority to internal candidates when filling vacancies (and employees who have been made redundant are given priority over employees in work). All vacancies are posted on the vacancy database for at least two weeks, before being advertized externally, for instance on the corporate website www.werkenbijasr.nl. The ‘Mijn vacatures’ (my vacancies) tool in the vacancy database allows employees to perform a pointed search of suitable vacancies. All vacancies that meet the search profile are automatically forwarded to the employee’s mailbox.
The arrangements with the trade unions also include the following: • The Redundancy Plan will be extended to 1 January 2016; • The trade unions will organize a ‘trade union month’ at a.s.r., during which they will be given the opportunity to recruit members. a.s.r. will pay the membership fee of new members for one year.
Other changes to pay and benefits The other proposals for changes to the pay-and-benefits package concern issues that have been discussed with the Works Council. This has resulted in the following changes: • A number of aspects of the pension scheme will be adjusted as of 1 January 2015, including the rate of accrual, which will be reduced from 1.90% to 1.875%, and the increase in retirement age from 65 to 67;
• Employees will no longer be entitled to a mortgage interest discount as of 1 January 2015. They will also have to pay fees for advice relating to mortgages and life insurance with effect from 1 January 2015; • The fixed net expense allowance was dropped as of 1 September 2014; • The 40% discount on non-life policies will continue to be available to employees as long as the combined ratio is lower than 100%. This is reviewed every three years; • The company lease car scheme was scaled back on 1 September 2014 to allow lease car drivers to opt for a mobility budget; • With effect from 1 January 2015, the birthday fund will be replaced by a donation, which will be linked to an event to be selected by the Executive Board; • The education and training budget will be increased from 1% to 2% as of 1 January 2015.
HR in 2015 HR has set the following priorities for 2015: work climate, meaningful work and career perspective. What follows is a list of key projects in 2015: New Staff Survey: During the annual Staff Survey (formerly: round-table), an inventory is made of the staff base by discussing the performance and potential of managers and employees, and entering them in a matrix. The results serve as input for strategic capacity planning. HR will adjust the Staff Survey in 2015 to accommodate all employees and managers. Another matrix will be introduced as well. Thanks to the new approach, the process will become simpler and more transparent; it will be easier to benchmark performance and potential, and to link follow-up actions to them.
In Motion: This is an HR programme that allows colleagues to take charge of their future, whether it concerns talent development, mobility (sustainable employability within or outside a.s.r.) or dealing with redundancy. The goal is to spur employees into action, to facilitate their development and to increase their chances on the labour market (within or outside a.s.r.). What HR is working towards is the prevention of redundancies (in the long term); after all, employees have taken ownership of their own careers long before the redundancy issue will even come up. One of the initiatives in this context is a new talent development programme.
61a.s.r. 2014 annual report Corporate social responsibility or affirmation. This is an important instrument in creating the envisaged new culture in this sector. By taking the oath or affirmation, employees promise to observe a.s.r.’s code of conduct.
HR communication and dashboard: By informing employees and managers as fully, fairly and clearly as possible about HR issues and duties, and involving them in projects at an early stage, HR hopes to improve internal procedures and garner more support for its initiatives. The information provision is largely channelled through the HR officers. Another key information channel is ‘Mijn HR’ on the intranet, which will be overhauled. HR is also working on an HR Dashboard that provides an understanding of the composition of the staff base and staff turnover, and provides insight into absenteeism statistics and growth figures based on the wage bill. This is important steering information for managers.
Employee representation The new Works Council and its committees took office on 1 March 2015, after elections were held early in the year. Over the past few years, we have found that an effective employee representation body is vital to the success of the organization. The Works Council has tried where possible in recent years to carefully weigh varying interests with a view to working towards a future-proof insurance business. This has not always been easy. The debate between the Works Council and the Executive about changing the pay-and-benefits package comes to mind as being particularly contentious. The Works Council also played a key role in the creation of the current Redundancy Plan and its extension to 1 January 2016.
The Works Council looks back on turbulent times in which it took leave of colleagues - also within the employee representation body. The members know, however, that this is the new reality and that these very circumstances demand active and committed employee representation.
Vision of employee representation The insurance market and the labour market alike are undergoing drastic changes. Business models are being viewed with different eyes. Labour capacity is coming under pressure or is interpreted differently. Considerations stemming from the new reality often result in planned decisions that are submitted to the Works Council or its committees. This requires the members of the Works Council and its committees to have the appropriate knowledge and skills to review these issues and to serve as a true sparring partner to the Executive. What is more, an effective structure should be in place to allow the employee representation body to review the multitude of issues (a proper balance between deliverables and efforts). The members of this body also need to be able to have a vision for the future a.s.r. and its employees in order to be able to review the issues before them.
Is the current employee representation model still appropriate for the organization? Are the Works Council and its committees capable of reaching the employees they represent and securing their commitment to change? These are questions that prompt us to look more critically than before at how our employee representation body actually works.
62a.s.r. 2014 annual report Corporate social responsibility 3.1.3 a.s.r. as an investor As an institutional investor, one way in which a.s.r. demonstrates its social responsibility is in its use of ethical and sustainability criteria as part of its investment policy.
By the end of 2014, 122 of the screened companies had been excluded due to their involvement in human rights violations (22), labour rights violations (8), armament (58), tobacco (14), gambling (19) and nuclear activities (6).
With regard to investments in sovereign debt, a.s.r. has excluded 74 countries that are poor performers in the annual report of Freedom in the World or have a low score on the Corruption Perceptions Index.
• Engagement for the purposes of influencing. A dialogue with a company identified in our ESG analysis as being involved in controversial activities is meant to enhance their sustainable behaviour. If this dialogue is not brought to a positive conclusion, it will result in the exclusion of the company from the investment portfolio. Our engagement for the purposes of influencing in 2014 resulted in the continuation of our relationship with ENI, with which we are in the process of discussing their activities to resolve, compensate and prevent environmental and human rights breaches in Nigeria and Kazakhstan, and in the exclusion of McDonald’s from our investment portfolio due to their lack of responsiveness to our request to address their labour rights conflicts with the US unions.
• Public engagement. In 2014, a.s.r. participated in various industry initiatives to promote sustainability and sustainable investments, e.g. in a Research Project led by the Dutch Association of Investors for Sustainable Development (Dutch acronym: VBDO) involving efficient investor engagement and a round table designed to brainstorm on how to improve the sustainability performance of the insurance sector.
3.1.3.6 National and international covenants a.s.r. has undertaken a public commitment to act as a responsible insurer and investor. In evidence of this, it has signed the following national and international standards and covenants: • United Nations Principles for Responsible Investment (UNPRI), signed in 2011. The report on our activities and progress towards implementing the UNPRI is public. It is available on the a.s.r. corporate website and the UNPRI website ( Merged_Public_Transparency_Report_ASR-Nederland-N.V._2014.pdf).
• a.s.r. signed the United Nations Principles for Sustainable Insurance (UNPSI) in 2013, the goal being to promote sustainable insurance products by reducing risk, developing innovative solutions, improving business performance, and contributing to environmental, social and economic sustainability. The report is available on the a.s.r. corporate website and the UNPSI website (
External recognition The SRI policy was further enhanced in 2014; the most recent version of the Socially Responsible Investment policy can be found on the website: www.asrnl.com.
About a third of a.s.r.’s investment property concerns rural real estate, e.g. agricultural land, country estates and wooded areas spread across the Netherlands. Boasting a portfolio of more than 33,000 hectares of land, a.s.r. is the largest private land owner in the country.
Sustainability is an important criterion in these investments. • The investments in rural real estate offer sound and sustainable returns at low risk. Thanks to the nature and composition of the portfolio, the investment returns have hardly been affected by the economic crisis of the past few years, if at all. Working from a long-term vision and the principle of stewardship, the investments offer sustainable investment and commercial value.
• About 15% (i.e. 5,000 hectares) of the portfolio rural real estate concerns country estates and wooded areas. a.s.r.’s forestry management complies with the principles of sustainable forestry, diversifying between wood production, nature and landscape conservation, and recreation. The forestry management has been certified and works in accordance with the principles of the Dutch Code of Conduct for Forestry Management.
• A new zoning plan for the oldest and largest country estate owned by a.s.r., i.e. Landgoed De Utrecht near Esbeek, was adopted by the two competent municipalities of Hilvarenbeek and Reusel-de Mierden. This zoning plan is designed to ensure that the country estate will be preserved for many more years. Over the coming years, the estate will become home to more than 30 hectares of newly created natural areas and valuable natural areas will be restored. The recreational facilities will be expanded to include new walking trails and bicycle paths. There will also be room for 13 new residential units on the estate.
a.s.r. endorses and manages its forest land and natural areas in accordance with the codes of conduct for nature and forestry management. These codes were written by Bosschap (the product board of land and nature owners in the Netherlands), in partnership with Federatie Particulier Grondbezit (the federation of private land owners), the Dutch Forestry Commission, SBNL (an organization for private and agricultural nature management), the Society for the Preservation of Nature in the Netherlands, 12 Landschappen (an organization for landscape management), and others.
a.s.r. vastgoed vermogensbeheer is also looking to share knowledge, exchange ideas and increase the sustainability of the sector in an international context. For this purpose, it teams up with international partners. It is a member, for instance, of the European Association for Investors in Non-listed Real Estate Vehicles (INREV), an umbrella organization seeking to bring about more transparency, accessibility and professionalism, and to share best practices.
a.s.r. vastgoed vermogensbeheer aims to achieve an energy performance rating of at least C for 100% of its residential portfolio by 2020. In 2014, a.s.r. made a start on updating all residential energy performance ratings issued to date. Renovated properties are awarded an energy performance rating of A or a rating that is at least two notches higher than before their renovation; all new-builds have an A rating as a minimum (A++ is not attainable if they are located in a district-heating area).
A supplier of green energy has been chosen to service the entire real estate portfolio. Furthermore, all tenants are encouraged to conserve energy. Energy consumption is measured with the aim of raising awareness of consumption and, in consequence, reducing consumption.
The ambition of a.s.r. vastgoed ontwikkeling is to be at the vanguard of sustainability, which is why it actively promotes sustainability within the real estate market. It is represented in the Sustainability Committee of NEPROM, the association of Dutch property developers, and a co-founder of the Dutch Green Building Council. NEPROM is one of the co-signatories of the so-called Spring Accord for energy savings in new-builds, which was signed in April 2008 and focuses on energy reduction in combination with housing preferences to create energy-efficient new builds.
BREAAM Sustainability is important in the developments of a.s.r. vastgoed ontwikkeling given that they tend to endure for many generations. In order to control the sustainability of its developments, a.s.r. vastgoed ontwikkeling has embraced an internationally recognized sustainability standard (BREEAM). a.s.r.’s real estate developments are always awarded a sustainability label in principle. The type of label (BREEAM or GPR, a municipal building label) depends on the development.
A number of a.s.r. employees trained as BREEAM-NL experts and assessors in 2014. As a result, a.s.r. vastgoed ontwikkeling now qualifies as a Licensed Assessor Company.
Het Pakhuis In 2014, a.s.r. vastgoed ontwikkeling developed climate-neutral residential units in Het Pakhuis in Amsterdam. All the energy that is needed to heat and cool the units, and for tap water and electricity has sustainable origins. Electricity, for instance, comes from the solar panels on the roofs. The residential units are heated and cooled using residual heat from the Port of Amsterdam, which is situated a little further to the west. The choice of materials has also been prompted by sustainability criteria. This development shows that we take responsibility for the future when traditional energy sources will become scarce. The development’s Energy Performance Coefficient (EPC) is < 0.3. Its energy performance rating is A+++.
Land for Land Land for Land is an initiative that stems from the a.s.r. vastgoed ontwikkeling‘s social responsibility. It ties in with its mission to make urban living an even better experience for people. The Land for Land programme is designed to compensate for every square metre of brick and mortar by creating a square metre of green space. To do so, a.s.r. vastgoed ontwikkeling reserves an amount every year based on its total development output. The more residential and retail units are completed, the higher the amount that a.s.r. invests in green spaces under the Land for Land programme.
The programme supports such initiatives as Utrechts Landschap, a nature conservation organization, in purchasing land to extend nature conservation areas in the Province of Utrecht. Utrechts Landschap purchased the first plots north of Oostbroek in 2012. These plots constitute key areas in the ecological zone between the Oostbroek and Sandwijck estates. Utrechts Landschap managed to buy a second plot in 2014 to the east of the city of Utrecht; this plot will be used to create a fauna passage at Biltse Rading, substantially expanding the habitat for the local fauna (deer and badgers) in the process.
The results of the carbon footprint 2014 of Archimedeslaan in Utrecht are equivalent to 7,761.1 tonnes of carbon dioxide in total. Of this amount, 33.50% concerns business travel and 51.70% commuter travel. In 2013, the carbon footprint was equivalent to 9,130.69 tonnes of carbon dioxide (34.7% business travel and 47.3% commuter travel). This represents a 15% decrease, which was mainly attributable to: 1. A significant drop in gas consumption (i.e. carbon emissions) as a result of the renovation. 2. A considerable drop in vehicle emissions (mostly thanks to a reduction in business travel by car).
Renovation of head office The decision taken in 2010 stated sustainability reasons for the renovation of the head office at Archimedeslaan 10 in Utrecht rather than opting for a new building. The renovation started in January 2013 and is currently fully underway. The renovation of the first wing was completed in March 2014 and the new conference centre opened its doors in October. This is an important step towards a costefficient office that meets the strictest of sustainability requirements. After completion, the building will be 50% more energy- efficient. Its energy performance rating will improve from G to A.
The advantages of this system are that it is energy-efficient, comes with low energy costs, is extremely environmentally friendly, has a long service life and is reliable (because of its small number of moving parts).
Green gas a.s.r. started to make use of green gas in its offices in Utrecht (Archimedeslaan), Amersfoort and Rotterdam in 2014. Agreements were made with its energy adviser to offset carbon emissions arising from the consumption of natural gas.
Renovation and recycling a.s.r. chooses to recycle or re-use materials where possible. The renovated building will have wooden tables on every floor that have been produced using trees grown on a.s.r.’s country estates. A number of social enterprises manufacture these tables for a.s.r. In addition to the refurbishment of the office building, a study has been performed of what furniture would be most suitable for re-use. In this context, thousands of desk chairs were given a second lease of life, for which purpose the seat and the fabric were replaced. The foam in the seats was used in insulation panels sold in home improvement stores and the fabric was donated to a manufacturer of horse blankets and to arts and crafts departments of schools.
The renovated building will have about 40,000m² of carpet, some of which was produced from used materials. The carpet manufacturer uses renewable energy in the production process, makes use of non-toxic and green materials, and ensures that any waste water is treated. The same manufacturer recycles the old carpeting from the building’s renovated wings: the pile is washed and recycled, and the back (bitumen) is used in road construction and roofing. Other carpet parts are used as fuel in cement factories.
a.s.r. has its own environmentally friendly composting station to make compost from organic waste for the gardens surrounding the compound. Composting waste on the premises saves on costs for transport to and from the waste-processing facility, and reduces energy consumption and carbon emissions.
Mobility policy a.s.r. has an active mobility policy that seeks to improve the accessibility of its buildings and reduce carbon emissions. In many areas, a.s.r. is making efforts to improve the sustainability of the commuter and business travel of its employees.
Plans for 2015 In 2015, at least 40 charging stations for electric cars will be installed and no fewer than four initiatives will be undertaken to encourage the use of regular and electric bikes and electric cars.
Purchasing a.s.r. is committed to the Manifesto on Socially Responsible Procurement & Business Practices (Dutch acronym: MVIO). The manifesto is an initiative by 39 large businesses in the Netherlands and is supported by NEVI, the Dutch Association for Purchasing Management (www.nevi.nl/mvi).
4. a.s.r. is committed to ensuring that international human rights are respected throughout the production process of the goods and services that are purchased. a.s.r. assesses whether its main suppliers respect human rights and what action is or has been taken to ensure that they do.
All new suppliers (selected by Group Purchasing) undertake to register in the FIRA database (or can demonstrate that the environmental policy is already assured in another way, for instance by the sustainable repair business quality mark (‘keurmerk duurzaam herstelbedrijf’)); they have verified their policy and should have reached the ‘Bronze’ level within one year of their registration. In November 2014, FIRA awarded a.s.r. the ‘Bronze’ level. The ambition is to reach the ‘Silver’ level in 2015.
Purchasing in a circular economy a.s.r. has signed the Green Deal for purchasing in a circular economy. This is an initiative by the Dutch government that is designed to boost the (European) market for sustainable base materials and increase the re-use of scarce materials. Circular purchasing primarily involves providing assurances for the high-grade re-use of products and materials at the end of their useful life by making relevant agreements as early as at the start of the purchasing process. a.s.r. applies this principle to the renovation of the building at Archimedeslaan in Utrecht, among other uses (see section entitled ‘Renovation and recycling’ on page 69). The principle of circular purchasing will also be applied to a number of purchasing projects in 2015.
The state bears the primary responsibility for respecting, protecting, fulfilling and promoting human rights. This responsibility encompasses civil, political, economic, social and cultural rights, as well as the rights of specific groups. Based on this key principle and the realization that businesses play an important role in society, a.s.r. acknowledges its responsibility for observing human rights within its sphere of influence and commits to observing these rights. a.s.r. knows that its responsibilities should be supplemental to, rather than replace, the central role that the government plays protecting human rights.
Objectives The objectives of the foundation are: • to encourage a.s.r. employees to take part in community initiatives, both during and outside working hours. During working hours, these involve team activities for the community; the Stimulansplan incentive plan has been created to facilitate employees’ volunteering activities in their spare time; • to encourage financial self-reliance and awareness, especially among vulnerable groups in society, through education, communication and public relations; • to undertake activities in collaboration with various public-interest groups.
Projects The a.s.r. foundation initiated and funded various projects throughout the year; these projects were carried out with the help of a.s.r. employees. The projects break down into three categories: knowledge-sharing, employee vitality and helping by taking action. In addition, the a.s.r. foundation contributes to activities stemming from sponsorship and partner agreements (Feyenoord in Society, Giovanni van Bronckhorst Foundation).
LEF (Life & Finance) This is an innovative platform for the financial education of youngsters between the ages of 15 and 22. LEF helps them to understand their financial situation and teaches them what they need to do to make a wish come true or reach a goal. It also tells them about potential pitfalls and challenges. LEF focuses primarily on the 500,000 young people who attend junior college.
LEF is supported by a great many financial institutions, including a.s.r. The initiative is driven by enthusiastic financial advisers who are keen to share their experience and professional practice in the classroom. The goal is to have each student take at least one LEF course, which consists of four 1.5hour classes. LEF can already count on broad support in the financial sector, but more guest teachers from the financial world are needed. In 2014, 19 a.s.r. employees were trained to teach at least two guest classes in 2015. Another 20 employees will receive training in 2015.
Helping by taking action Under this motto, the a.s.r. foundation undertook activities that allow employees to actively contribute to the community. Within this context, employees took part in the national NL Doet volunteering programme and in sports events, not only as athletes, but also as organizers. These events are often for charity, such as the Classico Giro bicycle ride and the Singelloop run.
Social partner of Feyenoord football club As part of the sponsorship and partner agreement with Feyenoord, the a.s.r. foundation undertakes various community activities in collaboration with the Rotterdam-based football club under the name Feyenoord in Society. Within this context, a.s.r. developed a customized textbook that is used by various primary schools in Rotterdam to teach ten to twelve-year-olds. These initiatives often come with a need for financial education, which is where a.s.r. employees can help, for instance by teaching guest classes using the Fix Your Risk game or the Cash Quiz from Money Week. Besides Feyenoord, the a.s.r. foundation also supports projects undertaken by the Giovanni van Bronckhorst Foundation.
Results in 2014 In 2014, more than 1,066 employees contributed to one of the activities undertaken by the a.s.r. foundation. This is about the same number as in 2013. The Stimulansplan incentive plan was used by 44 employees. This plan allows employees to request a financial contribution for any volunteer work they do outside a.s.r. Within this context, support was given to Stichting ALS, the Dutch ALS Foundation, and Villa Joep, a foundation to fight neuroblastoma in children, among other causes.
This report was put together based on interviews with directors of the product lines and corporate departments, and using the outcomes of qualitative and quantitative questionnaires. The information was collected by Corporate Communications. These interviews addressed the material topics and the questionnaires were in line with the G3.1 Guidelines. In addition, data were retrieved from central information systems, such as those kept by HR, and various environmental databases. The content of the report was assessed by the business lines and corporate departments such as Accounting Reporting & Control, Risk Management, Human Resources, Business Support, Purchasing & Contract Management, Legal, Compliance and Security.
Information systems a.s.r. makes use of various management information systems for collecting and processing relevant quantitative and qualitative data about sustainability, including in the HR department (SAP HRM Software). Business Support keeps records on the different suppliers, thereby creating a clear picture.
More information The online version of the Annual Report 2014 contains a number of links between the sustainability report and the other chapters of the Annual Report, and vice versa. It also has links to sources posted on the corporate website. For more information about ASR Nederland N.V., please consult the other chapters of this Annual Report or visit www.asrnl.com. Any questions about the report or its content can be addressed to the contact persons listed on page 286 of this report.
77a.s.r. 2014 annual report Executive Board Responsibility Statement 4.1 Executive Board Responsibility Statement
The consolidated and company financial statements for 2014 of ASR Nederland N.V., as well as Chapter I, II and III of the Annual Report, have been prepared in accordance with the International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and with Part 9, Book 2 of the Netherlands Civil Code.
The Executive Board declares that, to the best of his knowledge: 1. the financial statements give a true and fair view of the assets, liabilities, financial position and earnings; 2. the financial report does not contain any material misstatements and the risk management and control systems functioned properly in the year under review; 3. the Annual Report gives a true and fair view of the situation at the balance sheet date and developments during the year under review; and 4. the Annual Report describes the principal risks that the company faces.
2014 annual report Report of the Supervisory Board 5.1 Report of the Supervisory Board 5.1.1 Financial statements and profit appropriation
The Executive Board submitted the Report of the Executive Board and the financial statements for 2014 to the Supervisory Board. After having discussed the financial statements with KPMG, the independent external auditor, the Supervisory Board approved them in its meeting on 2 April 2015.
The financial statements were audited by KPMG, who issued an unqualified auditor’s report on them. For the independent auditor’s report, see page 220. The Supervisory Board established that the external auditor was independent from a.s.r.
The Supervisory Board has presented the financial statements for adoption to the Annual General Meeting of Shareholders (AGM). The Supervisory Board proposes that the financial statements be adopted and the members of the Executive Board be discharged of responsibility for their policies and the members of the Supervisory Board be discharged of responsibility for their supervision of the policies pursued by the Executive Board and of the general conduct of business at the company and its affiliated entities. For the Executive Board’s profit appropriation proposal to the AGM, which was approved by the Supervisory Board, see page 226 of this report.
• Consolidation (including VIVAT/REAAL) • Unit-linked policies • Market changes • Continuing education • Supervised entities in practice • Appointment of new CFO • Remuneration policy and pension plan • Funding plan
The members of the Supervisory Board were satisfied with a.s.r.’s financial performance for 2014. The increase in earnings was primarily attributable to improvements in the underwriting result, which have lifted earnings to a sustainable level.
The risk appetite continued to be an important criterion for the Supervisory Board in making both tactical and strategic decisions in 2014.
Market developments and strategy A key issue in the meetings of the Supervisory Board in 2014 was the potential consolidation of the insurance sector and a.s.r.’s possible role in it. In June 2014, the Dutch Minister of Finance gave a.s.r. the opportunity to take part in the bidding process for Reaal N.V. (currently VIVAT/REAAL). The Supervisory Board sets store by a.s.r.’s responsibility towards customers and the shareholder to work towards consolidation in the Dutch insurance market where appropriate and possible. A potential bid was subject to the condition of external funding. With this in mind, the Supervisory Board focused closely in 2014 on the procedures and decision-making processes involved in attracting potential investors and possibly submitting a bid for VIVAT/REAAL. The members of the Supervisory Board looked at both form and content, while monitoring the Executive Board’s careful deliberations every step of the way. They also took the time to form their own independent opinions.
Unit-linked policies The members of the Supervisory Board thoroughly educated themselves as part of an ongoing process about developments in unit-linked policies in 2014. They appreciate the manner in which the Executive Board and the managers involved have taken up the extra challenge that was put to them after the publication of a report on how insurance companies followed up with customers after having missold them unit-linked policies. a.s.r. has gone to great lengths for its unit-linked policyholders, having followed up with nearly all of them now. The Supervisory Board encourages a.s.r. to make every effort needed to spur even more customers into action.
Treating Customers Fairly (TCF) Every quarter, the Supervisory Board considered the theme of Treating Customers Fairly (TCF) on the basis of various reports, including the a.s.r. TCF Dashboard, which provides an understanding of developments and results with respect to the TCF theme and of the best practices shared and lessons learned in this regard across the organization. The Supervisory Board has found that good progress is being made on this theme and that a.s.r. undertakes substantial efforts to deliver a good TCF performance. The progress made is also reflected in a.s.r.’s performance on the AFM’s TCF Dashboard. This survey by the regulator annually benchmarks the extent to which Dutch financial institutions focus on customer interests in their products, services and processes. a.s.r. achieved a score of 3.6 out of 5 for 2013 on the Dashboard, better than a year earlier (2012: 3.3) and higher than the average in the financial sector (3.5). a.s.r. scored well above average on claims handling, complaints management and customer contacts in particular.
Risk Management, Integrity and Audit The Supervisory Board discussed the reports of Risk Management, Integrity and Audit on a quarterly basis. Reports issued by, and findings of, the external regulators were also reviewed extensively. The Supervisory Board is satisfied with the heightened management focus and discipline aimed at continuing the previously initiated policy of resolving issues at an accelerated pace. The Supervisory Board will again focus extensively on testing the quality of the business practices and customer service as part of its supervision in 2015.
Governance The governance structure of some supervised entities has changed with effect from 1 January 2014. The executive and supervisory bodies of the supervised entities met at least four times in 2014. The seven relevant supervised entities are ASR Levensverzekering N.V., ASR Schadeverzekering N.V., N.V. Amersfoortse Algemene Verzekering Maatschappij, Europeesche Verzekering Maatschappij N.V., ASR Basis Ziektekostenverzekeringen N.V., ASR Aanvullende Ziektekostenverzekeringen N.V. and ASR Bank N.V. The standing agenda items included the financial (quarterly) results and the audit, integrity and risk reports. Other topics of discussion were entity-specific issues, including the impact of the changing markets for various entities.
Variable pay and pension plan of a.s.r. employees With a view to cost cuts and market conformity, the Supervisory Board discussed changing the employee pay-and-benefits package, focusing in particular on eliminating variable pay for all employees except for a small group of 139 sales employees and amending the pension plan.
83a.s.r. 2014 annual report Report of the Supervisory Board plan for deferred members has been aligned with that for active members. A reserve has been formed as compensation for the amendment. The Supervisory Board monitored this process critically from the start; it is satisfied with how the amendments to the pension plan were designed and implemented to sustainably benefit both current and former employees as well as a.s.r. in its capacity as the employer.
Self-assessment The Supervisory Board finds it important to scrutinize its own performance on an ongoing basis. For this reason, the Supervisory Board assesses its own performance annually; in 2014, it did so with the help of an external expert. The overall impression that emerged from this self-assessment was positive. The few suggestions for improvement that came out of the self-assessment were discussed by the Supervisory Board in a plenary session and they will be included in the programme for the coming year.
At the start of the year, the Audit & Risk Committee discussed the risk appetite, which is derived from a detailed risk assessment and has – since this year – also been based on Solvency II for both ASR Nederland N.V. and the supervised entities. The Committee periodically tested the developments at a.s.r. in light of the risk appetite during the year, using such tools as the Integrated Risk Dashboard and the status report on the management of risk priorities. After the Committee had issued a positive opinion, the risk appetite was approved in the Supervisory Board.
(Management in Control 2.0), which allows the a.s.r. management to visibly manage the principal risks that form a threat to achieving the strategic targets.
The funding plan was discussed in mid-2014. This plan gives a transparent view of the financing requirements of ASR Nederland N.V. and has optimized the capital position of ASR Nederland N.V. The Audit & Risk Committee of the Supervisory Board recommended the approval of the execution of the plan to raise external financing, tender for two existing hybrid instruments and repay the comparable hybrid instruments.
The multi-year budget 2015-2019, the investment plan and the risk priorities for 2015 were discussed at year end.
In accordance with policy, the Committee advised the Supervisory Board on target-setting, performance appraisals and the ex-post assessment of the variable pay awarded to identified staff.
In 2014, the Committee spoke on various occasions about the process of offering a less generous payand -benefits package, eliminating variable pay and amending the pension plan. The pay-and-benefits package was effectively scaled back on 1 July 2014, after agreement had been reached with the trade unions and the Works Council. The remuneration policy was amended based on these changes. The changes were discussed in two Committee sessions and then approved by the Supervisory Board. In accordance with the remuneration policy, the Committee sought the advice of the control functions Risk Management, Compliance, Audit and HR. The chair of the Committee gave an account of the issues discussed to the Supervisory Board and submitted written reports to the Supervisory Board in a timely manner.
The Committee and the Supervisory Board did not just discharge their formal role in approving a.s.r.wide targets. They also actively took part in the debate about amending the performance appraisal policy. Now that variable pay has been eliminated, performance appraisals will take on a different dimension. The Committee provided input about how to conduct a performance appraisal interview and to define targets in a setting without immediate financial incentives.
Jos studied law at Erasmus University Rotterdam and started his career in 1980 when he joined Stad Rotterdam Verzekeringen, one of the pillars supporting a.s.r.; he was appointed CEO of Stad Rotterdam in 1999. He then joined the Board of Directors of Fortis ASR Verzekeringsgroep N.V., becoming Chairman of the Board of De Amersfoortse Verzekeringen in June 2003. In 2005, he was appointed Chairman of the Board of Directors of Fortis ASR Verzekeringsgroep. He has served as the Chairman of the Executive Board and CEO of a.s.r. since January 2009.
K.T.V. (Karin) Bergstein Karin Bergstein (born 1967) is a member of the Executive Board. Her areas of responsibility are the product lines Non-life, Life, Banking, and Funeral and the divisions Intermediary Distribution, Customer Service and Europeesche Verzekeringen.
Karin studied medical biology at Utrecht University and earned an MBA from Nyenrode University and the University of Rochester in the United States. She started her career at ING Bank in 1991, where she held various positions until 2011. Her last position was that of Director of Products & Processes,
Additional positions Karin Bergstein is a member of the Supervisory Committee of Stichting Sanquin Bloedvoorziening, a blood bank, and of the Supervisory Board of Utrecht University. She also serves as a supervisory director of ArboNed, a nation-wide occupational health and safety board.
H.C. (Chris) Figee (CFO) Chris Figee (1972) is a member of the Executive Board. His areas of responsibility are Finance, Accounting, Reporting & Control (ARC), Financial Markets and Risk Management.
Chris graduated with honours from the University of Groningen, earning a degree in Financial Economics, and qualified as an investment analyst with the European Federation of Financial Analysts (EFFAS). He also studied Risk Management at Stanford University. After having started his career at Aegon, he switched to McKinsey, where he worked for seven years and made partner. He then joined Achmea as their Director of Group Strategy & Performance Management; he also served on the Achmea Group Committee. His last role at Achmea was that of Director of Group Finance. Chris Figee was appointed as a.s.r.’s CFO on 1 May 2014.
Michel studied marketing at TiasNimbas Business School in Tilburg and business administration at IBO Business School, and held several executive positions at ING Group between 1997 and 2012. Within ING, he served as CEO of RVS Insurance and was in charge of the Individual Life business. His last position within ING Group was that of CEO of Nationale Nederlanden Services/director of Nationale Nederlanden Life. Michel Verwoest was appointed to the Executive Board of a.s.r. as of 1 December 2012.
In May 2014, the Executive Board engaged in a deep dive, building on the self-assessment performed in 2013. The deep dive was led by the same external party that had also provided assistance in the external assessment. This session served to explore how to better harness the executives’ diverse backgrounds, particularly now that Chris Figee has been appointed as the new CFO.
In addition to the self-assessment, the performance of the members of the Executive Board was appraised by the Supervisory Board in 2014 within the scope of the annual appraisal process.
Kick van der Pol is the Chairman of the Board of Directors of Ortec Finance and Chairman of the Board of the Federation of Dutch Pension Funds. He is also a member of the Bank Council of DNB, member of the Board of the Confederation of Netherlands Industry and Employers (VNO-NCW), Chairman of the Board of VPRO, a public broadcaster, and Chairman of OVAL, an organization for employee vitality and career counselling. In addition, Kick is a member of the Board of Holding Goede Doelen Loterijen, the holding company for charity lotteries, and of Qurrent, a renewable energy company. In the past, Kick served as Vice-Chairman of the Executive Board of Eureko/Achmea and as Chairman of the Executive Board of Interpolis.
Annet Aris had a 17-year career at McKinsey as a management consultant, nine years of which she served as a partner. She serves as a supervisory director at several Dutch and foreign enterprises and institutions, including at Kabel Deutschland AG, Jungheinrich AG, ProsiebenSat1 AG in Germany and at London-based Thomas Cook PLC. Annet is an adjunct professor of strategy at INSEAD international business school (Fontainebleau, France).
88a.s.r. 2014 annual report Report of the Supervisory Board a claims-processing manager, and of Noordwijkse Woningstichting, a housing corporation. Cor serves as a non-executive member of the Board of Kardan, which initiates, develops and manages projects and assets, mainly in Real Estate and Water Infrastructure in promising Emerging Markets.
Until 2009, Margot Scheltema served as the CFO of Shell Nederland B.V., prior to which she had held several international management positions at Shell since 1985. She is a supervisory director of Triodos Bank, Schiphol Group, TNT Express, Lonza Group of Basel, Switzerland, and Warmtebedrijf Rotterdam, a heat management company. She is also a member of the Supervisory Committee of the Rijksmuseum. Margot serves as a (substitute) council of the Enterprise Chamber of the Amsterdam Court of Appeal and chairs the Monitoring Committee of the Code of the Pension Funds. She is a member of the Supervisory Board of World Press Photo and Treasurer of Genootschap Onze Taal, the Dutch language society. Margot Scheltema has been appointed as a member of the Supervisory Board of De Nederlandsche Bank as of 1 September 2015 and will step down from the a.s.r. Supervisory Board as of 31 August 2015.
The Supervisory Board has four members. The Supervisory Board is diverse in terms of the gender and professional background of its members. The diversity of its members guarantees the complementary profile of the Supervisory Board.
The members of the Selection, Appointment & Remuneration Committee are Annet Aris (chair) and Kick van der Pol. Its meetings are attended by the CEO (except when issues relating to the Executive Board are being discussed) and the Human Resources Director, who doubles as secretary of the Committee. The Committee solicits support and advice from departments such as Risk Management, Compliance, Audit and Human Resources. Where needed, it calls in the expertise of independent legal and payand -benefits experts.
Education and evaluation Three CE sessions were organized for the members of the Supervisory Board in 2014. One session was fully devoted to the healthcare market and developments in contracted care. During the second session, the members of the Supervisory Board visited Google Netherlands where they were given various presentations and engaged in interactive dialogues to gather knowledge about consumer behaviour during various stages of the value chain, from orientation to purchase and from information to change. The third session in September was about emotional capital.
2014 annual report Report of the Supervisory Board were held with all members of the Supervisory Board and Executive Board, and with some a.s.r. entity directors. The following elements were assessed: • Composition of the Supervisory Board • Procedures and information provision • Performance of Chairman and committees • Various roles as supervisor, including the roles of employer and adviser • Interaction within the Supervisory Board, between the Supervisory Board and the Executive Board, and between the Supervisory Board and stakeholders.
In addition to the regular and ad-hoc meetings, the Supervisory Board held two sessions with the Executive Board to discuss the personal development and the succession planning of senior managers.
Independence and conflicts of interest In 2009, Cor van den Bos announced that his role as Chairman of the Supervisory Board of CED might cause a conflict of interest if CED-related issues were to be discussed in the Supervisory Board of a.s.r. This was not the case in 2014. In 2012, Margot Scheltema announced that her appointment as of 1 January 2013 as a (substitute) council of the Enterprise Chamber of the Amsterdam Court of Appeal might occasionally cause a conflict of interest in which case she will not participate. In April 2014, she notified a.s.r. of her appointment as Chair of the Monitoring Committee for the Code of the Dutch Pension Funds. This did not lead to potential conflicts of interest in 2014.
Contacts with the independent external auditor The independent external auditor always attended the Supervisory Board meetings on the annual and interim financial results. In this process, the auditor elaborated on the audit reports and answered specific questions asked by the supervisory directors. The independent external auditor also attended
Plenary sessions 16/16 16/16 16/16 16/16 Audit & Risk Committee - - 6/6 6/6 Selection, Appointment & Remuneration Committee 7/7 7/7 - 5. 1.4 Corporate governance
Articles of Association and rules of procedure The current Articles of Association and rules of procedure for the Executive Board and the Supervisory Board have been posted on the corporate website: www.asrnl.com. ASR Nederland N.V. and the Dutch State signed a covenant in the past that formalizes procedural aspects for information provision and decision-making, and policy and parameters for decisions regarding capital reduction and interim and year-end dividend distributions, among other provisions.
Rules for appointing and removing executive and supervisory directors The AGM appoints the members of the Executive Board on the (non-binding) recommendation of the Supervisory Board. After having heard the Supervisory Board, the AGM is competent to suspend or remove a member of the Executive Board. After having heard the AGM, the Supervisory Board may decide to suspend a member of the Executive Board.
The AGM appoints the members of the Supervisory Board on the recommendation of the Supervisory Board. Both the AGM and the Works Council have the right to nominate supervisory directors. The Supervisory Board duly notifies the AGM and the Works Council of when and why they have the right to nominate a supervisory director, and of the profile required of the nominee.
Members of the Supervisory Board can only be removed by the Enterprise Section of the Amsterdam Court of Appeal if they neglect their duties, for other compelling reasons or because of a drastic change in circumstances. In addition, the AGM may oust the full Supervisory Board by adopting a motion of no confidence, resulting in the immediate removal of all supervisory directors. Finally, the Supervisory Board may also suspend an individual supervisory director.
Dutch Corporate Governance Code Although, as a non-listed company, ASR Nederland N.V. is under no obligation to comply with the Dutch Corporate Governance Code, a.s.r. sets great store by a transparent governance structure. For this reason, it observes the Code by applying the principles and best practices relevant to it.
The Dutch Insurance Code applies to al supervised entities within ASR Nederland N.V.; ASR Bank N.V. is governed by the Dutch Banking Code.
92a.s.r. 2014 annual report Report of the Supervisory Board a.s.r. sees much of its mission, vision and core values reflected in the principles of the Dutch Insurance Code and the Dutch Banking Code, and therefore fully endorses these two Codes. By seeking to achieve its mission, vision and core values, a.s.r. wants to contribute to improving the workings of the Dutch financial sector and help restore trust in the financial sector, never losing sight of customer interests.
Details on how ASR Bank N.V. applies the Dutch Banking Code can be found in its Annual Report that has been posted online on www.asrnl.com.
Professional oath The members of the Executive Board, the Supervisory Board and all senior managers of ASR Nederland N.V. took the professional oath early in 2013. New executives and managers take the oath when they join the organization. Chris Figee took the oath in May 2014. By taking this oath, executives and managers promise to treat customers fairly, act with integrity and observe all laws, rules and regulations, and codes of conduct so as to increase trust in the financial sector. With effect from 1 January 2013, all decision-makers working in the financial sector have been under the obligation to take this oath in accordance with the Dutch Oath or Affirmation (Financial Sector) Regulation.
Improving and maintaining the integrity and robustness of a.s.r. is key to the remuneration policy, and the focus is squarely on the long-term interests of all our stakeholders. The aim of the remuneration policy is to motivate employees to work for the interests of customers and other stakeholders within the parameters of the duty of care. The remuneration policy is based on the following principles: • The remuneration policy is designed to help achieve a.s.r.’s strategy and targets.
• The remuneration policy cannot restrict a.s.r.’s scope to strengthen its regulatory capital, solvency margin or equity.
• A balance needs to be struck between trust in the intrinsic motivation of managers on the one hand and agreement on clear objectives and assessment of the performance on these objectives on the other.
• The level of remuneration is just below the median for the peer group. • The total remuneration package should be appealing enough to allow a.s.r. to compete in the relevant segments of the labour market and attract and retain competent people.
Remuneration groups In its remuneration policy, a.s.r. distinguishes between five groups, as follows: 1. Executive Board 2. Senior management 3. Higher management 4. Back office 5. Front office
Key features of remuneration system from 1 July 2014 a.s.r. eliminated variable pay on 1 July 2014. Since that date, employees have been entitled to fixed pay only, except for a small group of 139 sales employees who fall under the a.s.r. CBA job classification and pay structure for front-office positions. This group qualifies for a target-related pay component of up to 20%. The a.s.r. remuneration policy was updated for this change in 2014. Pursuant to the Dutch Act on the limitation of liability for DNB and AFM and the bonus prohibition for stateaided enterprises, the members of the Executive Board have not received any variable pay since the financial year 2011. Pursuant to the Dutch Act on the limitation of liability for DNB and AFM and the bonus prohibition for state-aided enterprises, the current members of the Executive Board have not received any variable pay since the financial year 2011. A long-term remuneration was disbursed to R.T. Wijmenga, who left a.s.r. as per 1 September 2014, in accordance with the 2010 the long-term variable remuneration policy.
94a.s.r. 2014 annual report Report of the Supervisory Board that need to be achieved during that year. These targets need to reflect a clear focus on improving our customer appreciation rating. The targets to be achieved in terms of financial results and customer appreciation at entity level and at group level are adopted annually by the Executive Board and the Supervisory Board. These targets are discussed with, and explained to, the Works Council before they are adopted. Variable pay until 1 July 2014 is a percentage of fixed annual pay.
Executive Board In accordance with the Act on the limitation of liability for DNB and AFM and the bonus prohibition for state-aided enterprises, the members of the Executive Board of a.s.r. are not awarded any variable pay as long as a.s.r. falls under the scope of the Act.
Identified staff Identified staff are conditionally awarded a material share (i.e. 50%) of their variable pay in the form of cash and non-cash instruments. The conditional variable pay is deferred for three years; a reappraisal is performed at the end of the three-year period, after which the cash component is paid out. The non-cash component is subject to an additional retention period of two years. Some of the unconditional variable pay is paid out in cash right away. The non-cash component of the unconditional variable pay is also retained for two years.
This group is also subject to a claw-back mechanism and a reasonableness test/penalty, meaning that the Supervisory Board can claw back any variable pay already awarded if it was determined and awarded based on incorrect information. In addition, the Supervisory Board has the right to adjust the level of the conditional variable pay if, unchanged, the payment goes against the principles of reasonableness and fairness.
Target-related pay for sales employees The remuneration of sales employees coming under the CBA job classification and pay structure for front-office positions consists not only of fixed and variable pay, but also of a target-related component. The target-related component is determined by their individual score on quantitative and qualitative targets. The employee and the manager agree on these targets annually, and the extent to which these targets have been achieved is established in the following year. The target-related pay is a percentage of the annual fixed pay awarded to the employee. Depending on the job description, the target-related pay for a performance ‘at target’ will amount to 20%, 24% or 30% of the fixed pay. The maximum level is 40%, 48% or 60%. At 1 July 2014, the level of the target-related component was reduced to no more than 20%.
Pre-pension allowance As a result of statutory pre-pension regulations, a.s.r. removed all pre-pension elements from its pension plans in 2006. Employees who joined a.s.r. before 1 January 2006 were initially compensated for this removal through optimization of their accrual rate and the state pension offset. Where such compensation was inadequate, these employees were awarded a pre-pension allowance, the extent of which varied based on their age and the original pension commitment. The pre-pension allowance for employees who joined a.s.r. after 1 January 2006 was 1% of their pensionable earnings.
The members of the Supervisory Board would like to express their gratitude for the efforts put in by the members of the Executive Board and the openness that they displayed in their dialogue with the Supervisory Board.
97a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Share premium reserve 962 962 Unrealized gains and losses 6.15 737 581 Actuarial gains and losses 6.15 -634 -107 Other reserves 800 701 Profit for the year 381 281 Total equity attributable to shareholders 2,346 2,518
Other equity instruments 6.15 701 515 Equity attributable to holders of equity instruments 3,047 3,033
99a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Gross premiums written 3,787 3,923 Change in provision for unearned premiums -4 1 Gross insurance premiums 6.23 3,783 3,924 Reinsurance premiums -140 -164 Net insurance premiums 3,643 3,760
Share of profit/(loss) of associates and joint ventures -4 14 Total income 3,574 3,365
6.1.2 Consolidated income statement 6.1 Consolidated financial statements 6.1.1 Consolidated balance sheet
Shadow accounting allows a recognized but unrealized gain or loss on an asset to be transferred to insurance liabilities and liabilities arising from insurance contracts (see accounting policy J, chapter 6.2.2).
(p en si o n o b lig at io ns )
N o n co nt ro lli ng in te re st
The change in accounting policy (€ 2 million) is a result of the reclassification between unrealized gains and losses and other reserves as a result of the reclassification of investments, see chapter 6.2.1.
The actuarial gains and losses primarily decreased from -€ 107 million to -€ 634 million due to a decrease in the discount rate of the benefit pension obligation.
102a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Revaluation through profit and loss -16 -1 Retained share of profit of associates and joint ventures 9 13
Amortization/depreciation: - Deferred acquisition costs 27 31 - Property, plant and equipment 9 9
Income tax received (paid) -289 -140 Cash flows from operating activities 1,683 -811
Further details on cash flows from operating activities Interest received 1,260 1,337 Interest paid -250 -260 Dividends received 39 43
104a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
• IFRS 12 Disclosure of interests in other entities: Improvements to the disclosure of a reporting entity’s interests in other entities. The standard sets out disclosure requirements for reporting entities that have an interest in a subsidiary, joint venture, associate or unconsolidated structured entity.
• IAS 32 Financial instruments: Presentation: Amendments to IAS 32 clarified the requirements for offsetting financial assets and financial liabilities.
• The presentation of the breakdown of the investments and investments on behalf of policyholders has therefore also been restated.
The implementation of IFRS 10 and IFRS 11 has no material impact on the total equity as at 31 December 2013, and total comprehensive income and profit for the year ended 31 December 2013. Limited restatements have been made within the presentation and the breakdown of total equity, the income statement and the statement of comprehensive income. Within total equity, € 2 million is reclassified between unrealized gains and losses and other reserves as a result of the reclassification of investments.
106a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Changes in presentation In addition to the amendments as disclosed above, the current presentation differs from last year’s presentation in some aspects. Where applicable, in accordance with IFRS, comparative figures have been included in the new presentation format to ensure comparability.
The consolidated financial statements are presented in euros (€), being the functional currency of a.s.r. and all its group entities. All amounts quoted in the tables contained in these financial statements are in millions of euros, unless otherwise indicated.
B. Estimates and assumptions The preparation of the financial statements requires a.s.r. to make estimates and assumptions that have an effect on the reported amounts in the financial statements.
Critical accounting estimates and assumptions relate to: • the fair value and impairments of unlisted financial instruments (see accounting policy C and F); • the estimated useful life, residual value and fair value of property, plant and equipment, investment property, and intangible assets (see accounting policy D, E and T); • the measurement of capitalized deferred acquisition costs (see accounting policy S); • the measurement of liabilities arising from insurance contracts (see accounting policy J); • actuarial assumptions used for measuring employee benefit obligations (see chapter 6.17); • when forming provisions, the required estimate of existing obligations arising from past events; • the recoverable amount of impaired assets (see accounting policy J, F and H).
Where possible, a.s.r. determines the fair value of assets and liabilities on the basis of quoted prices in an active market. In the absence of an active market for a financial instrument, the fair value is determined using valuation techniques. Although valuation techniques are based on observable market data where possible, results are affected by the assumptions used, such as discount rates and estimates of future cash flows. In the unlikely event that the fair value of a financial instrument cannot be measured, it is carried at cost.
107a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Level 1. Fair value based on quoted prices in an active market Level 1 includes assets and liabilities whose value is determined by quoted (unadjusted) prices in the primarily active market for identical assets or liabilities. A financial instrument is quoted in an active market if: • quoted prices are readily and regularly available (from an exchange, dealer, broker, sector organization, third party pricing service, or a regulatory body); and • these prices represent actual and regularly occurring transactions on an arm’s length basis.
Level 3. Fair value not based on observable market data At Level 3, the fair value of the assets and liabilities is determined using valuation techniques for which significant inputs are not based on observable market data. In these situations, there can also be marginally active or inactive markets for the assets or the liabilities. The financial assets and liabilities in this category are assessed individually.
The main non-observable market input for private equity investments is the net asset value of the investment as published by the private equity company (or partner).
Fair value for investment property and buildings for own use The following categories of investment properties and buildings for own use are recognized and methods of calculating fair value are distinguished: • residential – based on reference transaction and DCF method; • retail – based on reference transaction and income capitalization method; • rural – based on reference transaction and DCF method; • offices – based on reference transaction and DCF method (including buildings for own use); • other – based on reference transaction and DCF method; • under construction – based on both DCF and income capitalization method.
The following valuation methods are available for the determination of fair value by the external professional appraisers for investment property and buildings for own use: Reference transactions Independent professional appraisers use transactions in comparable properties as a reference for determining the fair value of the property. The reference transactions of comparable objects are generally based on observable data consisting of the land register ‘Kadaster’ and the rural land price monitor as published by the Dutch government ‘grondprijsmonitor’ in an active property market and in some instances accompanied by own use information. The external professional appraisers, appraise the value of the property using the reference transaction in combination with the following valuation methods to ensure the appropriate valuation of the property: • DCF method; • income capitalization method.
A market-derived discount rate is applied to these projected cash flow series in order to establish the present value of the cash flows associated with the asset. The exit yield is normally determined separately, and differs from the discount rate.
2 Not measured at fair value on the balance sheet (non-recurring) for which the fair value is disclosed.
For the categories residential, offices and other in applying the DCF method, the significant inputs are the discount rate and market rental value. These inputs are verified with the following market observable data (that are adjusted to reflect the state and condition, location, development potential etc. of the specific property): • market rent per square metre, for renewals and their respective re-letting rates; • the 10 year discount rate as published by the Dutch Central Bank.
The fair value of investment properties and buildings for own use, are appraised annually. Valuations are performed by independent professional appraisers who hold recognized and relevant professional qualifications and have recent experience in the location and category of the property being valued. Market value property valuations will be prepared in accordance with the Royal Institution of Chartered Surveyors (RICS) Valuation Standards, 7th Edition (the ‘Red Book’). a.s.r. provides adequate information to the professional appraisers, in order to conduct a comprehensive valuation. The professional appraisers are changed or rotated at least once every three years.
The accounting policies for the treatment of investment property and buildings for own use is described in accounting policy E and T respectively. The fair value of investment property and buildings for own use is disclosed in chapter 6.6.
Goodwill Acquisitions by a.s.r. are accounted for using the acquisition method. Goodwill represents the excess of the cost of an acquisition over the fair value of a.s.r.’s share of the net identifiable assets and liabilities and contingent liabilities of the acquired company at acquisition date. If there is no excess (negative goodwill), the carrying amount is directly recognized through the income statement. At the acquisition date, goodwill is allocated to the cash-generating units that are expected to benefit from the business combination.
In the event of an impairment, a.s.r. first reduces the carrying amount of the goodwill allocated to the cash-generating unit. After that, the carrying amount of the other assets included in the unit is reduced pro rata to the carrying amount of all the assets in the unit.
Investment property is primarily recognized using the cost model (cost less accumulated depreciation and impairments, if any). Buildings are depreciated using the straight-line method based on their expected useful life and taking account of the residual value. Land is not depreciated. The residual value and the estimated useful life are determined separately for every main component (component approach) and assessed at every balance sheet date.
The fair value model is used for the investment property backing insurance liabilities that pay a return linked directly to the fair value of, or returns from, the investment property where the investment property is partly held as investments on behalf of policyholders. After initial recognition, a.s.r. remeasures, all of this investment property held at fair value whereby any gain or loss arising from a change in the fair value of the specific investment property is recognised in the income statement under fair value gains and losses.
• retail; • residential; • rural; • offices; • other (consisting primarily of parking); and • investment property under development.
Outer layer 30 30 40 40 N.A. Systems 15 20 20 30 N.A. Fittings and fixtures 10 15 15 15 10
Property under development for future use as investment property is recognized as investment property. Valuation is at cost, including any directly attributable expenditure, less any impairment losses. The depreciation of investment property is recognized in investment income.
If objective evidence of impairment exists, based on the fair value of the investment property, then the investment property is tested for impairment and, if necessary, written down to the fair value of the investment property (see accounting policy C).
F. Investments 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 and loss; • loans and receivables; • financial assets available for sale.
Financial assets at fair value through profit and loss Financial assets at fair value through profit and loss include: • financial assets classified as held for trading. These financial assets include derivatives that do not qualify for hedge accounting (see accounting policy C and I); and • financial assets, designated by a.s.r. as carried at fair value through profit and loss. This option is available whenever: • it eliminates or significantly reduces a measurement inconsistency that would otherwise arise from measuring assets or liabilities on different bases (accounting mismatch); or • a.s.r. manages a group of financial instruments (assets, liabilities or both) on the basis of fair value in accordance with a documented risk management or investment strategy; • the financial assets contain one or more embedded derivatives and a.s.r. does not separate the derivative from the host contract.
112a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Loans and receivables are measured at fair value plus transaction costs on initial recognition. They are subsequently measured at amortized cost based on the effective interest-rate method, less impairment losses where deemed necessary (see also accounting policy H). Loans and receivables are accounted for separately under financial assets.
Fixed-income financial assets available for sale are tested for impairment if objective evidence exists that the counterparty will default. Objective evidence includes: bankruptcy, financial reorganization or delinquency in payments for more than 30 days. The assessment may also involve circumstances requiring a more detailed estimate, such as in the event of an equity deficit, recurring financial difficulties, downgrading of the credit rating or other creditors reverting to legal action. This assessment is made at each reporting date by the Level of Concern Committee, where the portfolio managers and analysts assign a level of concern from ‘Nil’ to ‘Three’ to each of the fixed-income assets. A level of concern ‘Nil’ means that there is no reason for concern, while a level of concern ‘Three’ indicates that the situation is critical and that an impairment is highly recommended. The final decision to recognise an impairment loss on a financial asset or to reverse a prior impairment loss is taken in the quarterly Impairment Committee, chaired by the Financial Markets director.
H. Loans and receivables Loans and receivables are measured at amortized cost based on the effective interest-rate method, less impairments where deemed necessary.
Likely losses in parts of the loan portfolios (IBNR: ‘incurred but not reported’) are also taken into account.
Cash flow hedge accounting is currently applied only to a limited extent in relation to property development activities.
114a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Additional provisions are generally recognized for realized gains or losses on financial assets allocated to insurance contracts if and to the extent that the current interest-rate is lower than the interest-rate that was used in the pricing principles at inception of the insurance contract.
115a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Life insurance contracts with a discretionary participation features (DPF) Under DPF life insurance contracts, policyholders are assigned, in addition to their entitlement to a guaranteed element, an entitlement to potentially significant additional benefits whose amount or timing is contractually at the discretion of a.s.r. These additional benefits are based on the performance of a specified pool of investment contracts, specific investments held by a.s.r. or on the issuer’s net income.
The related adjustment to the insurance liability is recognized in other comprehensive income if, and only if, the unrealized gains or losses are recognized in other comprehensive income. Unrealized gains and losses on assets at fair value through profit and loss are recognized in the income statement with a corresponding adjustment for shadow accounting in the income statement under ‘Net insurance claims and benefits’.
IFRS Liability Adequacy Test non-life The Liability Adequacy Test (LAT) is performed at each reporting date to assess the adequacy of insurance liabilities for non-Life.
IFRS Liability Adequacy Test life The LAT is performed at each reporting date to assess the adequacy of insurance liabilities. Liabilities are adequate if the technical provision recognized in a.s.r.’s balance sheet for Life segment as a whole at least equals the best estimate of the life insurance liabilities including an appropriate risk margin. If there is a deficiency in the life insurance liabilities, those liabilities are increased to adequate levels through a charge to the income statement.
Also unrecognized 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 liability adequacy test are further discussed below.
Where applicable, the participating features of the insurance contracts, such as profit sharing, are taken into account in the future cash flows. The cash flows are discounted using the DNB swap curve including the UFR as published by the Dutch Central Bank.
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 TVOG, i.e. the value of that guarantee in accordance with the Black-Scholes model.
Dutch Central Bank Liability Adequacy Test For the De Nederlandse Bank (DNB, which is the Dutch Central Bank and insurance regulator) solvency (regulatory solvency) a.s.r. uses the Dutch Central Bank Liability Adequacy Test (DNB LAT). As no surrender value floor is applied in the IFRS LAT, the LAT used for IFRS purpose (‘LAT’ or ‘IFRS LAT’), as described above, differs from the DNB LAT.
Options embedded in insurance contracts Options embedded in insurance contracts are not stated separately. They are treated in the same way as the host contract. These options are recognized in the adequacy test, taking into consideration both the intrinsic and the time value.
L. Employee benefits (IAS 19) Pension obligations A number of defined benefit plans for own staff exist. These are schemes under which staff are awarded pension benefits upon retirement, usually dependent on one or more factors, such as years of service and compensation. The defined benefit obligation is calculated at each reporting date by independent actuaries.
Vacation entitlements A liability is formed for the vacation days which have not been taken at year end.
N. Product classification Insurance contracts are defined as contracts under which a.s.r. accepts significant insurance risk from policyholders by agreeing to compensate policyholders if a specified uncertain future event adversely affects the policyholder. These contracts are considered insurance contracts throughout the remaining term to maturity, irrespective of when the insured event occurs. In addition, these contracts can also transfer financial risk.
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 K). 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 life insurance contracts with unguaranteed segregated pools (discretionary self-insurance) are classified as life insurance contracts on behalf of policyholders.
Intersegment transactions or transfers are conducted at arm’s length conditions. For detailed information per segment, see chapter 6.5, ‘Segment information’.
120a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
R. Statement of cash flows The statement of cash flows classifies cash flows by operating activities, investing activities and financing activities. Cash flows denominated in foreign currencies are converted at the exchange rates applicable on the transaction date.
S. Deferred acquisition costs Commission fees directly or indirectly related to the acquisition of new or renewed insurance contracts are capitalized to the extent that these acquisition costs (‘deferred acquisition costs’ or ‘DAC’) are covered by the estimated future surcharges of the underlying contracts.
Capitalized deferred acquisition costs of insurance products in the Non-life segment are amortized over the period in which the relevant premiums are realized.
The value of the capitalized deferred acquisition costs is assessed at each reporting date to ascertain whether there is evidence of impairment, as part of the Liability Adequacy Test (see accounting policy J). Amortization of deferred acquisition costs is recorded in acquisition costs in the income statement.
For the maximum useful life of the components, see the table in accounting policy E Operating assets are depreciated over their useful lives, which are determined individually (usually between three and five years).
If objective evidence of impairment exists, property, plant and equipment are tested for impairment and if necessary, written down to the fair value of the property, plant and equipment (see accounting policy C).
122a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Reserve for unrealized gains and losses This reserve consists of: • unrealized gains and losses from financial assets available for sale net of tax and taking account of adjustments due to shadow accounting (see accounting policy J); • The share of unrealized gains and losses of associates and joint ventures held by a.s.r. (see accounting policy U); • unrealized gains and losses on the effective portion of cash flow hedges net of tax (see accounting policy I); • reserve for discretionary participation features (see accounting policy J); • reserve for exchange rate differences arising from financial assets available for sale.
Dividends for the year that are approved after the reporting date are dealt with as an event after the reporting date.
Discretionary interest on other equity instruments Discretionary interest on other equity instruments is recognized in equity upon payment.
123a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Interest income Interest income for all interest-bearing instruments is recognized using the effective interest method, including all transaction costs incurred and share premium/discount. When a receivable is impaired, its carrying amount is reduced to the recoverable amount, i.e. estimated future cash flows discounted at the original effective interest-rate of the instrument.
With respect to financial assets available for sale, realized gains or losses comprise: • the proceeds from the sale or disposal of an asset or liability less the amortized cost of the asset or liability sold, • impairments previously recognized and • hedge accounting adjustments.
124a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
II. Acquisition costs This mainly relates to commissions paid and amortization of capitalized deferred acquisition costs. For details on capitalized deferred acquisition costs see accounting policy S.
a.s.r. is exposed to the following types of risks: market risk, counterparty default risk, insurance risk, strategic risk and operational risk. The risk appetite is formulated at both group and legal entity level and establishes a framework that supports an effective selection of risks.
General • Risk appetite statements are established at both group and legal entity level including risk tolerances, limits and targets, which are also described in underlying risk policies. Senior and line management report quarterly if risk exposures are managed within the a.s.r. risk profile and which corrective actions are taken.
• a.s.r. closely monitors the progress in the implementation of Solvency II. Compliance is expected per 1 January 2016.
• Standard and Poor’s has confirmed a.s.r.’s A rating for its core insurance companies and assigned a BBB+ rating for the holding (ASR Nederland N.V.). All ratings have a stable outlook.
Risk governance • Risk governance ensures a robust and responsive governance structure that adequately manages the risks to which a.s.r. is exposed. • a.s.r. has a risk governance framework which comprises the duties and the responsibilities of the risk management organization and the risk committee structure. • Risk committees monitor a.s.r.’s risk profile and decide upon measures for mitigating risk exposures. • Risk Management is based upon the principles as formulated in Group Risk Management policies to ensure a uniform risk management process throughout the organization. These policies describe how to identify, monitor, report and manage risks.
Counterparty default risk • In accordance with the strategic investment plan, the mortgage portfolio increased in 2014. The majority of new mortgages are guaranteed by the Dutch national mortgage guarantee fund (NHG).
Insurance risk – Non-life • The combined ratio decreased through improved claim prevention and –handling and lower operating expenses, as well as the non-recurring charge of WGA-ER last year. The combined ratio improved from 104,6% (excluding additional charge for WGA-ER: 96,5%) last year to 94,9% in 2014.
• a.s.r. also made changes to the calculation of the risk margin. The changes resulted in an increase of the risk margin. With this level of risk margin, the current Solvency I technical provisions (best estimate Solvency I plus risk margin Solvency I plus impact surrender floor) are exceeding the Solvency II technical provisions (best estimate Solvency II plus risk margin SII).
• The new actuarial life expectancy and mortality tables issued in 2014 by the Actuarial Society of the Netherlands have been used in the LAT to evaluate the adequacy of the provisions. a.s.r. has a well balanced portfolio of both long and short life risks. As a consequence a change in mortality assumptions has a limited impact on the market value of the company.
Strategic risk • a.s.r. uses scenario analysis tools to be better prepared for potential future and emerging risks.
• a.s.r. executed an Own Risk and Solvency Assessment (ORSA) at both group and legal entity level. This assessment is used to determine relevant changes in our risk profile and to quantify the impact of identified risks on the forward-looking solvency position. The ORSA makes risk management part of strategic decision making processes on group and business units level. Management needs to ensure that a.s.r.’s capital requirements are sufficient to be and remain a financial solid insurer.
126a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
• a.s.r. has developed a recovery plan. The goal of this recovery plan is to ensure that a.s.r. has effective plans in place to deal with potential severe financial stress resulting from a wide range of different causes of various circumstances.
Operational risk • a.s.r. continues to improve its system of internal control in line with formulated ambition levels. The enterprise wide internal control framework is largely implemented in the product lines. Operational risks have been identified and assessed and controls are determined and tested from an Enterprise Risk Management perspective.
• In 2014, the non-financial risk dashboard in which non financial risk profile of each business unit is reported, was further aligned with the formulated risk appetite.
• To be able to mitigate model risk, a.s.r. has expressed in 2014 the ambition that at the end of 2015 the major part of Solvency II metrics like the Solvency Capital Requirement and Technical Provisions are established using internally validated financial and/or actuarial models. To be able to meet this ambition a.s.r. has set up a model validation policy as well as a governance structure. Both model owners and model validation have worked out a detailed planning and secured the resources necessary.
Solvency II • a.s.r. participated in the stress test 2014. The stress test is an assessment of the European
• In October 2014, the European Commission adopted the Delegated Acts containing implementing rules for Solvency II. The Delegated acts specifications were adopted by a.s.r. per Q4 2014. For further information, see chapter 6.3.10.
• In 2014 a.s.r. implemented the preparatory phase Quantitative Reporting Templates as well as the narrative report. In 2015 a.s.r. will report according to the preparatory phase requirements for a.s.r. and relevant legal entities.
• In 2015 a.s.r. will implement the remaining Quantitative Reporting Templates (QRT’s) as published by EIOPA and is preparing to comply with qualitative Solvency II reporting requirements, as prescribed by the regulator.
• Group Risk Management monitors on a quarterly basis the readiness of a.s.r. for the introduction of the Solvency II Directive on 1 January 2016. Results of this assessment are reported to the Audit and Risk Comité.
Capital management and solvency • The solvency ratio including UFR increased due to the decrease of the interest-rates in relation to application of the UFR. This movement is in line with the sensitivities as presented in paragraph 6.3.4.
• In 2014 a.s.r. executed a capital optimisation deal. There was an issue of new Tier 2 capital and the majority of existing Tier 1 hybrids were redeemed.
The Enterprise Risk Management (ERM) framework describes our risk management system. The Enterprise Risk Management framework ensures that our strategic and business objectives can be achieved and our obligations towards our stakeholders can be met. The a.s.r. Enterprise Risk Management framework is based on the COSO (Committee of Sponsoring Organizations of the Treadway Commission) ERM model. The framework comprises the following risk management elements.
Objectives of the risk appetite: • Important steering instrument on a daily basis.
Three lines of defence The risk governance structure is based on the ‘three lines of defence’ model. The ‘three lines of defence’ model consists of three defence lines with different responsibilities with respect to the ownership of controlling risks. • The first line is responsible for the identification and management of risk in daily business. The first line has day-to-day responsibility for operations (sales, pricing, underwriting, claims handling, etc.) and is primarily responsible for risk management. The first line is formed by the Executive Board, the management teams of the business lines and their employees.
of models and the update of our recovery plan. For the management of operational risks, a.s.r has a sound Management in Control system in place that contributes to long-term solidity of a.s.r. The quality of our Management in Control Framework is further enhanced by the analysis of operational losses. Enterprise Risk Management also monitors a.s.r.’s compliance with Solvency II requirements.
Financial Risk Management Financial Risk Management (FRM) is responsible for the group actuarial function and the financial risk management function. FRM is responsible for the development of financial risk policies and the implementation of these policies at group and legal entity level. The department is also responsible for the methodology and the development of models used for calculating economic capital. FRM reports economic capital both at group and at legal entity level. FRM tests the reported market value and market risk and compares these against a.s.r.’s risk limits and risk budget. As part of the actuarial function, FRM reviews the technical provisions, monitors the methodologies, assumptions and models used in these calculations and assesses the adequacy and quality of data used in the calculations. FRM regularly reports to the Financial Risk Committee, the Executive Board and the Audit and Risk Committee on the reliability and adequacy of the calculation of the technical provisions.
131a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The a.s.r. Risk Committee receives information about risk exposures or other risk-related issues from the Financial Risk Committee and the Non-Financial Risk Committee. These committees have mandates to manage and control a.s.r.’s risk profile in line with the risk appetite statements, limits and targets.
Financial Risk Committee The Financial Risk Committee (FRC) has a mandate from the Executive Board to decide on financial risk policies. The FRC manages and controls financial risks (market, insurance (life and non-life) and counterparty default risk) and defines financial risk limits at group level. 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 a.s.r. Risk Committee. The Chairman of the FRC is the CFO. Members of the Committee include the Chief Risk Officer, Directors of Financial Markets, Audit, Integrity, Finance and Real Estate. The FRC is supported by the Capital, Liquidity & Funding Committee (CLFC).
Capital, Liquidity & Funding Committee The Capital, Liquidity and Funding Committee (CLFC) is a subcommittee of the FRC. As such, the CLFC prepares and assesses the technical analysis of capital, liquidity and funding positions, rating policy, rating model reporting, and treasury activities. The Chairman of the CLFC is the Director of Financial Markets; other members of this sub-committee are representatives of various key financial and risk departments.
132a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
6.3.2.3 Systems and data The availability and reliability of data is important in order to ensure that the correct risk mitigating measures can be taken in time. Risk Management is supported by various IT systems for delivery of the required information.
6.3.2.4 Risk procedures & policies a.s.r.’s risk classification covers all Solvency II risks and is in line with the Focus approach as applied by DNB. a.s.r. has established policies for each of the risks (market, counterparty default, insurance, strategic and operational). In each case the policy defines the risk, the risk limits and the risk mitigation strategies.
The five main risk categories that a.s.r. recognizes are described below.
Market risk arises from changes in the level or the volatility of market prices. Exposure to market risk is measured by the impact of movements in financial variables such as equity prices, interest-rates and property prices. The several types of market risk, which are discussed in this section, are: • interest-rate risk; • equity risk; • property risk; • currency risk; • spread risk; • concentration risk.
The sensitivity to spread decreased, mainly due to a refined method to determine spread-duration. The sensitivities to interest changed as a result of the significant decline of the interest-rate curve.
The next table shows sensitivities of total equity and profit for the year. Due to the IFRS accounting treatment (including insurance liabilities discounted with a fixed interest-rate, shadow accounting of part of the investments at cost, post-employment benefits), these sensitivities can vary substantially from the sensitivities of regulatory solvency.
The sensitivities of total equity and profit for the year to market risk are as follows: Total equity Profit for the year Total equity Profit for the year
The sensitivities to equities, interest-rates, property and foreign currency remained stable. The method to determine the sensitivity to spread is improved. The effect of shadow accounting is now taken into, as result of which the sensitivity is limited. The figures of last year are restated.
Since 30 June 2012 the regulator prescribes applying the Ultimate Forward Rate (UFR) on the discounting curve, whereby the forward interest-rates converge to a level of 4.2%. Since this is an assumption, a.s.r. also evaluates its solvency position without applying the UFR to the discounting curve.
During 2014 the interest-rates decreased more than 100 bps for maturities longer than 5 year.
Recent years a.s.r. has taken mitigating measures to reduce the interest-rate risk. In 2014 the interestrate risk has been reduced by restructuring the overlay portfolio of interest-rate swaps and swaptions. Mainly the interest-rate risk exposure in different maturity buckets has improved in 2014 and as a result a.s.r. has become less sensitive for non-parallel shifts of the interest-rate curve. As a result of the interest-rate risk policy, the sensitivity of the solvency ratio including UFR and excluding UFR have opposite signs.
The fair value of equities and similar investments at year-end 2014 was € 1,990 million (2013: € 1,967 million). The divestments were compensated by the favourable development of equity prices.
136a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
In 2014 the relative exposure in Netherlands slightly decreased and the relative exposure in Europe slightly increased.
The next table shows the exposure of the equity portfolio to sectors. Funds are excluded for this table, the total value in scope is € 1,019 million (2013: € 1,002 million).
Despite disposals the exposure to property increased in 2014 due to positive revaluations.
137a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The policy is primarily to hedge currency risks. However, certain currency exposures are permitted from a tactical perspective within a specific risk budget.
In 2014 the exposure in USD increased, both in bonds and equities, within the bandwidth of the strategic investment policy. The exposures in CAD and SEK denominated bonds were reduced, while equities in GBP and CHF were acquired.
Assets in scope of spread risk are by definition not in scope of counterparty default risk (see chapter 6.3.5).
Where relevant, credit ratings provided by the external rating agencies are used to determine risk budgets and monitor limits. A limited number of bond investments do not have an external rating. These investments are generally assigned an internal rating. Internal ratings are based on methodologies and rating classifications similar to those used by external agencies. The following tables provide a detailed breakdown of fixed-income exposure by rating class, sector, and country of risk and level of subordination for the financial sector. The table includes all bonds, fixed-income funds, preferred equities and loans subject to spread risk according to our risk models.
The changes in the rating distribution of the fixed income portfolio are attributable to a combination of market factors, such as interest-rate and spread movement, implementation of the investment policy and rating actions by S&P and Moody’s rating agencies. Falling interest-rates are the main driver of the increase in the market value and share of the AAA-rated securities. The decrease in the share of AA bonds is to a large extent due to a tactical repositioning within sovereign bond portfolio and a downgrade of a few credit positions from AA to A-rated category. Increase in the non-investment grade category is due to the downgrades in subordinate financials portfolio resulting from rating methodology change by S&P.
A combination of changes in tactical positioning, falling interest-rates and tightening spreads explain changes in the geographical breakdown of the government bond portfolio. The most visible changes are increase in the exposure to France and peripheral sovereign bonds (Ireland, Spain and Italy) at the expense of Dutch sovereign. Falling interest-rates and higher interest-rate sensitivity of our positions are the predominant reasons for increase in the market value of the German sovereign bonds.
As a.s.r. participates in structured entities solely for investment purposes, no other commitments or guarantees have been made to the structured entities concerned. The maximum exposure is therefore limited to the fair value of the structured entity and amounts to € 556 million (2013: € 600 million).
140a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Collateralized debt obligation (CDO) CDO’s are securities backed by a pool of bonds, loans or other assets. CDO’s do not specialize in one type of debt, but are often non-mortgage loans or bonds. CDO’s are unique in that they represent different types of debt and credit risk. In the case of CDO’s, these different types of debt are often referred to as ‘tranches’ or ‘slices’. Each slice has a different maturity and risk associated with it.
The CDO portfolio of a.s.r. currently consists mainly of senior tranches in collateralized loan obligations (CLO’s), which are CDO’s backed by a portfolio of European bank loans. Also, the portfolio contains various CDO’s with several types of collateral, such as loans to smaller financial institutions and ABS.
Other structured financial instruments (SFI) This part of the portfolio consists of equity tranches of CDO’s, i.e. the most risky tranche in the CDO structure. These ‘first loss’ tranche will be the first to fall in value if losses occur in the assets that back the CDO and are not rated. The portfolio is dominated by two positions that make up 66% of the portfolio. The largest position, approximately 43%, in this portfolio is a so-called ‘combination note’, which consists of an equity piece and a safer rated tranche or zero coupon bond. This rated tranche serves as principal protection for the equity piece. The second largest position is the equity piece of a CDO of Private Equity investments. The other positions in this portfolio are almost all equity pieces of European CLO’s.
Government Financial institutions Corporates Structured entities 31 December 31 December 31 December 31 December 31 December 31 December 31 December 31 December
Changes in tactical positioning described earlier together with falling interest-rates and tightening credit spreads explain changes in the rating breakdown of the sovereign portfolio. Increase in share of A and sub-investment rating category financial institutions is attributable to a rating methodology change by rating agents that resulted in a downgrade of several positions. Upgrade of a position in our preferred equities portfolio explains substantial decrease in sub-investment grade corporates. The non-rated category corporates includes predominantly externally managed fixed income funds and loans issued to intermediaries.
The parameters of the internal risk-rating model are regularly adjusted in response to market conditions as well as new legislation. The ban on commissions regarding so-called ‘complex’
Deposits Total deposits amounted to € 2,626 million (2013: € 850 million) of which € 501 million (2013: € 160 million) had a single A rating, € 61 million (2013: € 69 million) a triple A rating and € 2,064 million (2013: € 611 million) is on secured deposit.
The credit risk of the savings-linked mortgage loans depends on the counterparty. For 62% 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.
Mortgage < 75% value under foreclosure (indexed) 965 17% 868 18% Mortgage < 100% value under foreclosure (indexed) 428 8% 434 9% Mortgage < 125% value under foreclosure (indexed) 540 10% 476 10% Mortgage > 125% value under foreclosure (indexed) 206 4% 222 5%
At year-end 2014 0.65% (2013: 0.59%) of mortgages were more than three months in arrears.
6.3.5.3 Reinsurance When entering into reinsurance contracts for fire and catastrophe, a.s.r. requires the counterparty to be rated at least single A. With respect to long-tail business and other sectors, the minimum permitted rating is single A.
6.3.5.5 Cash The current account amounted € 571 million in 2014 (2013: € 750 million). The rating of the counterparties is single A.
Insurance risk is further restricted by careful selection and acceptance criteria, as well as underwriting guidelines and reinsurance arrangements.The risks are periodically assessed for each insurance segment. If and when required, actions are initiated to adjust the overall risk profile in line with guidelines agreed at group level.
Each insurance segment within a.s.r. holds insurance provisions to cover both future and incurred claims arising from existing contracts and assigns assets to cover these insurance liabilities. • In property & casualty insurance, sickness leave insurance and accident & health insurance
(excluding disability insurance), these provisions are based on case reserves estimates for reported claims, as well as additional provisions such as IBN(E)R provisions. The adequacy of these provisions are reviewed at each reporting date using appropriate current principles.
In particular for WGA the provision unavoidably depends on expert judgement. Since the WIA law was introduced in 2006 and the WGA product has a two year waiting period, only limited and often unstable claims information is available. In particular, expert judgment is used on longer term recoveries and the outflow to the IVA (Inkomensvoorziening Volledig Arbeidsongeschikten) for
The solvency buffer is held by a.s.r. to cover the risk that claims may exceed the available insurance provisions and to ensure its solidity. The solvency position of a.s.r. is determined and continuously monitored in order to assess if a.s.r. meets the regulator requirements.
Reinsurance and other risk-mitigating measures are used to reduce and contain the volatility of results or to decrease the possible negative impact on value as an alternative for the capital requirement.
a.s.r. has assessed the impact of various shocks. The shocks that have been assessed are: 1. Lapse +10% 2. Expense +10%
The conclusion is that these shocks have no impact on the 2014 and 2013 total equity and the profit for these years, because a.s.r. would still pass the Liability Adequacy Test. The shocks will result in a decrease of the surplus in de Liability Adequacy Test but the outcome would still be positive. For a description of the LAT, see accounting policy J, chapter 6.2.2.
Non-life insurance risk Non-life insurance risk primarily comprises of risks resulting from disability, health, third-party liability and general third-party liability. Insurance liabilities are formed to cover the scale and the long-term character of the claims (especially those involving disability).
Combined ratio In 2014, the combined ratio decreased to 94.9% (2013:104.6%). The decrease of the combined ratio is for a large part attributable to WGA-ER where measures taken (adjust its prices, make its acceptance criteria stricter and make improvements to the claims settlement process) show a positive impact. Excluding WGA-ER and considering the storm in Q4 2013 the combined ratio in 2013 was 96.5%. The further decrease from the latter level can be explained by a favorable claims development in most Non-life product lines.
Handling time The time required for handling and settling claims is an important factor. The settlement of claims that have a long handling time, such as injury or liability claims, can take many years. Analyses are performed regularly and based on a.s.r.’s experience in similar cases, historical trends – such as the pattern of liabilities – increases in risk exposure, payment of damages, the scale of current and not yet settled damage claims, court rulings and economic conditions.
Illness, disability and recovery are affected by the economic climate, government intervention, progress in medical science and, in particularly, healthcare costs. These risks are controlled by means of regular evaluation of historical claims patterns, expected future developments and price adjustments. Disability risk is mitigated by a.s.r. through underwriting criteria and a proactive reintegration policy. a.s.r. also mitigates its disability risk through suitable reinsurance.
146a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The above diagrams illustrate the distribution of gross premium income and gross claims reserves across the different business lines. Disability insurance contracts account for a relatively large proportion of the claims reserve in relation to premiums. Due to the rapid settlement of the P&C portfolio in general, which generates 42% of premium income, it only represents 19% of the total claims reserve.
Total gross written premium income from non-life insurance activities in 2014 amounted to € 2,359 million (2013: € 2,392 million). In 2014 the net reinsurance premium amounted to € 136 million (2013: € 118 million), which represents 5.76% (2013: 4.95%) of gross premium income.
147a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Provision for claims The provision for claims consists of the estimated amount of the reported but not settled claims plus an amount for claims not yet reported or incurred during or before the financial year. The latter part is based on historical information. This provision includes a provision for payable external claims handling costs.
The adequacy of the liabilities arising from insurance contracts is tested every quarter.
The provisions for claims and the provision for unearned premiums at year-end 2014 can be broken down as follows (amounts in millions): 31 December 2014 P&C Disability Health Total
Provision for claims 799 2,682 345 3,826 Provision for unearned premium 206 203 5 414
Provision for unexpired risk A provision for unexpired risk is formed to the extent that future claims and expenses – in respect of current insurance contracts – exceed future contractual premiums, taking into account the current unearned premium reserve.
For social as well as commercial reasons, and in line with most competitors, a.s.r. has set the Basic Health premium level for 2015 below its actuarial cost price. A provision of € 25 million has been established to reflect this.
148a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
6.3.6.2 Life insurance portfolio The life insurance portfolio of a.s.r. is diverse. The portfolio can be divided into two main product types: individual life (including funeral insurance) and group life. Due to a.s.r.’s diversified life insurance portfolio, the longevity risk is limited. The longevity risk in parts of the a.s.r. insurance portfolio is mostly offset by the opposite risk (mortality risk) in other parts of the life portfolio (funeral, term insurance). The insurance contracts are sold primarily to retail and wholesale clients through intermediaries.
Life insurance risk A life insurance product provides an entitlement to a benefit at the time of death of the insured and/or a benefit at a predetermined date/interval if the insured is alive at that time. The uncertainties related to a life insurance contract have to do with the date of death of the insured (mortality, longevity and catastrophe risk), the lapse rate (the possibility that a contract lapses), and the future development of expenses associated with the policy. A specific feature of life insurance contracts is that they usually last for many years. This feature increases the uncertainties with respect to life contracts. The risk that the investment income will not be sufficient is regarded as market risk (see chapter 6.3.4).
Longevity risk For contracts that guarantee benefits during a policyholder’s lifetime , longevity risk is mainly a trend risk. The adequacy of insurance liabilities is measured using information gathered from the most recent published mortality table of the Actuarial Society of the Netherlands published in 2014. This recent table contains the latest available data on mortality trends for the Dutch population.
Lapse risk If a policyholder has the right to surrender their contract, an amount is paid to the policyholder (the surrender value) and the contract is cancelled. A contract can also be terminated if the policyholder decides to cease to pay any further premiums. The contract is then converted into a paid-up contract.
Expense risk Product features ensure that there is no risk on commission fees. Expense risk is therefore restricted to administrative expenses. Projections are made of future administrative expenses and the expected future income from contracts to cover those administrative expenses. This prospective analysis of administrative expenses are the basis for managing and controlling expense risk. In 2013 and 2014 a.s.r. carried out extensive analysis of the cost allocation process and the modelling of costs in the products in the segment Life. The impact of any (methodology) change in the costs modelling or parameter setting is quantified by sensitivity analysis. The sensitivity analysis gives insight in the expense risk as well.
To limit risk concentration, reinsurance contracts are placed with different reinsurance companies. For life insurance the highest retention per risk amounted € 750 thousand (2013: €750 thousand) and the highest retention per event € 3,000 thousand (2013: € 3,000 thousand).
Insurance liabilities Adequacy of insurance liabilities The adequacy of the technical insurance liabilities is tested at least every quarter and evaluated every month (and more frequently, if required). The a.s.r. testing policy for liabilities complies with IFRS requirements and DNB guidelines (see accounting policy J, chapter 6.2.2.).
The overall adequacy of the liabilities arising from insurance contracts at 31 December 2014 has been confirmed by internal actuaries and certified by external actuaries.
150a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Without profit-sharing 4,897 1,824 6,721 Contractual profit-sharing (and interest margin participation) 6,590 8,276 14,866 Discretionary profit-sharing 2,065 0 2,065
Without profit-sharing 4,161 1,574 5,735 Contractual profit-sharing (and interest margin participation) 5,984 5,819 11,803 Discretionary profit-sharing 2,150 0 2,150
6.3.6.3 Pension risk; post- employment benefits Pension risk is defined as the risk that the liabilities exceed the assets of a defined benefit pension plan. To fulfil the obligation to finance the plan, a.s.r. has insured the post-employment benefit plans for a.s.r.’s employees with ASR Levensverzekering N.V., an insurance company within the a.s.r. group. ASR Levensverzekering N.V. is the insurer of the post-employment benefit plan and as such the asset liability management and risk management is performed in accordance with the relevant insurance risks as disclosed in chapter 6.3.6.2. The non-qualifying assets managed by group companies are used to fund the liability and are not deducted from the defined benefit obligation.
With the aim to reduce the longevity and inflation risk, a.s.r. made changes to the pension schemes and indexation is made conditional to the funds available in the separate account to fund future inflation indexation. As a result the inflation risk is significantly reduced.
In the calculation of the defined benefit obligation, the most recent mortality table is used ‘AG 2014’. A description of the plans, assumptions, sensitivities and disclosure related to the post-employment benefits plans is included in chapter 6.17.
The Economic Capital model (‘ECAP’) that a.s.r. uses, is an important steering mechanism for value management. Interest-rate, longevity and inflation risk incurred for the employee benefits of own staff are taken into account in the calculation of required capital in the ECAP model.
151a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Strategic risk is defined as the risk that a.s.r. will not reach its strategic objectives, because risk considerations are not or incorrectly addressed in decision-making processes, incorrect implementation of decisions and/or failure to respond adequately to market developments. Since a.s.r. wants to remain a solid, trusted and profitable insurance company in the Dutch insurance market which is continuously under pressure, it is extremely important to identify strategic issues and opportunities and to take the appropriate strategic actions.
Operational risk is the risk of losses resulting from inadequate or failing internal processes, persons and systems, or from external events (including legal risk).The main areas where operational risks are incurred are IT, outsourcing, integrity, legal issues and operations.
Control Risk Self-Assessment Under supervision of Group Risk Management, a Control Risk Self-Assessment (CRSA) is conducted annually for all a.s.r. business lines and staff departments to identify risks that have an impact on the achievement of the organization’s strategic objectives. Following this assessment, each department prepares a report outlining all identified key risks and actions taken to mitigate these risks. These mitigating actions need to be implemented within a one-year timeframe. This report and the mitigating actions are authorized by the management teams of the business units and the Executive
152a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Board. Senior Management signs the Management in Control Statement (MCS) each year which is based on the CRSA. Progress made on the mitigating actions as defined in the CRSA is monitored on a quarterly basis in the Business Risk Committees and reported to the Non-Financial Risk Committee.
153a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Solvency II at a.s.r. in 2014 In October 2014, the European Commission adopted the Delegated Act containing implementing rules for Solvency II. After published in the Official Journal on 17 January 2015 the Delegated Act is called the Delegated Regulation. With the introduction of the Preparatory Guidelines and the Delegated acts a.s.r. will continue with the preparations for Solvency II readiness as of 1 January 2016. a.s.r. will also adopt the Implementing Technical Standards and the guidelines that will be published in the course of 2015. a.s.r. is confident to become Solvency II compliant before the end of 2015.
Highlights in 2014 • Group Risk Management monitors on a quarterly basis the readiness of a.s.r. for the introduction of the Solvency II Directive on 1 January 2016. Results of this assessment are reported to the Audit and Risk Committee.
6.4 Capital and liquidity management 6.4.1 Capital management 6.4.1.1 Capital management objectives The group is committed to maintaining a strong capital position in order to be a robust insurer for its policyholders and other stakeholders. The objective is to maintain a solvency level that is well above the limits defined in the risk appetite statements. Stress tests are performed for principal risks. An additional objective is to achieve a combination of a capital position and a risk profile that is at least in line with a single A rating.
The group is preparing for the Solvency II capital requirements. In 2014, a.s.r. continued to implement a process to report the Solvency Capital Requirement as defined by Solvency II using the latest standard Solvency II model, as defined in the Delegated Act, to quantify the risks.
Regulatory solvency available excl UFR 3,576 3,693 Regulatory solvency required 1,749 1,563 Regulatory solvency ratio excl UFR 204% 236%
The regulator has prescribed application of the UFR to the discounting curve since 30 June 2013. As a result, the forward interest-rates converge to a level of 4.2%. This has an impact of 81%-point (2013: 32%-point) on the regulatory solvency ratio. With respect to 2013 this impact has increased because of the lower interest-rate levels at yearend 2014. Since this assumption is artificial and might be too optimistic, a.s.r. also evaluates its solvency position without applying the UFR to the discounting curve.
Correction hybrids 0 -4 Correction intangible assets -105 -191 Revaluation of real estate (exclusive of non-controlling interest) 806 785 Test margin 775 265 Elimination of post-employment benefit plan 481 312
With the consent of DNB, the margin on insurance liabilities (DNB LAT margin) has been taken into account in determining regulatory solvency. For a description of the LAT, see chapter 6.2.1.
On 15 August 2014, a counterparty credit rating of ‘BBB+’ with a stable outlook was assigned to ASR Nederland N.V., the group’s holding company. Rating reports can be found on the a.s.r. website: www.asrnl.com.
In 2014 a.s.r. executed a capital optimisation deal. There was an issue of € 497 million new Tier 2 capital and € 301 million of the existing Tier 1 hybrids were redeemed (see also chapter 6.15.4).
With regard to liquidity management, a.s.r. needs to be able to meet its obligations towards policyholders and other creditors at all times. Unexpected cash outflows could occur as result of lapses in the insurance portfolio, withdrawals of savings, or payments related to the CSA of derivatives. Unexpected cash outflows can be covered by cash and cash equivalents (€ 571 million), liquid government bonds (€ 10,762 million) and other bonds and shares.
31 December 2014 < 1 year 1-5 year 5-10 year 10-20 year > 20 year 31 December 2013 < 1 year 1-5 year 5-10 year 10-20 year > 20 year
Compared to 2013, the cash flow of the fixed income securities has changed as a result of the restructuring of the hedge of the interest-rate risk.
156a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The Life segment comprises all life insurance entities and their subsidiaries. These life insurance entities offer financial products such as life insurance contracts and life insurance contracts on behalf of policyholders.
The Non-life and Life segments have different levels of profitability and growth opportunities, as well as a different outlook and risk profile. See chapter 6.39 for a list of principal group companies and associates in the relevant segments.
157a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The segment ‘Other’ includes among others, the following entities: • ASR Nederland N.V. (including the group related activities) and other holding companies; • ASR Bank N.V.; • ASR Hypotheken B.V.; • ASR Deelnemingen N.V.; • ASR Vastgoed Ontwikkeling N.V.; • ASR Vastgoedvermogensbeheer B.V.; • B.V. Nederlandse Hulpverleningsorganisatie-SOS International.
Equity attributable to holders of equity instruments 1,136 2,561 -650 - 3,047
Liabilities arising from insurance contracts 4,571 25,803 - -2,151 28,223 Liabilities arising from insurance contracts on behalf of
As at 31 December 2013 (restated) Non-life Life Other Eliminations Total
Liabilities arising from insurance contracts 4,240 21,677 - -1,989 23,928 Liabilities arising from insurance contracts on behalf of
160a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Fair value gains and losses 3 532 -2 - 533 Result on investments on behalf of policyholders - 858 - - 858
161a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
162a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Allocated gain (loss) on investments – to technical result 110 101 Allocated gains or losses – to technical result 42 Allocated other income and expense – to technical result -26 -3 Operating expenses -213 -240 Restructuring provision expense -14 -11 Technical result – before proceeds (loss) from sales of investments 120 -93
The profit before tax increased to the amount of € 193 million. This is mainly caused by the occupational disability insurance claims amounting to € 183 million in 2013, primarily relating to the product WGA-ER. The gross premiums written decreased in relation to 2013 by 1.4% which is mainly driven by the choice of prioritizing return over revenue. The operating expenses decreased compared to 2013 due to lower indirect costs charged.
163a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Allocated gain (loss) on investments - to technical result 1,684 1,634 Allocated gains or losses - to technical result 813 619 Allocated other income and expense - to technical result -89 -2 Operating expenses -164 -199 Restructuring provision expense -12 -10 Technical result - before proceeds (loss) from sales of
Proceeds (loss) from sales of investments 52 51 Technical result 148 314
The decrease in operating expenses is a result of reducing marketing expenses and a decrease in the number of employees. Despite lower sales, the cost-premium ratio improved by 0.9%-point to 10.7%. This is in line with the policy to reduce costs and increase the variability related to sales. Also steps have been made to reduce the variety of contract administrations and processes and to make them variable with the number of insurance contracts.
164a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
In 2014, the combined ratio improved to 94.9% (2013: 104.6 %). This is due to developments in the claims ratio, caused by a decrease in claims in Disability and Property & Casualty and a decrease in overall operational expenses.
For the calculation of the expense ratio a total of € 20 million (2013: € 16 million) of restructuring provision expenses and internal investment costs have been eliminated from the total operating expenses of € 229 million (2013: € 251 million).
1 including change in liabilities arising from insurance obligations 2 including restructuring provision expenses
165a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
167a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Not measured on the basis of observable market data 31 December 2014 Level 1 Level 2 Level 3 Total fair value
Not measured on the basis of observable market data 31 December 2013 Level 1 Level 2 Level 3 Total fair value
169a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The following table shows the movement in financial assets and liabilities measured at fair value (recurring basis) that are categorized within level 3. The movement in investments on behalf of policyholders - investment property is included in chapter 6.6.3.
The sensitivities of the investment property held on behalf of the policyholders is included the sensitivities related to investment property included in chapter 6.6.3.
6.6.2 Non-recurring fair value measurement of financial assets and liabilities The breakdown of financial assets and liabilities is not measured at fair value (non-recurring basis) in accordance with the level of fair value hierarchy, as explained in accounting policy C, is as follows: Fair value based on quoted prices in an active market
Investments on behalf of policyholders: Investment property (chapter 6.12.2) - - 240 240 240
Investments on behalf of policyholders: Investment property (chapter 6.12.2) - - 216 216 216
The property portfolio is classified as a level 3 ‘not measured on the basis of market observable market data’. Non-observable market inputs are used in the valuation methods, in addition to the observable market inputs. The fair value measurement is based on valuations by independent professional appraisers. These valuations have been performed for the entire portfolios of investment property and buildings for own use. Independent professional appraisers use reference transactions involving of comparable properties, in combination with the DCF and income capitalization method, to determine 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.
173a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
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 sq.m. for renewals and their respective re-letting rates; • Reviewed rent per sq.m.; • Investment transaction of comparable objects.
174a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
175a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Movements in deferred acquisition costs (DAC) can be broken down as follows: Other changes -1 1
As a result of the amendment in the life insurance market, whereby commissions to intermediaries are no longer permitted, the DAC is expected to decline significantly in the next few years, mainly due to amortization.
176a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
Property, plant and equipment can be broken down as follows: Land and buildings for own use 131 85
Land and buildings Equipment 2014 2013 for own use Total Total
In 2014 the renovation of the Archimedeslaan 10 has progressed with an amount of € 52 million (2013: € 45 million) being invested in the buildings for own use. Depreciation of property, plant and equipment is recorded in the operating expenses (see chapter 6.28). The impairments in 2013 amounting to € 21 million have been recognized as a result of the decommissioning of assets due to the renovation of buildings for own use. In 2014, an amount of € 4 million is reversed, as a result of the increased fair value of the buildings for own use.
The fair value of the land and buildings for own use based on the external valuations is disclosed in chapter 6.6.3.
177a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
179a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
The real estate development joint ventures consist of numerous contractual agreement with other developers and property owners, whereby the parties agree to develop real estate projects. Various guarantees for the real estate development projects have been issued by a.s.r. (see chapter 6.37).
180a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
181a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
6.12.2 Investments at fair value through profit and loss Investments at fair value through profit and loss can be broken down as follows: Investments
Revaluation through profit and loss 14 3 769 704 783 707 Transfer between investments on behalf of policyholders and investment property -17 - 48 -3 31 -3
182a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
All investments at fair value through profit and loss are designated as such by a.s.r. upon initial recognition. As a result of the implementation IFRS 10, investments amounting to €57 million where reclassified to investments at fair value through profit and loss as of 1 January 2013.
6.12.3 Loans and receivables Loans and receivables measured at amortised cost can be broken down as follows: Government and public sector 214 223 Mortgage loans 5,552 4,796 Consumer loans 7 7 Other loans 130 169 Total due from customers 5,903 5,195
Impairment of loans and receivables The following table breaks down the changes in impairments of loans and receivables: Increase in impairments through profit and loss -34 -57 Release of impairments through profit and loss 16 15 Reversal of impairments due to disposal 16 8
Derivatives held for trading concerns all derivatives that do not qualify for hedge accounting. Changes in the fair value of derivatives held for trading are recorded in investment income (under ‘fair value gains and losses’, see chapter 6.24).
The derivatives can be broken down as follows: Asset Liability Notional amount Asset Liability Notional amount
Derivatives held for cash flow hedging Interest-rate contracts - - 61 - 2 91
The fair value of interest-rate contracts is calculated using OIS discounting: under this method the cash flows of the contracts are estimated using the underlying yield curve of the instrument. In practice, these are Euribor curves with 3-monthly or 6-monthly interest-rate resets. Subsequently, the cash flows are discounted using Eonia for EUR instruments and the US Federal Funds rate for USD instruments.
The fair value of the interest-rate contracts using this 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.
The cash flows in connection with interest-rate contracts included in derivatives held for cash flow hedging end in 2016. No cash flow hedges became ineffective in 2014. No amounts were transferred from the cash flow hedging reserve to the income statement 2014.
Due from banks 571 754 Due from banks falling due within three months 2,564 767
The deferred tax asset is mainly caused by additions which been made to the liabilities arising from insurance contracts and have already been recognized in the income tax expense.
186a.s.r. 2014 annual report 2014 consolidated financial statements ASR Nederland N.V.
6.15 Equity 6.15.1 Share capital Share capital can be broken down as follows: Authorized capital: - Ordinary shares; 1,000,000 at a par value of EUR 500 500 500 Of which: unsubscribed shares -400 -400
Tax related to shadow accounting 516 - - - 516 Unrealized gains and losses related to segregated
Life insurance contracts have been entered into that, in addition to offering a guaranteed element, entitle policyholders to additional benefits (see accounting policy J, chapter 6.2). Expected claims for additional benefits under these insurance contracts with discretionary participation features (DPF) are included in the DPF reserve. This reserve is recognized as a component of the unrealized gains and losses recorded in equity. Expected claims for additional benefits under insurance contracts with DPF are included in the DPF component.
(including additional discretionary interest on redemption amounting to € 63 million). • Redemption of hybrid Tier 1 instruments variable interest (3-month Euribor + 2.3%) and hybrid Tier 1 instruments 6.25% fixed interest amounting to € 96 million.