In 2012 we have had to make several far-reaching decisions for the organization, which led to a further reduction in the amount of employees. For us, it is vital that the colleagues that leave a.s.r. are counselled to the best of our ability. Our Redundancy Plan provides intensive counsel during the redundancy process and, amongst others, offers the right to priority for internal job openings. Even so, we are fully aware of the impact of job loss for anyone experiencing it. Reduction in the number of FTE’s is a necessary part of making our organization more effi cient and agile, which, aside from our efforts to offer customers better service, will be our biggest challenge in the time to come.
Gross premiums written Compared to 2011, the gross premiums written in 2012 decreased by 3% to € 4,290 million (2011: € 4,437 million). In the Non-life segment, the gross premiums written rose from € 2,353 million to € 2,487 million (+6%). This increase can to a large extent be attributed to the introduction of Ditzo’s health insurance. The revenue within the Life segment decreased from € 2,166 million to € 1,891 million; a decrease of 13% which can be explained by the decline in regularly written premiums (-9%) and in single premiums (-28%). This is a consequence of the choice for return over premium. In addition, the decision by customers to terminate their individual unit-linked insurance infl uenced the decline of revenue in the Life segment.
• Gross premiums written increased by 6% to € 2,487 million (2011: € 2,353 million)
Low interest rates and the changes in the tax regime put the pension market under pressure. The number of new pension contracts signed in 2012 was limited. Limited recovery is expected for new pension contracts in this market too. Because of historically low interest rates in this market, a.s.r. is hesitant to give guarantees for new pension contracts.
In mid-2012, about 300 colleagues embraced the New World of Work (NWW); colleagues from different offi ces now work from a single location in Utrecht. A number of subprocesses were outsourced, thereby guaranteeing the continuity of a.s.r.’s service provision to customers. This marked an important step towards a further reduction in, and fl exibility of, costs.
The Other segment comprises the banking operations, Ditzo (distribution channel), ASR Vastgoed Ontwikkeling N.V., SOS International and the holding companies. The Banking business develops mortgages and savings-linked and unit-linked products that are administrated and managed by ASR Hypotheken N.V. and ASR Bank N.V.
In addition to capital management under Solvency II, which is the standard model for European insurers, a.s.r. has also developed its own methodology. This methodology quantifi es the integral risk in terms of economic capital (ECAP). The methodology is different from the Solvency II standard model in that it uses self-developed techniques for calculating a limited number of risks. These techniques are a better fi t for the specifi c risks that a.s.r. incurs, and provide a more complete understanding of these risks and the capital that is required to mitigate them. Besides the models mentioned above, this method also forms part of overall capital management.
Report of the Executive Board * For the regulatory solvency ratio including UFR, the interest rate shock +1% has a negative impact. For the regulatory solvency ratio excluding UFR the effect is adverse, the interest rate shock -1% has a negative impact.
a.s.r. subscribed to the United Nations Principles for Responsible Investment (UNPRI) on 14 October 2011. These principles aim to encourage socially responsible investment. Apart from signing the UNPRI, a.s.r. also abides by the Sustainable Investment Code of the Dutch Association of Insurers, which came into effect on 1 January 2012. The Code stipulates that the investment policies of members of the Association should take account of ESG factors at the entities in which they invest. More than 95% of external asset managers responsible for a.s.r. investments have now also signed the UNPRI. ESG factors are being incorporated into the investment processes of increasing numbers of external asset managers.
• Distribution, brand portfolio and marketing strategy • Occupational Disability Insurance business: developments in the market and in the organization • Non-Life business: product development and developments in combined ratio • Strategy for Mortgages, Savings and Investments • Outsourcing of Life activities • Establishment of Dutch Core Residential Fund • Division of duties within Executive Board and nomination of new Executive Board member • Corporate Social Responsibility (CSR) • Remuneration policy • Performance of Supervisory Board
The Audit and Risk Committee also addressed other issues, including the audit plans for 2013 of both Internal Audit and those of the independent external auditor. Both plans were approved. The Committee also approved the Compliance Policy Plan and the Risk Management Plan for 2013. Other topics for discussion included the risk management plan and the reports of the independent external auditor; audit and compliance reports were discussed quarterly.
Selection, Appointment and Remuneration Committee The remuneration policy that was adopted and presented to DNB on 30 March 2011 was beefed up early in 2012 to meet all the relevant requirements. On the Selection, Appointment and Remuneration Committee’s recommendation, the Supervisory Board submitted this policy to the shareholder for adoption. In accordance with the adopted policy, the Committee advised the Supervisory Board on such issues as target-setting and the ex-post assessment of the variable pay awarded to identifi ed staff. For this purpose, the Selection, Appointment and Remuneration Committee requested input/advice from the compliance functions.
First appointed on: 15 December 2008 Current term of offi ce: 15 June 2011-15 June 2015
The members of the Supervisory Board are confi dent that both the Executive Board and the employees will continue to apply themselves in 2013 to putting customer interests fi rst, every single day, to allow a.s.r. to grow into a socially desirable insurer.
The basic pay awarded to employees comprises their fi xed gross monthly pay, plus 8% holiday allowance and an end-of-year bonus. The level of the basic pay is determined by the weight of an employee’s position and the related remuneration group. Any increases in basic pay are linked to the appraisal of how employees perform their duties in general and their compliance with the a.s.r. core values of being personal, approachable and accountable, and true to whom we are. The basic pay is indexed in accordance with the CBA for the insurance industry.
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 this Act. To somewhat mitigate the resulting loss of income, the Selection, Appointment and Remuneration Committee has proposed to utilize the one-off option offered under the Act to award a temporary personal allowance. By setting the allowance at 16% on average, the Selection, Appointment and Remuneration Committee has deliberately kept it well below the permitted 20%; as a result, the remuneration of the members of the Executive Board is well below the market median. The Super visory Board has agreed to this proposal. The CEO has not been awarded a personal allowance.
The current presentation differs from last year’s presentation in some respects. Where applicable, the comparative fi gures have been put in the new presentation format. The numbers following the line items refer to the relevant chapters in the notes.
Total comprehensive income attributable to holders of equity instruments 684 -43
• Amendments to IAS 1 Presentation of items of other comprehensive income: amends the presentation of items of other comprehensive income.
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 fi nancial 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 applied assumptions, such as discount rates and estimates of future cash fl ows. In the unlikely event that the fair value of a fi nancial instrument cannot be measured, it is carried at cost.
Level 2. Fair value on the basis of (signifi cant) observable market inputs Determining the fair value at Level 2 is based on valuation techniques that use inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is derived from prices of identical or similar assets and liabilities). These observable inputs are obtained from a broker or third party pricing service and include: • quoted prices in active markets for similar (not identical)
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 any signifi cant input is not based on observable market data. In these situations, there are marginally active or inactive markets for the assets or the liabilities. The fi nancial assets and liabilities in this category are assessed individually. Valuation techniques are used to the extent that observable inputs are not available. The basic principle of fair value measurement remains to determine a fair, arm’s length price. Therefore unobservable inputs refl ect the management’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are based on own sources and generally available information.
Security lending transactions are entered into by a.s.r. under which collateral is received in the form of securities or cash. Cash received as collateral is recognized on the balance sheet and a corresponding liability is recognized as liabilities arising from securities lending. Securities lent remain on the balance sheet. Securities received as collateral are not recognized in the balance sheet.
Impairment based on the collective approach is determined by applying risk models for similar fi nancial assets, taking account of historical information and regularly updated parameters for uncollectibility.
General This includes liabilities arising from insurance contracts issued by a.s.r. that transfer signifi cant insurance risks from the policyholder to a.s.r. These contracts may also transfer fi nancial risk.
Life insurance premiums Life insurance premiums related to life insurance contracts are recognized as income when received from policyholders. Liabilities arising from insurance contracts are recognized based on estimated future benefi ts and expenses, and charged to the income statement. These expenses are recorded within ‘technical insurance claims and benefi ts’. Therefore, in accordance with the matching principle, the profi ts are realized over the estimated term of the contracts. In accordance with this matching, the acquisition costs are capitalized, deferred and then amortized. For a detailed explanation of the capitalized deferred acquisition costs, see chapter 2.14.
Investment income is primarily comprised of interest income, dividends on equities and rentals from investment property.
An asset is impaired when its carrying amount exceeds its recoverable amount. Impairment losses are recognized in the income statement as soon as they are identifi ed. For details, see the relevant items of chapter 2 as mentioned earlier.
• The hedge of the interest rate risk was restructured by exchanging swaptions for swaps. The impact on the -1% interest rate shock was limited.
The equities are diversifi ed across the Netherlands (including participating interests) and other European countries. A limited part of the portfolio consists of investments in the Pacifi c, private equity and hedge funds. The purchases in 2012 led to an increase of the relative share of European equities in the total portfolio.
The following tables provide a detailed breakdown of fi xedincome exposure by rating class, sector and country of risk and level of subordination for the fi nancial sector. The table includes all bonds, fi xed income funds and loans which have spread risk according to our risk models. Loans to intermediaries are included in the non-rated category.
Despite considerable spread performance, the weight of fi nancial institutions in the bond portfolio dropped due to further reductions in our exposure to this sector. Part of the cash fl ow was reinvested in government bonds with high ratings and non-fi nancial corporate bonds. All sectors benefi ted in 2012 from decreasing interest rates and tightening spreads.
Counterparty default risk refl ects possible losses due to unexpected default or deterioration in the credit standing of counterparties and debtors. Counterparty default risk affects several types of assets: • mortgages; • derivatives; • reinsurance; • receivables; • cash and cash equivalents.
Despite the stagnation in residential property prices over the past three years, the indexated value of the collateral of most mortgages is higher than at issue date. Due to the introduction of a more conservative and refi ned indexation method, the values under foreclosure decreased compared to 2011.
Financial Statements a.s.r. 2012 annual report 95 3.6.4 Receivables The receivables of a.s.r. amount to € 863 million in total.
The level of retention in the various reinsurance contracts is aligned to the size and the risk profi le of the underlying portfolios, taking account of the cost of reinsurance on the one hand and of the risk that is retained on the other. By determining the retention, the impact on the balance sheet is taken into account as well. The difference in the retention of disability depends on the structure of the contract (basic coverage or indexed).
On a yearly basis or as often as needed, a.s.r. conducts an own risk and solvency assessment (ORSA) as part of the preparation for Solvency II. The CRSA is part of the ORSA. In this assessment, strategic risks are transposed into scenarios and their impact on the balance sheet, the solvency position and the income statement is determined. This is reported in an ORSA report.
The group has entered into a limited number of cash fl ow hedges, for which it applies hedge accounting to hedge some of its interest rate risk in the segment other. These hedging transactions hedge risk on separate contracts. Under IFRS, derivatives are measured at fair value in the balance sheet and any changes in the fair value are recognized through profi t and loss. In the event that changes in fair value of hedged risks are not recognized through profi t and loss, an accounting mismatch occurs, making the results more volatile. In these cases, hedge accounting is applied to mitigate the accounting mismatch and volatility.
Moreover, in 2012 a.s.r. participated in the so-called Parallel Run, organized by DNB, primarily to test how prepared Dutch insurers are regarding Solvency II.
At year-end 2012 the solvency ratio has dropped signifi cantly due to adjustment of the non-economic assumption for the valuation of insurance liabilities (mortality, cost, and lapse) and unfavourable developments of the interest rates. The total impact of the stress scenarios is 90% (2011: 51%), resulting in a solvency ratio (excl UFR) after stress of 141% (2011: 179%). This is under the internal minimum target of 150%. Risk mitigating measures will be taken in order to achieve a ratio higher than 150%. When applying the UFR, a total impact of the stress scenarios of 77% would result in a regulatory solvency ratio (incl UFR) of 216%.
Financial Statements a.s.r. 2012 annual report 109 5.2 Segmented balance sheet
Some participating interests in which a.s.r. has an interest of less than 20% qualify as associates, because a.s.r. has signifi cant infl uence as a result of contractual agreements.
The real estate development joint ventures consist of numerous contractual agreement with other developers and property owner, whereby the parties agree to develop real estate projects. a.s.r. has issued various guarantees for the real estate development projects (see chapter 40).
134 a.s.r. 2012 annual report Financial Statements 11.5 Fair value hierarchy – Investments and derivatives
The breakdown of derivatives and fi nancial assets at fair value in accordance with the level of fair value hierarchy, as explained in chapter 2.9, is as follows: F a ir v a lu e b a se d on q u ot ed p ri ce s in a n a ct iv e m a rk et
The issued hybrid Tier 1 instruments are classifi ed as equity instruments. These issues were part of a fi nancial restructuring in June 2009.
144 a.s.r. 2012 annual report Financial Statements 17 Subordinated debt 18 Insurance liabilities
Defi ned benefi t obligation at 1 January 2,343 2,176 21 18
Unrecognized actuarial gains (losses) at 31 December -557 -256 9 12
Experience adjustments are actuarial gains and losses that have arisen due to differences between actuarial assumptions. The following table provides information about experience adjustments with respect to qualifying plan assets (back to 2008) and the defi ned benefi t obligation.
Other liabilities can be broken down as follows: There is no signifi cant difference between the carrying amount of other liabilities and their fair value.
The table below shows a breakdown of realized gains and losses per category: 27.3 Fair value gains and losses
The remuneration can be broken down as follows: Amounts for 2011 in euro’s x 1,000
Te rm in a ti on b en efi t s
U n re a li ze d g a in s a n d lo ss es
Auditor’s fees Auditor’s fees are paid to auditors by the company, its group companies and other consolidated companies. The fees paid for the years 2012 and 2011 can be broken down as follows: • fees for audit engagements: these include fees paid for the audit of the consolidated and company fi nancial statements, quarterly reports and other reports; • fees for non-audit services: these include fees for support and advisory services provided during acquisitions.
Later than 1 year and no later than 5 years 7 8
Report on other legal and regulatory requirements Pursuant to the legal requirements under Section 2:393 sub 5 at e and f of the Netherlands Civil Code, we have no defi ciencies to report as a result of our examination whether the annual report part I,II,III,IV and V, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2:392 sub 1 at b - h has been annexed. Further, we report that the annual report part I,II,III,IV and V, to the extent we can assess, is consistent with the fi nancial statements as required by Section 2:391 sub 4 of the Netherlands Civil Code.
7. The claim of the shareholder for payment shall be barred after fi ve years have elapsed.
Commission ratio Net commissions charged for the year, expressed as a percentage of net earned premiums.
Hedge accounting Hedge accounting recognizes the offsetting on profi t or loss of changes in the fair value of the hedging instrument and the hedged item.
Impairment The amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. The asset’s carrying amount is reduced to its fair value and recognized in profi t and loss.