Putting customers’ interests first In ASR Nederland’s opinion, one of the preconditions for surviving in a changing market is that it should restore trust by putting customers first. ‘We need to be confident that everything we do is in the customer’s best interest. Working to serve the best interests of customers goes beyond customer focus. It means that we go all-out to offer only those products that fit the needs of customers. At ASR Nederland we want to show that we have learned from the past and that we have changed course. That’s the only way for us to win back the trust that customers have lost.’ ASR Nederland will partner up with intermediaries in this process of change. ‘Customer surveys show that customers highly appreciate an intermediary’s advisory services, but that they also want direct contact with us, being the supplier, sometimes. We plan to allow them to do so in dialogue with the intermediary channel.’
Nederland serves the occupational disability and health insurance markets; • ASR Verzekeringen is the brand through which ASR Nederland serves the private pensions market. Integrated solutions from De Amersfoortse, where pension plans are offered in combination with occupational disability and/ or health insurance, form an exception to this; • ASR Verzekeringen is the label through which ASR Nederland serves the non-life and life insurance markets. In 2010, the activities of the Falcon Leven brand were incorporated into ASR Verzekeringen, so the Falcon Leven brand ceased to exist.
All of ASR Nederland’s activities and objectives are tested with customer interests. For example, new products are presented to customer panels, and the wishes that customers express in these panels are incorporated into the product development process. ASR Nederland takes its customers seriously. Customers say they want transparent products, clear communications and personal service. ASR Nederland makes it its highest priority to fulfil its promises.
On the basis of these insights, ASR Nederland is making customers with unit-linked insurance contracts an offer that responds to the criticism of the existing compensation scheme. In this way, ASR Nederland is fulfilling customers’ wishes as much as possible.
This will be achieved primarily via a 20% reduction in energy consumption by: • conserving energy; • taking viable measures to improve energy efficiency; • introducing systematic energy management.
Utrecht Energy Covenant In April 2010, ASR Nederland signed a letter of intent for participation in the Utrecht Energy Covenant. The letter of intent is for the office building at Archimedeslaan 10 in Utrecht. The Energy Covenant seeks to create a situation where carbon emissions are reduced. It is ASR Nederland’s ambition to operate on a carbon-neutral basis by 2030 at the latest.
The Executive Board wishes to include customer satisfaction in the remuneration structure for all employees, with the aim of replacing profit-sharing and performance-related pay with variable remuneration. In line with the structure for the Executive Board and senior management, the variable remuneration will be based on three components: customer value (⅓), ASR Nederland’s financial performance (⅓) and individual performance (⅓).
Roel Wijmenga, Chief Financial Officer of ASR Nederland on financial robustness
gross insurance premiums, life 2,514 2,692 gross insurance premiums, Non-life 2,310 2,346
Profit continued to improve on 2009, rising from € 255 million to € 317 million. The tentative recovery of the financial markets resulted in non-recurring investment income. A structural decline in finance costs also contributed to the increase in earnings. The cost reduction campaign that was initiated early in 2009 was brought to a successful conclusion in 2010.
Individual-life The market for life insurance is characterized by fierce competition between insurers, banks, pension funds and new providers. In the consumer’s perception, the traditional life market is dead and buried. Customers demand the best solution for capital accumulation and capital protection. The overall capital accumulation market is growing as the traditional life market contracts. Tax driven bank savings products are showing particularly strong growth.
Individual-life The market share of Individual-life was more or less stable in 2010 despite difficult conditions. With a market share of 11%, ASR Nederland is currently the fourth largest insurer in this declining segment of the market. Many steps were taken in 2010 to ensure financial robustness, efficiency and customer value. Costs were reduced, for instance by stream- lining processes and integrating Falcon Leven into the Individual-life business. The organizational structure was changed from a processbased to a market-oriented model. Individual-life advisors ranked fourth in the IG&H performance survey of the life insurance sector.
Pension business Despite heavier competition and pressure on earnings, the Pension business managed to keep revenue for 2010 constant. The retention rate for the existing pension portfolio was 96%. In connection with profitability, it was decided to make the single premium rate less sharp. Focus has shifted from corporate to the SME and wholesale segments, deliberate choosing return over volume. In the intermediary market, De Amersfoortse handsomely ranked fourth in the IG&H performance survey.
Many efforts were undertaken in 2010 to further raise customer satisfaction at Ardanta. Business hours have been extended and customer service departments have been merged into a single front office. The funeral insurance contracts have been improved which might result in lower premiums and/or better contract conditions for customers. In addition, an initiative was launched to rewrite all communication to customers in easy-to-understand language; this includes contract conditions, the website and brochures.
Operating expenses Operating expenses were virtually stable at € 281 million. Thanks in part to the launch of new projects, such as Solvency II, the effects of the cost savings programme did not manifest themselves in the Life segment in 2010. The centralization of accommodation resulted in additional one-off expenses. The Pension business was forced to incur a range of one-off expenses to comply with new rules and regulations. The constant costs level and decreasing revenue resulted in an increase in the cost-premium ratio from 12.9% to 13.6%.
• ICT infrastructure is a key factor in ASR Nederland’s operations. Changing laws and complex ICT systems may cause information to reach customers only partially or late. For this reason, development and upgrading of the ICT infrastructure will be an important area of focus in 2011.
For a full overview of how ASR Nederland applies the Dutch Corporate Governance Code, please visit the corporate website (www.asrnederland.nl) for the Corporate Governance Statement.
Cor van den Bos was a member of the Executive Board of SNS Reaal NV until August 2008 where he was responsible for all insurance operations. He is the Chairman of the Supervisory Board of CED and Noordwijkse Woningstichting, a housing corporation, and Chairman of the Board of Stichting Verzekeringswetenschap, an insurance science foundation. He is also a member of the Supervisory Boards of NIBE-SVV, a knowledge institute and publisher for the Dutch banking, insurance and investment industry, and Trust Hoevelaken.
There was a change in the membership of the Supervisory Board in 2010. Owing to the potential semblance of a conflict of interest, Marieke Bax decided to retire from the Supervisory Board as of 10 March 2010. Kick van der Pol was scheduled to retire on 15 June and was re-appointed for another four-year term on that same date. Annet Aris was appointed to the Supervisory Board on 7 December 2010 on the recommendation of the Works Council. In nominating Annet Aris, specific focus was placed on the competencies included in the Supervisory Board profile. The principle is that every competency, including insurance- and financial knowledge, and an international and socio-political perspective, is represented in at least two Supervisory Board members. With the accession of Annet Aris, the Supervisory Board was especially bolstered with regards to international perspective and knowledge of the retail market.
The supervisory directors learned about Solvency II and the ALM model and their implications during a meeting conducted specifically with that theme in mind. In order for Annet Aris – the new supervisory director – to become familiar with ASR Nederland, in early 2010 several induction sessions were organized for her about market developments and ASR Nederland’s strategy and finances.
The Committee focused on a new remuneration policy for top executives in particular. It helped the Supervisory Board formulate a proposal for a new and sustainable remuneration policy, in keeping with the Dutch Corporate Governance Code, the ‘Gentlemen’s Agreement’ and the recommendations of the Banking Committee. After approval by the Supervisory Board, the policy motion was adopted by the Annual General Meeting of Shareholders (AGM). The policy is in effect from 1 January 2010, retroactively.
Total equity attributable to shareholders 1,931 1,389 other equity instruments 16 515 515
Unrealized change in value of cash flow hedges 1 -3 exchange rate differences - 10 other changes recognized directly in equity 1 income tax relating to components of other comprehensive income -74 -156
2.8 Segment information At organizational level, ASR Nederland’s operations have been divided into operating segments. These segments are: Life, Non-life and Other. The segment Other comprises ASR Bank, ASR Hypotheken, SOS International, Ditzo and several holding companies, including ASR Nederland N.V.
ASR Nederland as the lessor In the context of investment property, ASR Nederland enters into lease agreements with clients. As the risks and rewards incidental to ownership are retained by ASR Nederland, these agreements qualify as operating leases. Consequently, ASR Nederland continues to recognize the leased investment property in its balance sheet. For details, see chapter 2.17, ‘Investment property’.
Goodwill Acquisitions by ASR Nederland are accounted for using the purchase method. Goodwill represents the excess of the cost of an acquisition over the fair value of ASR Nederland’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.
Repair and maintenance costs are charged to the income statement in the period in which they are incurred. Expenses incurred after the acquisition of an asset are capitalized if it is probable that the future economic benefits will flow to ASR Nederland and the cost of the asset can be measured reliably.
Accounting for borrowing costs attributable to the construction of property, plant and equipment is the same as accounting for borrowing costs attributable to investment property. For details, see chapter 2.17.
2.17 Investment property Investment property is property held to earn rentals or for capital appreciation or both. In some cases ASR Nederland is the owner-occupier of some investment property. If owneroccupied properties cannot be sold separately, they are treated as investment property only if ASR Nederland holds an insignificant portion for use in the supply of services or for administrative purposes.
ASR Nederland generally lets residential property for an indefinite period. Other investment property is let for defined periods under leases that cannot be terminated early. Some contracts contain renewal options. Rentals are accounted for as investment income in the period to which they relate.
The other financial assets will be 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.
Derivatives Derivatives are derived financial instruments, such as exchange and interest rate swaps, futures contracts, interest rate futures and options. Such instruments have a value that changes in response to changes in specified market factors, such as interest rates, exchange rates or indices such as a stock index (‘the underlying’). Derivatives require little or no initial net investment that would be required for other types of contracts that would be expected to have a similar response to changes in the identified market factors and are settled at a future date.
The effectiveness of the hedge is assessed on an ongoing basis throughout the financial reporting periods for which the hedge was designated. A hedge is considered effective if the change in the fair value or the cash flows of the hedged item is offset by changes in the fair value or the cash flows of the hedging instrument.
2.24 Reinsurance contracts Contracts that transfer a significant insurance risk from ASR Nederland to third parties are accounted for as reinsurance contracts, and defined as outgoing reinsurance.
Additional provisions are generally formed for realized gains or losses on financial assets allocated to: • insurance contracts with participation features; • non-participating 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.
Expected entitlements to discretionary benefits are recorded in equity. Once a decision has been taken for discretionary participation features, any related benefits are recognized as liabilities.
Actuarial assumptions may differ considerably from actual results due to changes in market conditions, economic trends, mortality trends and other assumptions. Any change in these assumptions can have a significant impact on the defined benefit obligation and future pension costs.
In the above table, the fixed-income portfolio is split based on rating. The share of ‘investment grade’ assets (BBB and above) remained constant against year-end 2009. Within the investment grade category, the portfolio improved as a result of de-risking. Within the portfolio, positions with a lower rating were sold to acquire higher-graded assets. In addition, declining interest rates boosted the value of the existing investments in AAA government bonds, especially given the relatively longer duration of government bonds. The improvement in credit quality was realized while the rating agencies lowered credit ratings on average.
Due to ASR Nederland’s diversified life insurance portfolio, the longevity risk is limited. The longevity risk in parts of the ASR Nederland insurance portfolio is compensated by the opposite risk (mortality risk) in other parts of the life portfolio (funeral, term insurance).
• Expense risk: Expense risk is the risk of losses due to a change in the level, development or volatility of company expenses.
The acceptance of a new insurance contract is assessed on the basis of medical conditions. As far as individual life insurance is concerned, policyholders can be subjected to medical screening.
The life insurance portfolio contains individual and group insurance contracts. The products are sold as insurance products in cash and unit-linked contracts. With respect to products in cash, the investment risk is borne fully by the insurer whereas, with respect to unit-linked products, the bulk of the investment risk is for the policyholder’s account.
The table below shows the risk retention for each product: Amounts in euros x 1,000 2010 2009 retentions HigHest retention At risk HigHest retention At event HigHest retention At risk HigHest retention At event
Control Risk Self Assessment (CRSA) Under supervision of the Risk Management department, an integral Control Risk Self Assessment (CRSA) is conducted annually in all departments of ASR Nederland. Any risks threatening the organization’s targets are taken into account in the CRSA. Following this assessment, every department writes a report outlining any identified risks and the actions that need to be taken to mitigate them. These mitigating actions are limitations/targets for the coming year. This report and the mitigating actions are authorized by the local management and the Executive Board. This is important input for senior management for the Management in Control Statement (MCS). The report is updated every quarter. The CRSA/MCS process uncovers ASR Nederland’s principal risk priorities for 2011. Any progress on the mitigating actions is reported to, and monitored by, ASR Nederland RC.
Deferred acquisition costs 433 85 - - 518 Property, plant and equipment 72 20 59 - 151 investments on behalf of policyholders 8,808 - - - 8,808 equity attributable to holders of equity instruments 1,946 637 -679 - 1,904 -
reinsurance premiums -8 -212 - - -220 Net insurance premiums 2,506 2,098 - -86 4,518 fair value gains and losses -16 -4 -8 - -28 result on investments on behalf of policyholders 775 - - - 775 share of profit/(loss) of associates and joint ventures 9 - -5 - 4 insurance claims and benefits recovered from reinsurers 2 10 - - 12 Net insurance claims and benefits -3,748 -1,533 - 157 -5,124
Cost price as at 31 December 2010 224 - 147 371 accumulated depreciation as at 1 January 2010 -105 - -123 -228
Accumulated depreciation as at 31 December 2010 -107 - -132 -239
Movements in insurance claims and benefits recovered from reinsurers classified as insurance liabilities can be broken down as follows: At year-end 2010, reinsurance contracts can be broken down as follows: 14 Other assets
The table below shows the composition of other assets: Capitalized interest expenses are recognized when measuring the property developments. In 2010, € 6 million was capitalized (2009: € 2 million).
The costs of post-employment and other long-term employee benefits are as follows: The costs relate to all members of the ASR Nederland postemployment benefit plan. In 2009, a number of employees of former Dutch Fortis entities were also covered by this plan. In 2009, € 3 million of the aforementioned costs were recharged, so that ASR Nederland did not incur them.
The provision for legal issues is based on best estimates available at year end, making allowance for expert legal opinions.
Of the provisions, an amount of € 11 million falls due within one year (2009: € 21 million).
Pension Plans with defined benefits other Post-emPloyment benefits expected contributions for next year 74 2
Borrowings have the following terms to maturity: 22 Due to customers
Amounts owed to customers can be broken down as follows: Total borrowings 99 127
Interest income includes € 44.7 million (2009: € 40.2 million) in interest received on impaired fixed-income securities.
en t b en ef it s p en si o n b en ef it s 1 ex p en se
Variable remuneration consists of a short-term portion (⅓) and a long-term portion that will be paid out after three years (⅔) depending on the development of customer satisfaction. Considering the public outcry regarding variable remuneration, the Supervisory Board has decided not to pay out the shortterm portion of the variable remuneration to the members of the Executive Board for the financial year 2010. The Supervisory Board also set a new condition, namely that the long-term portion of variable remuneration to be paid out after three years should fit the remuneration policy still to be developed.
Investment obligations and guarantees Where property developments are concerned, ASR Vastgoed Vermogensbeheer has assumed investment obligations for an amount of € 316 million (2009: € 300 million). ASR Vastgoed Ontwikkeling has issued guarantees to third parties for a total amount of € 2.2 million (2009: € 3.0 million) for projects. Those guarantees were issued by principals for the execution of projects for the benefit of clients.
Later than 1 year and no later than 5 years 9 8