ANNUAL REPORT. Achmea Zorgverzekeringen N.V. Annual Report. KvK (Chamber of Commerce) number: Achmea Zorgverzekeringen N.V.

Transcription

1 Achmea Zorgverzekeringen N.V. Annual Report KvK (Chamber of Commerce) number: Achmea Zorgverzekeringen N.V. 1

2 TABLE OF CONTENTS Board of Directors Report 3 Supervisory Board Report Consolidated Financial Statements Company Financial Statements Other Information Achmea Zorgverzekeringen N.V. 2

3 Board of Directors Report 1. GENERAL The core business of Achmea Zorgverzekeringen N.V. is health insurance. Since the introduction of the current national health system as of 1 January 2006, Achmea Zorgverzekeringen N.V. offers supplementary health insurance for both individual and collective policyholders. The basic health insurance is offered by its 100% insurance subsidiaries. In addition, pursuant to their responsibility as health insurers, Achmea Zorgverzekeringen N.V. and its subsidiaries offer services that focus on prevention, mediation and treatment (e.g. waiting list mediation and guaranteed care), monitoring, post-treatment care and emergency care. These services are part of the health insurance package. The product range focuses increasingly on prevention and the encouragement of a healthy lifestyle. This is for instance reflected in cooperation with Eurocross and Achmea s prevention and reintegration services, such as Pim Mulier, Leefstijl Training and Coaching and Winnock. In addition, there is a cooperation with Achmea Vitaliteit. This brand was founded in 2014 with the primary goal to develop and manage a health and vitality online and offline platform for Achmea customers. Achmea Zorgkantoor N.V, a subsidiary of Achmea Zorgverzekeringen N.V. and Agis Zorgkantoor, part of Agis Zorgverzekeringen N.V, are executor of the AWBZ (Dutch Exceptional Medical Expenses Act). As of 1 January 2015 the activities of Agis Zorgkantoor will be integrated with Achmea Zorgkantoor N.V. 2. ORGANISATIONAL STRUCTURE Legal structure Achmea Zorgverzekeringen N.V. is part of the Achmea Group. Achmea B.V. (Achmea) owns 100% of the shares of Achmea Zorgverzekeringen N.V. Achmea Zorgverzekeringen N.V.'s registered office is located in Zeist. Both the subsidiaries of Achmea Zorgverzekeringen N.V. and the funds in which it holds a major direct or indirect interest at 31 December 2014 are included below. NAME OF THE COMPANY DIRECT INTEREST % TOTAL (DIRECT + INDIRECT) INTEREST % REGISTERED OFFICE On 1 January 2015 Agis Zorgverzekeringen N.V. merged into Zilveren Kruis Achmea Zorgverzekeringen N.V. Achmea Zorgverzekeringen N.V. 3

4 Board of Directors Report Organisational structure Organisation The following organisation chart gives an overview of how the Achmea Group's activities are organised. These include the activities for Achmea Zorgverzekeringen N.V. The primary activities for Achmea Zorgverzekeringen N.V. and its subsidiaries are performed in the Care and Health division of Achmea B.V. The companies use all Achmea distribution channels for their product sales: the direct distribution channel ( Zilveren Kruis), distribution through the banking channel (Interpolis), the intermediary channel through insurance brokers ( Avéro) and direct distribution aimed at the large corporate market. Distribution via the direct and intermediary channel largely takes place within the Care and Health division itself. Distribution for the Interpolis brand takes place within the Interpolis division. Distribution for the FBTO brand takes place by De Friesland Zorgverzekeraar, also a 100% subsidiary of Achmea B.V. The supplementary health insurance of the FBTO brand is part of Achmea Zorgverzekeringen N.V. Employees are employed by Achmea Interne Diensten N.V. Only OZF Achmea Zorgverzekeringen N.V. employs staff. Supporting services such as office accommodation, ICT, accounting and facility services are provided by staff and shared service departments of the Achmea Group. Brands Achmea Zorgverzekeringen N.V. and its subsidiaries market health insurance under a range of different brand names. All brand names are listed below, along with each brand's characteristic features. Achmea Zorgverzekeringen N.V. 4

5 Board of Directors Report Zilveren Kruis Achmea has been more than simply a health insurer for many years: we help our policyholders to live a healthier and more active life. For example, customers can benefit from our vitality programme. Zilveren Kruis Achmea collaborates with partners, including hospitals, in order to improve health care. Agis is a health insurance company that operates in the Netherlands, with the core areas Amsterdam, Utrecht, Amersfoort and Apeldoorn. As with all Achmea businesses, the customer comes first and for Agis, finding ways to improve the customer's health and care is a continuing process. Quality is an important matter, and Agis uses validated client experience to help health care providers improve their services. On 1 January 2015, Agis has been merged into Zilveren Kruis due to the fact that the distinction between the two brands is too limited. Both brands focused largely on the same broad target group with identical products and services as a result. A research in 2013 on the possibilities to differentiate Agis as proposition brand led to the conclusion that there are insufficient opportunities to maintain the Agis brand. Avéro Achmea offers a range of insurance and financial solutions. Avéro Achmea provides non-life and income protection insurance to corporate and private customers as well as health insurance and mortgage and banking products. Avéro Achmea works with and through independent brokers and advisors. Interpolis, through the Rabobank branch network, offers customers and entrepreneurs transparent and relevant insurance solutions for the risks they face. All Interpolis products are as accessible and as simple as we can make them. We call that: crystal clear. Achmea Zorgverzekeringen N.V. 5

6 Board of Directors Report OZF Achmea is a small insurance company, which operates within the Achmea Group under its own name. In addition to individual policyholders, OZF Achmea has entered into collective health insurance contracts with a large number of companies. The organisation is located in Hengelo and operates nationally. In December 2014 Zilveren Kruis launched ZieZo: a simple online health insurance, particularly made for people who want to get insured individually. ZieZo serves a growing online market and designed it in such a way that it is possible to get insured anywhere, anytime and on any device. Prolife makes it possible for customers to choose for Christian care and offers customers and entrepreneurs insurance solutions based on values as charity. Until 2014 Take Care Now has been the health insurance for young people, and was part of Agis. On 1 January 2015, Take Care Now has been merged into the brand Zilveren Kruis. Achmea Zorgverzekeringen N.V. offers supplementary health insurance products under the FBTO label. Achmea Zorgverzekeringen N.V. 6

7 Board of Directors Report 3. STRATEGY Achmea: Acceleration and Innovation - putting the customer's interests first The Care and Health division, with its health insurers, contributes significantly to the Achmea Group's goal of becoming the most trusted insurer. Customers must be able to rely on Achmea always being available to help via a broad range of brands and distribution channels. Achmea sees it as its duty to act responsibly and in a future-oriented way, including by developing sustainable products and services, by investing responsibly and by making customer interests its core focus. At the end of 2013, Achmea launched the large-scale Acceleration and Innovation programme. Achmea is going to accelerate its customer focus and cost-cutting programme as well as modernise and digitise its processes and services. Achmea operates in a sector that is undergoing change, and is now taking action to ensure that in the future it continues to be what it is today: a cooperative insurance provider with cast-iron brands that stays in contact with its customers in a modern manner. Our customers want to be able to reach us and arrange their insurance cover with us 24 hours a day, 7 days a week. They naturally want to have understandable and affordable products and services too. Achmea wants to achieve a sustainable and responsible result - and a more competitive cost level - by increasing its commercial strength. This is in line with our objective of becoming the most trusted insurer. Achmea's strong market position is based on the recognition it receives for its products and services, in combination with strong brands. Achmea is the market leader in insurance and holds at least a top-four position in all sub-segments of the Dutch market. Although its capital position is robust, Achmea is not yet where it wants to be. Consumers, regulators and politicians are continuing to monitor the financial sector closely, the focal point being how the customers interests are served and how insurers fulfil their role in society. People increasingly expect companies and, in particular, financial institutions to demonstrate the value they add to society. More than ever, transparency in all aspects of business operations is essential if confidence is to be restored further. Especially in the care sector. Achmea s strategic compass is geared towards becoming the 'most trusted insurer. The world is changing rapidly and the customers' needs are changing at the same pace. This requires the organisation to have greater adaptability and operational effectiveness. Achmea is aware of its opportunities and future challenges. On the one hand there is optimism about its point of departure. On the other hand there is realism with regard to the many challenges that lie ahead. Changing customer needs, changes to legislation and regulations, and shifting economic conditions create a climate that requires a flexible organisation that develops innovative and sustainable solutions and that is totally and easily accessible to the customer. Care and Health division To become the most trusted insurer in Care and Health the following ambitious target was set in 2011: everyone will be able to rely on the best possible health care by This means that the Care and Health division is committed to ensure that the best quality care is and remains available and accessible to everyone. In the strategy this takes further shape in processes and targets at various levels: for customers, society, partners, financial stakeholders and employees. In the past year the Care and Health division changed the staffing of the management on several positions. The position of Director Procurement Health Care was filled by the management itself. The position of Director Marketing and Sales by the Care and Health division, and that of Director Operations by Achmea. This approach provides continuity in the implementation of the strategy and a tactical adoption in the domain Care and Health. The internal organisation continues to develop. This results amongst others into more and more tangible results for the customer, such as a limited increase in health insurance premiums. Achmea s Care and Health division is ready to meet the challenges in the upcoming years. Challenges originating from the company s own ambition but also from the many and rapid changes in market conditions, health care and the legislation and regulations. Challenges in health insurance When the basic health care insurance plan was introduced in 2006 the insurance providers acquired the specific role within the health care system of guaranteeing the quality, affordability and accessibility of health care for their policyholders. Health care insurance providers are achieving this with ever increasing success and that success is increasingly being recognised by the care sector and by stakeholders such as politicians and patients associations. Transparency in health care costs and prevention of fraud by health care providers The key themes for customers and for the organisation itself are transparency, economical use of care costs, prevention of fraud and a good supervision of the health care providers. With the introduction of the policy excess, it has become much clearer for the customer that the Achmea Zorgverzekeringen N.V. 7

8 Board of Directors Report costs of care are high, especially when it concerns the medical specialist of care in hospitals. The attention for costs charged is growing and this is enhanced by the increased poliexcess. Through the internet portals of the labels, all customers have an overview of the own care costs. Furthermore, in the past year the fraud investigation and the investigation into the accuracy and completeness of the accountability information have been streamlined and professionalised. This process optimisation becomes directly visible in the improved results. The challenge to achieve this without increasing mutual distrust remains. It is expected that the results of increasing transparency and streamlining processes will be further improved in the coming year. Health care cost control and health care contracting The results regarding the health care cost control are the main reason that the Care and Health division has managed to keep the increase in premiums for insured in control for the third year in a row. After the premium remained unchanged in 2013 and for the first time since 2005 declined in the entire market in 2014, we succeeded in 2015 to keep the premium increase lower than initially was predicted for the whole market, and lower than the final average in the market. The reversal of the premium growth in recent years has been historically and internationally unique but this has not been recognised and felt by customers. Also, they are rarely attributed to the efforts of health insurers for the affordability of care. On the one hand this is due to the fact that the percentage share of the average householdbudgets of health insurance premiums is increasing rather than decreasing. On the other hand because people for a long time have not made the link with the rising health care costs and because the results are largely not visible due to the rising premiums resulting from changing laws and regulations. Furthermore, everyone takes the access to the best care for granted. If you have been raised in the Netherlands, you are not aware that only 5% of the world population lives in a country where everyone receives the services of the same high-quality health care providers. With this, the comprehension is not always there that, to guarantee access to care it is imperative to ensure solidarity payment of care as well as limit the rise in health care costs. This challenge can only be achieved if all parties within the health care chain (customer, health care providers, health care insurer and government) are completely aware of this fact and take responsibility. In the coming years it remains the task of the Achmea Care and Health division to keep pointing out the importance of care cost control, by demonstrating that premiums are kept affordable and solidarity stays protected. Achmea is convinced that better quality and conscious choices within care treatments not only lead to better care for customers but also to more efficient care. The highest quality health care providers generally work more efficient, mainly based on more experience. It is thus the intention that health care procurement increasingly occurs more on the basis of price and quality and that the debate is more and more about the health outcomes of care. With this, one is counting on the fact that there will occur an accelerated understanding and improvement in the (regional) organisation of the health care infrastructure in the core regions where most customers live. This will lead to the sustainable management of the cost of care which is certainly essential in the current period of economic slowdown in order to keep the longer-term care for insured affordable and accessible. Furthermore, investments in health care innovations that are profitable and lead to health care cost reduction, such as health programs for insured people, employers and alliances. This way we contribute to the goal that everyone can rely on the best care and that we assist our clients with advice and assistance for the purpose of improving their own health and care treatments. The past year was also marked by the changes in laws and regulations in the area of the Dutch Exceptional Medical Expenses Act, that came into effect on 1 January Especially for the more complex cases, a call center has been established that helps the customer to understand this complex matter. Changes in long-term care also ensure that the risk of the insurers has increased. This affects the solvency requirements that have been imposed on the health insurers. In the coming year more clarity will be provided if the increasing capital requirements now have been adequately addressed or continue to put pressure on the premium. A shift in the market Almost 95% of customers remain with the same insurance provider at the end of the year. When customers switch it is generally because of the premium. On the other hand they also want to be ensured they are not restricted in their choice of health care provider. As in other markets in which Achmea operates private non-life insurance for example policies and conditions are becoming more transparent, so consumers can compare products more easily. The demand for an affordable premium, despite the rise in health care costs, is an additional challenge for health care insurance providers. Keeping premiums affordable and yet generating sufficient yield for healthy business operations and solvency requires cost control, both now and in the future. This applies to Achmea, for health care insurers in general and for the health care system in its entirety. Health care cost control is highly important as for the Care and Health division reimbursements for health care costs of policyholders approximately accumulate towards 95% of the earned premiums. Affordable premiums also require us to accelerate cost control within our own organisation. The Acceleration and Innovation programme is logically geared to the priorities of the Care and Health division. Achmea Zorgverzekeringen N.V. 8

9 Board of Directors Report The pressure on household budgets is visible in the tendency of customers to switch, which is driven primarily by premium comparisons. It is also visible in payment problems and the broader social problems of customers that are generally involved here. We make arrangements, often in collaboration with municipal councils, for debt limitation and reduction. In recent years, there has been an increase in the number of people who did not arrange supplemental insurance or opt for a higher policy excess for themselves. This has stopped with the introduction of the campaign for The relevance of a proper and adequate complementary insurance, partly due to the turmoil in the health care, is felt again. A socially responsible, affordable premium for the basic and supplementary insurance is necessary but no longer sufficient in the future. It is important that the core of the insurance business, which is sharing occurring risks that cannot be carried financially on a personal level, provides a concrete and tangible added value for the customer. Besides the sharing of risks, there is also an increasing demand for products and services that help customers to improve health care and treatment by themselves. When it comes to the best care, extra coaching and service is needed to enable the customer to choose the right treatment and care and to find the right care provider. This calls for development of business models, based on new methods to assist customers with improving their health. In addition to the existing health care partners, new partners that do not always get their income from the health insurance are needed for this. This includes for instance instruments such as e-health apps and lifestyle dashboards in order to encourage and stimulate healthier living and eating via feedback and big data supports. The focus is on healthy people but also on people who have higher health risks or chronic diseases. In addition, the challenge is also finding and promoting new forms of cohabitation and services that support a pleasant, safe and independent lifestyle. This is the only way customers can be helped to improve care and health care costs whilst long-term yields remain at a reasonable level. Another element is that customers are increasingly demanding multi-channel contact and/or self-service in the regular insurance processes. They take it for granted that they can get in contact with the Care and Health division or take out an insurance policy directly 24/7, choosing the channel that suits them best at that moment. Not infrequently this involves the use of one of the channels offered by online and social media. These have been improved, so customers can now make many arrangements themselves via Mijn domein and can submit claims online. This may be further facilitated by rapid improvements to the (digital) service and by innovation with respect to the use of online and social media for customer contact. Significance of these challenges Although the challenges set by the wishes of the customer, legislation, the system and social developments as a whole are not new, the speed at which the changes are taking place is increasing. Besides this, we are living more and more in a society in which everything is visible and parties are asked more often to explain what they do and why. As health care insurer we have a responsible task in the health care system. The challenge is to make a demonstrable and recognisable difference for our customers on a permanent basis. Trust can only be earned by demonstrating more clearly what is being done and why, and by showing that this makes a positive difference for customers, be it in his short or long term interest. Instituting acceleration and innovation for customers creates greater demands of the organisation. Legal measures, social developments and the Company s ambitions make demands on its capacity to change and they require focus. Strategy is the paramount element in this. Achmea Care and Health division has decided on the concrete results we aim to achieve in 2015 as short-term steps towards realising the long-term strategy. These goals are in line with the priorities in the Acceleration and Innovation programme, which was initiated as a communal change and development path within the Achmea Group as a whole, and therefore contributes to its realisation. In that way the Care and Health division is helping to realise Achmea s strategy. Conversely, the Acceleration and Innovation programme helps towards the realisation of the care and health goals because of the support base and collective energy that are brought to bear within the Achmea Group as a whole. Acceleration and innovation: a summary of the Health and Care division s goals In practice, health insurers operate as a closed capital system. In a market like this, in which premium minus the management and health care costs form a communicating vessel with the reserves, the insurer will have to create financial space. This especially is relevant as consumers still primarily choose from a price based point of view. Therefore, it is so necessary to work on being more distinctive. Finally, a balance has been applied between what we do primarily in the interests of the country (maintaining the current health care system with its distinctive solidarity between groups) and what we do in the interest of the customer. These topics are not mutually exclusive. It leads to choices that assist in lowering our costs and at the same time in increasing value for our customers. In summary, the strategy recognises three themes: the capacity to be distinctive, cost reduction and country and customer considerations. Achmea Zorgverzekeringen N.V. 9

10 Board of Directors Report Distinctiveness We focus on putting the customer first and choose a strategy in which we create additional value in the insurance itself by supporting our customers with advice and assistance. If a person needs care, we assure the best care for him or her. In order for customers to be well informed, confident, able to focus on their health, with no financial worries about the reimbursement of care. This managing of health of customers requires an effort of our customers and demands our very best efforts. We want to assist and advise our customers in this. More specifically: We make information transparent through us, the company and via the care providers) and offer practical solutions. For this, listening to the customers and understanding signals is essential. We assist customers in obtaining the right care treatment through self-management, strengthening the role of health coaching and by providing more information and compassion during the treatment. We also focus on (increasing) the vitality of all our customers. This is accomplished in cooperation with our corporate customers, by advising and assisting their employees on conducting business in a healthy way. Cost reduction The second theme has developed from a cost point of view. Acceleration of cost reduction is needed to survive in the long term. In this situation, four financial frameworks are leading : The management costs must be at or below the level of the market and will be gradually reduced the coming years. Considering our company scale, our health care costs should relatively be the lowest in the market. Our investment income should at minimum be market comparable with the same risk appetite. The solvency must be at the level of the market average. Country ánd customer Finally, the third theme concerns the relationship between the interests of society as a whole and the added value for our customers. Our strategy can only have real focus if for all our initiatives we take into consideration if they contribute to cost reduction ánd the increase in value for the customer. We only agree on initiatives that lead to greater value but also higher costs if the customer is willing to pay for the premium or otherwise. The focus is therefore on activities that are of social importance and are of added value to the customer. If we can launch an initiative towards customers that differentiates us positively from our competitors, than we can develop, finance and announce the initiative via our own organisation. Assisting customers in their care treatments and their vitality fits with this strategy because it benefits customers and also reduces the cost of care. If an initiative has an effect on the public interest and not only our own insured clients and is also not potentially distinctive to customers, we opt to tackle this in commonality from a shared system responsibility. We do this together with partners such as health care providers, municipalities, patient organisations and other insurers. This means for example that we investigate the quality of care together with our partners. At the same time we encourage customers to be more vital through exercise, relaxation and healthy food, however not from an altruistic point of view but more with self-financing new business models in mind. With our products, our customer contact opportunities and our conditions for the free choice of care providers, we want to be at the same level as the competition. In our products and our customer contact, the essence of our brands is recognisable. Customers experience all aspects of our brands. We strive for vigor, expertise, empathy and commitment in our brand experience. Together with our customers we look to the future and we think in possibilities. By achieving further efficiency internally and by improving care externally with cooperation of our partners in the health care sector, customers will really be able to rely on the best cares before 2020! Achmea Zorgverzekeringen N.V. 10

11 Board of Directors Report Investments Our investment policy The investment policy for Achmea Zorgverzekeringen N.V. comes under the Achmea Group s general sphere of action and is primarily drawn up and managed by the group department Asset Management. Achmea receives funds such as premiums from the various insurance activities. The investment policy endeavours to achieve optimal and stable returns without losing sight of the accompanying risks and the commitments vis-à-vis the policyholders. We invest the funds from our insurance activities for our own account. For the long term, money of the health insurance entities is invested in the two closed-end common funds (Fiscal Investment Institutions, FBI s). The day-to-day implementation of the policy has been largely outsourced to asset managers. In recent years, the investment policy has been tightened up. The investments have been placed in what is known as the return portfolio. For this portfolio, we endeavour to achieve the highest possible return, given the market risk budget available. Achmea s risk appetite principles - which relate to such factors as our rating, the liquidity position and the degree of earnings volatility - are taken into account when setting this budget. Our investment policy focuses primarily on the long term and our background as a cooperative meaning that we pursue the policy as prudently as possible. This has resulted in a relatively conservative investment portfolio. In addition, we have a strict policy on counterparties, something that is an important aspect of both our risk policy and our risk monitoring. Responsible investment As an institutional investor, Achmea is willing and able to invest the capital responsibly at its own risk, and to do so in such a way that it will influence the behaviour of the companies in which investments are made. This policy is known as responsible financial chain management. We exercise influence by such means as exclusions, by integrating ESG (Environment, Social and Governance) into our asset managers portfolio construction and portfolio management processes, and by exercising our voting rights at the AGMs. Achmea is also a signatory to the UN Principles for Responsible Investment and the UN Principles for Inclusive Finance, and also participates in the Carbon and Water Disclosure Projects. Portfolio composition in 2014 In the case of Achmea Zorgverzekeringen N.V., the investments related to the insurance liabilities and related items are primarily investments in bonds, through the FBI s. In addition, a small part of the portfolio is invested in the return portfolio. Performance in 2014 In 2014, the financial markets were calmer and had a greater risk appetite than in 2013, this trend being supported by increasing optimism about economic developments. The accommodating monetary policy pursued by the central banks in Europe and the US was enough to counteract the negative impact on economic growth caused by governments and consumers alike reducing their debt levels. The structural reforms being carried out in the peripheral countries of the Eurozone appear to be enough to improve these countries competitive positions somewhat. The euro interest rate rose as a result, but was also boosted by the tapering announced by the Fed. The relatively calm state of the financial markets and the rising levels of economic growth in America led to rising interest rates for the debts of strong and healthy governments. In Europe, the spreads between the various government debt interest rates and the German government debt interest rate declined. The interest rate spread between Dutch government debt and German government debt was not affected by Standard and Poor s decision at the close of the year to downgrade the Netherlands. Credit spreads decreased (which benefited corporate bonds), and equities especially those in developed countries posted very good returns. Portfolio mix The return portfolio s strategic mix is reviewed annually in the light of any adjustments to the economic input and any changes in market outlooks. This has not led to a major adjustment in the strategy for The investment mix will be adjusted in order to further improve the risk-return profile. Achmea Zorgverzekeringen N.V. 11

12 Board of Directors Report 4. DEVELOPMENTS DURING THE FINANCIAL YEAR AND RESULTS Results BREAKDOWN OF PROFIT FOR THE YEAR (X MLN) The result for 2014 is significant lower compared to This is primarily due to the provision for premium deficiency ( 290 million) that was taken by the end of 2014 for the relatively low commercial premiums Furthermore, there is a negative effect on the other expenses due to a modified cost allocation method. Premiums earned own account The premiums earned own account decreased by 55 million. The total figure for gross written premiums decreased by 51 million. This decrease is attributable to a decline in the premium of policy holders of 340 million, which is mainly caused by the decline in policies. This is mainly offset by a higher contribution to budget of 289 million. The result is influenced by the settlements of the Dutch Health Insurance Fund (Zorginstituut Nederland, ZiNL). In 2014, the final settlement of the contribution of the Health Insurance Act (Zvw) 2010, the 2 nd provisional settlement Zvw 2011 and the 1 st provisional settlement Zvw 2013 were received. The most recent settlement for each claims year is used when determining Dutch Health Insurance Fund budget. The results for 2014 are determined by extrapolating the results for the provisional settlement Zvw The premiums related to High Cost Compensation (HKC) decreased by 249 million. This relates to the run-down of this settlement and the introduction of the Long term High Cost (MHK) arrangement in This advantage is more than offset by the change in insurance liabilities for unearned premiums and unexpired risks. As a result of the relatively low commercial premiums 2015, at the close of 2014 a provision for premium deficiency has been made of 290 million compared to 21 million at year end Claims and movements in insurance liabilities The gross claims booked decreased by 587 million compared to Conversely, the decrease in the insurance liabilities is 225 million, which is 448 million less compared to the decrease of 2013 ( 673 million). In the past few years, the process of estimating health care costs has strongly improved, and gives more stable results now. In 2014, an important improvement has been made by using booked claims figures on hospital level in estimating costs of hospital care. This leads to a better picture of the estimate per label and the fixed-variable ratio. Operating expenses The decrease of the operating expenses of 9 million is due to the Acceleration and Innovation programme. This effect is to a large extend offset by increased costs due to a modified cost allocation method. Achmea Zorgverzekeringen N.V. 12

13 Board of Directors Report Investment income and expenses The development in investment income, results and impairments can be specified as follows: INVESTMENT INCOME AND EXPENSES (X MLN) Other (technical) income and expenses The net other technical income and expenses contains primarily the addition and release of the provision for doubtful debts. The amount of net other income and expenses consists primarily of the charged holding costs and the contribution and administration costs related to the Exceptional Medical Expenses Act (AWBZ). ABRIDGED STATEMENT OF FINANCIAL POSITION 2014 (X MLN) 2013 Achmea Zorgverzekeringen N.V. 13

14 Board of Directors Report Investments The total value of the investment portfolio has increased by 56.6 million to 4,214.5 million. The composition of the investments is: COMPOSITION OF INVESTMENTS 2014 (X MLN) 2013 Using ALM-techniques on Achmea Group-level with a translation to a mix on legal entity level, for Achmea Zorgverzekeringen N.V. the aim is to optimize the durations of the FBI fixed income investments and the technical provisions. Surplus of liquidity is invested in short-term investments such as deposits, commercial paper and tails of deposits. The last two mentioned are recognizes as bonds. The temporary liquidity surpluses relate largely to the advances of the Dutch Health Insurance Fund received. Amounts ceded to reinsurers This relates to the receivables and liabilities relating to the high cost compensation scheme. Receivables The receivables consist for 1,580 million of Contribution from Dutch Health Insurance Fund. The receivable increased by 698 million compared to 2013 and is primarily determined by settlements for previous years and by adjustments to estimates for the Dutch Health Insurance Fund settlements received in 2014 regarding equalisation and subsequent settlement, as well as by the adjusted estimate based on these settlements. The Other receivables decreased by 252 million at the end of 2014 compared to This is primarily due to a decrease in the permanent advance payments in connection with the introduction of the DOT scheme of 210 million. A single permanent advance payment is provided in the amount of the work in progress position of a hospital or mental health care institution. A periodic review is carried out to see whether the size of the work in progress position corresponds to the amount of the advance payment provided. The advance payment is then adjusted if necessary. Additionally, receivables from direct insurance decreased by 16 million and various remaining receivables decreased in total by 26 million. Prepayments and accrued income The decrease of Prepayments and accrued income relates to the prepayment to group companies for pension expenses in 2013, which is nil in Insurance liabilities The insurance liabilities for outstanding claims/benefits decreased by 225 million. When determining the insurance liabilities at the end of 2014, the Achmea policy for health care procurement, the market developments and the most recent information on both the national and internal developments in the claim levels were taken into account. The receipt of the Dutch Health Insurance Fund settlements for the claims years 2010, 2011 and 2013 means that some of the uncertainty has been eliminated. However, since the funding of care is undergoing change and because both the market forces and risks are increasing for health insurers, health insurers are still having to deal with uncertainty. The level of uncertainty is greater for recent claims years than for older claims years, because over time more information has been provided for the latter. As a result of the relatively low commercial premiums 2015, at the end of 2014 a provision for premium deficiency has been made of 290 million compared to 21 million at the end of A sufficiency test known as a Toereikendheidstoets (TRT) has been carried out for the provision formed as at the end of The TRT has revealed that the provision is sufficient. Provisions In 2014, Post employment benefits increased with 1 million and Other provisions decreased by 13 million to 3 million. The Other provisions item at the end of 2014 relates to legal claims. Achmea Zorgverzekeringen N.V. 14

15 Board of Directors Report Accruals and deferred income The increase in the deferred liabilities item relates to a 241 million increase in the pre-received premium CAPITAL MANAGEMENT Solvency position (company) Development in solvency The development in the Company's capital according to the current requirements (Solvency I) of the Dutch Central Bank (DNB) can be summarised as follows: CAPITAL POSITION 2014 (X MLN) 2013 * WFT = the financial supervision act (Wet Financieel Toezicht) The prudential adjustment for 2014 and 2013 relates to the legal reserve of the Care administration offices. In 2013 the adjustment also relates to the prepaid amount for pension expenses. Achmea Zorgverzekeringen N.V.'s solvency ratio increased from 180% at the end of 2013 to 207% at the end of The main reason for this increase in solvency is the favourable result for In the solvency calculation the required and actual capital of the subsidiaries are fully taken into account. The minimum internal solvency standard (Solvency I) for Achmea Zorgverzekeringen N.V. is set at 130%. Pressure on solvency margins on health insurers is expected to increase further as a consequence of social and political developments. The Dutch government is shifting more activities and risks towards health insurers. The combination or limited increase in 2015 and continuous pressure hereon and expected higher capital requirements will have a negative effect on the solvency margin. Solvency policy and targets Since early 2012, a new solvency policy has been applied to the capital management of the insurance entities that are part of the Achmea Group. Achmea Zorgverzekeringen N.V., in its capacity as independent licence holder, must comply with this. The objectives of the new solvency policy are on the one hand to guarantee an appropriate level of capital even in high-stress scenarios, and on the other hand to ensure that the capital management policy is implemented consistently and in line with our risk appetite. A number of metrics have been laid down both for the legal entities and for Achmea Group. Requirements are based on the Solvency II regime, although they have been recalibrated taking into account the outcomes of Solvency I and the rating ambition according to Standard and Poor s (S&P). We have drawn up measures that will be implemented if the levels of capital fall below the prescribed levels. Risk appetite: basic principles The introduction of the Solvency II capital requirements which ensure that insurers in the European Union maintain a sufficient capital level to reduce their solvency risk is expected to have a major impact on the sector. Solvency II is expected to apply as of 1 January Achmea Zorgverzekeringen N.V. 15

16 Board of Directors Report Level of capital as of 31 December 2014 in line with Solvency II In 2015, Achmea Zorgverzekeringen N.V. carried out an extrapolation for Solvency II. The results show that Achmea Zorgverzekeringen N.V. also complies with the Solvency II capital requirements. Liquidity position The liquidity position of Achmea Zorgverzekeringen N.V. is sound, as we maintain a high level of liquid investments in the investment portfolio, such as government bonds, deposits and listed equities. Credit rating Achmea Zorgverzekeringen N.V. s strong capital position has been awarded by Standard and Poor's through the following rating: CREDIT RATING DECEMBER 2014 DECEMBER RISK MANAGEMENT Effective risk management is fundamental to the sustainability of Achmea and for maintaining the continuity of our customers and our other stakeholders. Achmea Zorgverzekeringen N.V. is part of Achmea B.V. and as such falls under the general scope of risk management of Achmea B.V. as a Group. Achmea Zorgverzekeringen N.V. and her 100% subsidiaries are exposed to a variety of risks including insurance risk, market risk, counterparty default risk, operational risk, liquidity risk and strategic risks. An integrated risk management framework is in force, which contributes effectively in the realisation of our strategy and the business objectives. Our risk profile has been relatively stable over the last few years, given our risk appetite statements and the close monitoring of the risk tolerances and risk limits. Risk management framework As a starting point we have a risk strategy with principles regarding (1) risk appetite, (2) risk culture and (3) risk governance. As for culture the Executive Board and management of Achmea encourage an open culture in which risks can be openly discussed and where decision making is based on an appropriate balance between risk, capital and expected return. Our risk strategy is detailed in our Integrated Risk Management Framework (IRMF). Integrated approach (IRMF) Achmea s IRMF consists of seven components which ensure a consistent, effective and efficient risk management process and is, when relevant and applicable, applied in the same manner for Achmea Zorgverzekeringen N.V. Achmea Zorgverzekeringen N.V. 16

17 Board of Directors Report Several risk assessments are carried out throughout the year making use of quantitative and qualitative tools and techniques: Qualitative Risk Self Assessments of the strategy, specific projects and operational risks. This includes the qualitative Strategic Risk Assessment with management and the Executive Board in which potential risks are identified and assessed. Achmea uses risk models to make a quantitative estimate of our risk profile. Risks are determined using the Solvency II standard formula or internal models. Risk models are used in Asset & Liability Management (ALM), reinsurance strategy, pricing, performance management and capital management. Finally, scenarios and stress tests provide insight into what happens under extreme circumstances or when several factors are combined. The various assessments mentioned are complementary to each other. The assessments are used widely as input for other exercises, e.g. periodic risk and capital monitoring, pricing and business planning. A single Integrated Risk Analysis Report combines the main results of the different risk assessments which results in a single view of our risk profile including an overview of our main risks which have been identified. The profitability by product group is assessed with economic metrics in which a return is assessed with respect to the related risks. For new products a profit test based on economic results is carried out. Remuneration is both performance related and risk related and complies with the applicable regulations (the Dutch Central Bank, the Netherlands Authority for the Financial Markets (AFM) and the Insurers Code). An Internal Control Framework is used to systematically monitor key risks and key controls throughout the organisation. Cross-references are available to the framework for information security, Solvency II, the Achmea Customers Centricity program, the quality standard Customer oriented Insurance (KKV) and the In Control Statement (ICS). An Internal Control Statement is issued annually, which provides a qualitative description of risks and internal control. The statement is on the agenda of the Audit and Risk Committee. Achmea s risk profile is periodically monitored and quarterly reports are prepared for the Executive Board and the Audit & Risk Committee. Line management periodically verifies for the main risk types whether the risk is still within the set of risk limits. An Integrated Risk Report has been developed in 2014 in which the monitoring results of the risk limits, internal control, actuarial findings (e.g. outcomes of LATtesting) and main risks are reported. This further enhances the single point of view of our risk profile and helps to prioritise management actions. Complementary to the Integrated Risk Report the Executive Board receives a Compliance Report twice a year with the results of the monitoring. Next to the periodic monitoring of our risk profile the ORSA Report is prepared annually which provides an overview of and conclusions about whether or not the capital and liquidity are, and, as projected, in the future will be sufficient under regular and stressed circumstances, given the risk profile and our risk appetite. Achmea Zorgverzekeringen N.V. 17

18 Board of Directors Report The recovery plan of Achmea contains information on the degree to which Achmea as Group is prepared for and can recover from severe (financial) developments which lead to a financial crisis situation. The recovery plan was prepared in 2013 for the first time and was finalised and sent to the regulator in The recovery plan is updated on an annual basis. Finally, the internal audit function reports on the basis of audit reports and an annual Management Letter. Risk appetite The strategic principles with respect to the risk appetite and the resulting Risk Appetite Statements at Group level include the attitude towards risk and are an indication of not only the willingness to accept, but also the ability to take risks. The figure below shows our strategic principles with respect to the risk appetite, financial and non-financial. These principles and the Risk Appetite Statements are operationalised for Achmea Zorgverzekeringen N.V. and her 100% subsidiaries through Key Risk Indicators, risk tolerances and risk limits. Risk tolerances are restrictions that give a clear direction to management of the risk levels they are willing to be exposed to. Risk limits are used in daily business practices to indicate how much risk we are willing to take. The risk limits are monitored at least on a quarterly basis and more frequently if necessary depending on the nature of the risks involved. Three Lines of Defence For the risk governance Achmea uses the three lines of defence model, whereby ownership for risk is taken at three levels in the organisation. Reporting lines reinforce segregation of duties and independence within the model. Achmea has risk committees at both Group level and within the business units. At Achmea Zorgverzekeringen N.V. level, the Supervisory Board supervises the Board of Directors on the policy implemented and the associated risks. The Audit & Risk Committee advises the Supervisory Board on financial, administrative and organisational compliance matters, as well as on the risk profile and risk management. Achmea Zorgverzekeringen N.V. 18

19 Board of Directors Report This year we appointed a Chief Risk Officer on board level in order to strengthen risk management. Achmea Zorgverzekeringen N.V. also uses the expertise of the Audit & Risk Committee at group level. The Finance & Risk Committee (FRC) is an executive committee of the Executive Board. It is the platform for the Executive Board and for management of (financial and risk) staff departments and finance directors of Legal Entities (among which Achmea Zorgverzekeringen N.V. and her 100% subsidiaries) to discuss and decide on the issues related to finance and risk management at Group level. The Model Approval Committee (MGC) is a subcommittee of the FRC which has been authorised to approve risk models. The Product Assessment Committee (PBC) has an important assessment role in the product approval and review process. This year the Information Risk & Security Board (IRSB) has been introduced which focusses primarily on the management of information risk, one of the newer risk areas which needs special attention. Aligned with the FRC at the Group level, there are committees within the business units that discuss risks within the organisation. Risk overview Achmea Zorgverzekeringen N.V. and her 100% subsidiaries are exposed to a variety of risks through its core insurance activities, which include insurance risk, market risk, counterparty default risk, liquidity risk, operational risk and compliance. In this section a brief overview is given of our overall risk profile and the main control measures which have been taken. We refer to the Risk Management section in our Annual Accounts for more information. A INSURANCE RISK Insurance risk is defined as the risk of loss, or adverse change in the value of insurance liabilities, resulting from inadequate pricing and provisioning assumptions. Achmea Zorgverzekeringen N.V. and its 100% subsidiaries are exposed to health risk as a result of its insurance products. PRODUCT LIFE CYCLE (PLC) APPROACH The Product Life Cycle (PLC) approach is described in the Insurance Risk Policy and is used in order to set down details of the management of insurance risk. This cycle encompasses: Achmea Zorgverzekeringen N.V. 19

20 Board of Directors Report - Business planning - Product development - Underwriting - Reinsurance - Policy management - Claim process and reserving - Assessment of assumptions - Reporting and Analysis - Product Review and Portfolio Analysis Below some general information is provided on some of the phases of the PLC. Next, sections are recorded on each sub risk type which provides more detail on the risk profile and the different phases of the Product Life Cycle for that specific risk type. For the introduction of new insurance products, Achmea has formulated a product approval and review policy. In the product development process the target group and the client needs are used to determine the coverage, the conditions, the price and the underwriting criteria. These are used to calculate the anticipated loss burden which establishes the risk premiums. For the financial expectations and to quantify the risks, a profit test is performed. The Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden N.V. (NHT) covers all claims on Dutch policies related to terrorism attacks of up to 1 billion. Achmea Zorgverzekeringen N.V. and its 100% subsidiaries pays annual premiums to the NHT and guarantees totalling 35 million in 2014 (2013: 36 million). Terrorism claims above this maximum are excluded in the policies. In Health Netherlands, because of the risk-absorbing effect of the settlement of health costs, reinsurance currently does not play a role. Achmea has an active policy to settle claims. As soon as reasonably possible, an arrangement is made with the claimant, so that the risk of further growth of claims is mitigated. For each claim a provision is made where the objective is that the average run-off result is positive. The Insurance liabilities are tested at least twice a year for adequacy, and more often if deemed necessary. Assumptions are used in pricing, product development and the liability adequacy test. On an annual basis an assumptions study is carried out where each assumption is evaluated. The study is based on both our own history, portfolio data in line with the strategy of the Business Plan phase, and on the external publications from, for example, the Association of Insurers, Zorginstituut Nederland and Zorgverzekeraars Nederland, the Actuarieel Genootschap and the Uitvoeringsinstituut werknemersverzekeringen. Other important phases in the management of insurance risk are the business plan process, underwriting process, policy management and reporting and analyses. The business plan sets out the plans for developing the portfolio over the next three years. The underwriting process consists of assessing, accepting (under possible conditions) and pricing individual risks. For the Dutch basic health insurance, the Health Insurance Law is followed under which a general obligation to accept is in force. Policy management deals with the administration of individual policies as well as portfolios. Finally, all aspects are subject to a periodic analyses, review and reporting. HEALTH RISK Health risk is defined as the risk of loss or of adverse change in the value of insurance liabilities resulting from: - changes in the level, trend, or volatility of the expenses incurred in servicing insurance contracts; - fluctuations in the timing, frequency and severity of insured events, and in the timing and amount of claim settlements; - significant uncertainty of pricing and provisioning assumptions related to outbreaks of major epidemics, as well as the unusual accumulation of risks under such extreme circumstances; - the changes in the level, trend or volatility of the underlying risk drivers (longevity rates, incidence rates, lapse rates, expenses, recovery and revision rates) for disability insurance Health risk is present in medical expenses (Health NSLT). Achmea Zorgverzekeringen N.V. 20

21 Board of Directors Report HEALTH INSURANCE Risk profile The health insurance system in the Netherlands consists of two components: a basic and a supplementary insurance. Achmea Zorgverzekeringen N.V. and its 100% subsidiaries offer both basic and supplementary insurance to individual and group policyholders. For the basic health insurance Achmea offers the direct settlement ( natura ), the refund ( restitutie ) and the combination policy. For the supplementary insurance a refund policy is offered. The basic insurance is mandatory for anyone who lives or works in the Netherlands and must be bought with a health insurer in the Netherlands. Each insurer has a duty to accept. It covers the basic standard of care and the 100% subsidiaries of Achmea Zorgverzekeringen N.V. offer the three kind of insurance policies (direct settlement, refund and the combination). Premiums for the basic health insurance are largely influenced by political decision-making. The Dutch government determines the extent of coverage under the basic insurance package and the conditions applicable to the basic insurance package, including enrolment and the maximum discount for group contracts (10% of the gross premium). In addition, the government determines the payments from the health insurance equalisation fund to insurers and the standard nominal premium, the sum of which should be sufficient to cover the initially expected nationwide costs. In addition to the health insurance premiums received from customers, Achmea receives compensation from the equalisation fund that is financed by employers and the Dutch government. Payments by this fund depend on the risk profile of the portfolio of insured customers. In combination with the standard nominal premium, payments from this fund are expected to equalise the claims level for all insurers. Therefore, in such a system with risk-compensation measures, the risk of a non-average portfolio of insured customers is in general supposed to be limited. These risks cover, amongst others, age, gender, medical status, type of employment, socio-economic status and geographic location, as well as an increase in the overall cost of health care. On average, the total premium (including fund payments) of homogeneous risk groups should equal their costs. Thus in this regard health insurance is no different from non-life and additional health insurance. However, for some costs, there still exists risk equalization compensation ( ex post ) which reduces the risk, namely for mental health care and hospital care (as of 2014). But these mechanisms will be greatly reduced in the following years. Supplementary health insurance offers policyholders an opportunity to expand the cover provided by the basic health insurance. This insurance is optional and is comparable in nature and method to non-life insurance. The cover provided by these insurances is not tied to government stipulations and the insurer has the opportunity to differentiate the premium. Achmea Zorgverzekeringen N.V. offers a variety of general and dedicated supplementary health insurance packages. Premiums for supplementary health insurance are tailored to the cover offered. B MARKET RISK Market risk is the risk of loss resulting from the level or volatility of market prices of financial instruments which have an impact upon the value of the assets and liabilities. It encompasses equity risk, interest rate risk, property risk, spread risk and currency risk. Achmea Zorgverzekeringen N.V. and its 100% subsidiaries are exposed to market risk in its insurance operations. Specific risk events which could have a significant impact are extreme shocks on the financial markets and an extreme increase of the interest rates. ALM Framework For its Dutch insurance companies, including Achmea Zorgverzekeringen N.V. and its 100% subsidiaries, Achmea manages market risk positions within an Asset and Liability Management (ALM) framework developed to achieve long-term investment returns in excess of its obligations under insurance and investment contracts. The ALM s key objective is to maximise the risk versus expected returns within the defined risk appetite. The total investment portfolio of Achmea is split into a matching portfolio and a return portfolio for generating investment income by taking market risks. The composition of the matching portfolio is based on the liquidity of the liabilities. Illiquid liabilities are matched using a higher percentage of credits then liquid liabilities. A risk budget for market risk of the return portfolio is set based on the ALM study. The budget for market risk is determined on the basis of Achmea s risk appetite which sets limits in terms of the relation of available capital to required capital, the maximum loss accepted, the maximum share of capital allowed for financial risks and a targeted credit rating. In the ALM study different asset mixes are tested for their effect on expected profit and these limits of the risk appetite. This research is executed at least annually or more frequently when appropriate. Following this an optimal return portfolio (the strategic investment mix) is determined that fits the set risk budget and provides the highest return given additional restrictions on, for example, liquidity and minimum size per asset class. Periodic monitoring is in place, focussing on deviations from the strategic mix, and Achmea Zorgverzekeringen N.V. 21

22 Board of Directors Report managing the interest rate exposure. Investment decisions are taken at Group level, but the limits have to be adhered to by each distinct regulated entity for which a separate portfolio of assets is maintained. C COUNTERPARTY DEFAULT RISK Counterparty default risk is the risk of loss resulting from unexpected default, or deterioration in the credit standing (e.g. migration), of the counterparties and debtors of Achmea Zorgverzekeringen N.V. over the forthcoming 12 months. Achmea Zorgverzekeringen N.V. and her 100% subsidiaries are exposed to counterparty risk in the area of investments, treasury, healthcare providers, intermediaries, and policyholders. Financial assets as presented in the Consolidated Statement of Financial Position and related Notes, represent the maximum exposure to credit risk. D LIQUIDITY RISK Liquidity risk is the risk that actual and potential payments and collateral obligations cannot be met when due. Achmea distinguishes between funding liquidity risk and market liquidity risk. The first type of liquidity risk is defined as the risk that a company will not be able to meet efficiently both expected and unexpected current and future cash flows and collateral needs without affecting either daily operations or the financial condition of the company. The latter is defined as the risk that the company cannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption. Liquidity risk within Achmea Zorgverzekeringen N.V. s insurance operations is mitigated through the availability of cash and cash equivalents and investments in liquid assets. E OPERATIONAL RISK Operational risk is defined as the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events. Operational Risk includes the following 7 categories of risk events and management actions: Internal Fraud, External Fraud, Execution, delivery and process-management, Clients, products and business practice, Business disruption and system failure, Damage to physical assets and Employment practices and workplace safety. Achmea Zorgverzekeringen N.V. s management is responsible for managing and monitoring operational risks (first line). They are supported by a professional ORM function (second line) which provides policy framework, facilitates, monitors and reports the operational risks and if necessary, escalates. To ensure the continuity of our service during (major) crises, critical chains are identified based on business impact analysis. Where necessary, additional measures are taken. The crisis communication plan ensures clear communication with the stakeholders taking into account all forms of media. Information risks are managed in cooperation between the divisions, information management and ORM column. F COMPLIANCE Achmea defines a compliance risk as a risk one may incur when one fails to comply with applicable laws, regulations, rules, organisational standards, and codes of conduct. Failing to comply may result in legal- or regulatory sanctions, material financial loss, or reputational damage. Within the organisation, the compliance function is identified at the level of group entities (including OpCo s) and at the level of Group holding. Risk & Compliance on group level is responsible for the identification of compliance issues, creating compliance awareness, providing compliance advice and the communication and monitoring of the compliance risks. Risk & Compliance has incorporated frameworks for policies and procedures. Another important element of its activities is the communication with regulators. Together with the Board Office, Risk & Compliance coordinates all contacts with the regulators. Achmea Zorgverzekeringen N.V. 22

23 Board of Directors Report Compliance is the responsibility of Operational Management, supported by the Divisional Compliance Officer. To support the Executive Board and the coordination group, the central staff department Risk & Compliance is in charge. The Division Compliance Officer is hierarchically under the direction of the division and is functionally controlled by the Group Compliance Officer (GCO). The local Compliance Officers provide all compliance related matters to Risk & Compliance. Risk & Compliance consolidates all these items into a consolidated report to the Executive Board and Audit & Risk Committee of the Supervisory Board. 7. CORPORATE SOCIAL RESPONSIBILITY When it comes to Corporate Social Responsibility (CSR), Achmea B.V. has drawn up and formulated a general policy that applies to Achmea B.V. and its Group entities. Achmea Zorgverzekeringen N.V. is a 100% subsidiary of Achmea B.V., which relationship means that it is subject to the general Group policy of Corporate Social Responsibility (CSR) that has been put in place for Achmea B.V. as a group. Achmea B.V. s CSR policy is discussed briefly below. For further details, please see the Achmea B.V. Annual Report as published on Achmea s goal is for our customers to feel that we are their most trusted insurer. Customers have to be able to know that we are there for them when they need us. We want to be accessible for them via a broad range of brands and distribution channels. We see it as our duty to act responsible and in a future-oriented way. We achieve this by, for example, offering products and services that have added social value, responsible investing, and putting our customers first in all our thoughts and actions. Our products have to show that they are of added value to society. This is why we emphasise the social importance of our products. We want to be more than just a provider of financial services. We want to use our products and services to help bring about improvements in our society, by solving, reducing or preventing social problems, as well as by discussing them with others and by initiating a debate about them. In doing so, we also help to create the solidarity that our customers desire, thus creating the greatest possible added value for them. The greatest social impact of our business results from our day-to-day work. Every day, the insurance, investment and other financial products Achmea offers provide evidence that it is fulfilling its social responsibility, namely by offering solutions to the risks faced by the world today. In addition, Achmea uses all its knowledge and experience to help solve social and economic problems, both in the Netherlands and abroad. In this way, Achmea implements in practice the principle of solidarity that underpins our whole history and identity as an insurance provider. Insurance with added social value We want to be more than just a provider of financial services we want to help solve social problems too. With this principle in mind, in 2012 we signed the United Nations Principles for Sustainable Insurance (PSI). The PSI is both a catalogue and reminder of the essential aspects and relevance of insurance in today s world. Insurance is also very much about sustainability and about securing a proper future for everybody. This principle is based on solidarity: we share those risks with each other that we cannot shoulder alone. It means being able to carry on with your life or your business if you are affected by illness or loss. In their role as risk managers and risk bearers, insurers can exercise their influence in order to make life safer and future-proof. We do this both by insuring the risks themselves and by preventing them in the first place. Examples of these measures are safety belts, crash helmets, airbags, sprinkler systems, fire detectors and shop floor safety, as well as income protection and other social safety nets. Traditionally, insurance has had a beneficial effect on both well-being and prosperity. Both now and in the future, there will be issues facing the world where insurers knowledge of and expertise in risks mean they can make a valuable contribution to the issue in question. This relates to major issues to which the whole world has to find solutions, such as global warming, the switch to sustainable energy, scarcity of raw materials/commodities, poverty, securing food supplies, an aging population, and accessible quality health care for all. New challenges require unconventional products and services. Just a few shining examples of these products and services that have been developed at Achmea are: Centraal Beheer s volunteers insurance, Interpolis s prevention advice, Workaway s service for new forms of mobility, WagenPlan s carbon-neutral vehicle fleet management, Centraal Beheer s insurance cover that promotes rehabilitation, the sustainability agreements that Syntrus Achmea has entered into with its lessees, the socially responsible asset management offered by Staalbankiers, and Centraal Beheer s insurance cover for shared cars. During the next few years we will be looking at further opportunities for products and services that can help our society to progress further. Our foundations are investing in society Several foundations are active within Achmea. The Achmea Foundation and the Achmea Victim and Society Foundation focus on improving the resilience of vulnerable groups in society. Furthermore, three foundations co-financed by Achmea focus on improving the efficiency of Achmea Zorgverzekeringen N.V. 23

24 Board of Directors Report the Dutch health care system, these foundations being Stichting Gezondheidszorg Spaarneland, Stichting Theia and Stichting Achmea Gezondheidszorg. 8. CORPORATE GOVERNANCE Introduction Achmea Zorgverzekeringen N.V. is part of the Achmea Group, of which Achmea B.V. ( Achmea ) is the ultimate parent company. Achmea B.V. is a private company with limited liability. Its statutory seat and head office are located in Zeist, the Netherlands. Achmea adheres to a number of relevant governance codes: the Dutch Insurers Code and the Dutch Corporate Governance Code. Compliance with the Insurers Code and the Corporate Governance Code Insurers Code At the end of 2010, the Dutch Association of Insurers adopted Governance Principles (the Insurers Code) to which all Dutch-licensed insurers must adhere from 1 January Insurers governed by the Insurers Code and that are part of a group can apply parts of the Code at the level of the group or insurance group. Achmea has elected to report on the application of the Insurers Code at Group level because of the structure of its organisation and the Group s governance. The Executive Board of Achmea manages the Group based on uniformity in management, policy and supervision. In order to ensure that management, policy and supervision are synchronised across the organisation, the Achmea Executive Board is responsible for managing, adopting and implementing the strategy of the Achmea Group, the group policy within the Achmea Group and the overall management of the Achmea Group. The Achmea Supervisory Board monitors the Group as a whole in order to ensure that management and policy are synchronised across the organisation. The directors under the Articles of Association within the Achmea Group overseen by their own supervisory boards are responsible, in addition to their general and legal responsibilities towards their own company, for implementing group policies, provided that such policies must be implemented within the company in question. With the current governance structure and policies regarding remuneration, risk management, auditing, Customer Centricity, product approval and a process for identifying and implementing laws and regulations that apply across the Achmea Group, we feel that the principles of the Insurers Code are implemented sufficiently by Achmea Zorgverzekeringen N.V. for reporting at the Group level. Achmea is largely in compliance with the Insurers Code. To the extent relevant to Achmea Zorgverzekeringen N.V., in 2014, Achmea did not yet fully comply with the following principles of the Code: 1. Customer Centricity (principle 3.2.2) As for Assuring the product approval process (principle 4.5) Achmea Zorgverzekeringen is compliant with the Code at the end of For more details on Achmea s compliance with the Insurers Code we refer to the extensive explanation included as an appendix to the Achmea Annual Report 2014 and separately electronically available on and In addition to the reporting at Group level, we note that for Achmea Zorgverzekeringen N.V. in 2014 the following principles were not fully complied with; Program for Permanent Education of the Statutory Board (article 3.1.3) There is no formal Permanent Education program for the Board of Directors. However, Board of Directors focuses sufficiently on education and development. The members of the Board of Directors in accordance, together with the other directors. In addition, the members of the Board of Directors go to national and international seminars that cover relevant topics. At these seminars they regularly give lecture. Furthermore, they regularly take international education trainings. Corporate Governance Code Since 1 January 2004, listed companies in the Netherlands have been required to report on compliance with the Dutch Corporate Governance Code on a comply and explain basis. Although Achmea and its insurance subsidiaries are not listed companies, Achmea has Achmea Zorgverzekeringen N.V. 24

25 Board of Directors Report voluntarily adopted and embedded the majority of the Code s principles in our governance structure. Where applicable, Achmea is largely in compliance with the principles and best practices. Corporate governance is primarily determined at group level and is organised by setting up and organising a group-wide governance structure and by the formulation of group-wide policy. For further details reference is made to the Achmea Annual Report 2014 on the Achmea website at Achmea Zorgverzekeringen N.V. s corporate governance is, to a significant degree, subject to the scope of operations of Achmea s corporate governance. Where relevant, specific points that are of importance in implementing the Corporate Governance for Achmea Zorgverzekeringen N.V. will be explained in more detail in the next section. Corporate Governance at the level of Achmea Zorgverzekeringen N.V. Board of Directors and Supervisory Board Main developments in 2014 In 2014, the situation changed from one Supervisory Board for Achmea Zorgverzekeringen N.V. including its subsidiaries that are supervised into a legal structure with supervisory boards of their own for Achmea Zorgverzekeringen N.V. and her (sub)subsidiaries Zilveren Kruis Achmea Zorgverzekeringen N.V., Interpolis Zorgverzekeringen N.V., Avéro Achmea Zorgverzekeringen N.V., Agis Zorgverzekeringen N.V., Agis Ziektekostenverzekeringen N.V. and OZF Achmea Zorgverzekeringen N.V. These boards have the same structure and meet integrally with special attention for the specific legal entity from the applicable Board in every meeting. Responsibilities and role in corporate governance Achmea Zorgverzekeringen N.V. statutory board consists of Messrs N.F.J. Hoogers and J.E.P. Tanis. Under the Articles of Association these directors are directly charged with and responsible for the day-to-day management of Achmea Zorgverzekeringen N.V. In carrying out their duties for Achmea Zorgverzekeringen N.V., the directors use the Achmea Group's Board Rules which set out their tasks and activities and the decision-making process within the Achmea Group. Achmea Zorgverzekeringen N.V. has a Supervisory Board. The Supervisory Board is responsible for supervising, advising and approving the actions of the statutory board. The rules of the Supervisory Board apply to the performance of its duties. Composition and diversity The Dutch Corporate Governance and Supervision Act came into force on 1 January 2013 and applies to Achmea Zorgverzekeringen N.V. Achmea Zorgverzekeringen N.V. currently has two directors and three Supervisory Board members and since 26 March 2015 of two Supervisory Board members. The members of the Supervisory Board of Achmea Zorgverzekeringen N.V. are members of the Supervisory Board of Achmea B.V. In 2014, the composition of the Supervisory Board of Achmea Zorgverzekeringen N.V. has changed. The Supervisory Board consisted of Mr P.F.M. Overmars (chairman) and Mrs S.T. van Lonkhuijzen-Hoekstra. At 16 June 2014 Mrs A.C.W. Sneller has also become member of the Supervisory Board. Mr. P.F.M. Overmars stepped down as member of the Supervisory Board at 26 March The number of members of the Statutory and Supervisory Boards within Achmea is too small to be able to responsibly have gender diversity. 'Achmea acknowledges the importance and benefits of gender diversity'. However, the financial sector in general and the insurance sector in particular are by their very nature complex. This is why the criteria of suitability, knowledge and expertise take precedence over having gender diversity. The Supervisory Board of Achmea Zorgverzekeringen N.V. since 16 June 2014 consists of two women and one man, and since 26 March 2015 of two women. Supervisory Board Committees There are no sub-committees on the Supervisory Board of Achmea Zorgverzekeringen N.V. because of the size of the Supervisory Board. The Board Members have adequately provided for the safeguarding of the required knowledge. The three sub-committees on the Supervisory Board at the level of Achmea, being the Audit and Risk Committee, the Remuneration Committee and the Selection and Appointment Committee also fulfil a preparatory function in the decision-making process of the Achmea Zorgverzekeringen N.V. 25

26 Board of Directors Report Supervisory Board of Achmea Zorgverzekeringen N.V. in connection with its performance of its group supervisory role. The members of the Supervisory Board of Achmea Zorgverzekeringen N.V. sit on one or more of the sub-committees at Achmea level. Continuing education There was no specific continuing education programme for The members of the Statutory Board keep their knowledge level up to date by tailor made programmes or workshops in the areas financial, corporate governance, risk management, compliance and audit. The Supervisory Board of Achmea Zorgverzekeringen N.V. has its own Permanent Education Programme, which consist of three sessions (February, May and November) about actual subjects of importance for the members of the Supervisory Board. Members of the Supervisory Board of Achmea are welcome to join these sessions. Code of Conduct Achmea aims to be a leader in terms of its own rules of conduct and in terms of anticipating current and new regulations. Active control exercised to foster integrity and prevent integrity violations and fraud reduces any negative impact on trust and returns, as well as limiting the cost of claims. Achmea therefore drew up a company Code of Conduct to ensure ethical conduct in accordance with Achmea s values and standards. The recording of duties and responsibilities in the area of fraud, risk management and checks guarantees the control and limitation of fraud. Should an integrity violation or incident of fraud occur nevertheless, it can be reported confidentially. A whistleblower policy described at is in place for this purpose. The Achmea Ethics Committee advises the Executive Board and group entities including Achmea Zorgverzekeringen N.V. on ethical dilemmas. It does so by assessing ethical and societal issues, as well as practical situations, against our company s values and standards. This makes it possible to develop moral case law and formulate ethical and moral guidelines specifically for Achmea. The Ethics Committee is chaired by Mr. H. Timmer (member of the Executive Board of Achmea B.V.) and consists of employees of different divisions and one external member. Subjects handled by the Ethics Committee in 2014 included the following: Responsible investment Guaranteeing and communicating about ethics within Achmea Basic principles and procedures of the Committee The Insurers Oath Various practical situations in which ethical aspects are relevant As Achmea Zorgverzekeringen N.V. is part of the Achmea Group, it fully complies to the general code of conduct drawn up at Achmea Group level. The Achmea Code of Conduct is available at Standing data of Achmea Zorgverzekeringen N.V. Achmea Zorgverzekeringen N.V. is a public limited company with its registered office in Zeist and its principal place of business at Dellaertweg 1 in Leiden. The goal of the company is to conduct health insurance business within the meaning of the Dutch Financial Supervision Act. The company's share capital amounts to 250,000,000 and consists of shares with a nominal value of 1, of which 59,620,822 are issued and fully paid-up shares (the issued share capital is 59,620,822). The shares are registered. No share certificates are issued. Achmea Zorgverzekeringen N.V. is part of the Achmea Group. Achmea B.V. owns 100% of the shares of Achmea Zorgverzekeringen N.V. 9. SUBSEQUENT EVENTS Agis Zorgverzekeringen N.V. has merged with Zilveren Kruis Achmea Zorgverzekeringen N.V. on 1 January There are no subsequent events with a material financial effect. Achmea Zorgverzekeringen N.V. 26

27 Board of Directors Report 10. OUTLOOK The health care costs remain central to the debate about the current health care system in the Netherlands. The most drastic measure by the legislative power is the change of the current Dutch Exceptional Medical Expenses Act. As of 1 January 2015, only the most severe longterm care demand is financed from the Long Term Care Act (WLZ). Municipalities and the health insurers take responsibility for the milder forms of assistance and care that still are financed through the Dutch Exceptional Medical Expenses Act. The ultimate ambition is better care, closer to customers at lower costs. This has resulted in major changes for Achmea, not only in carrying out the administrative tasks, but more importantly also in a greater risk insurance, which in turn places increased demands on the solvency. On a national level, the government has taken measures with the aim to introduce the Long Term Care Act responsibly. The actual implementation of this act is also partly the responsibility of the insurer. Achmea aims to minimalize the impact of the transition to the Long-Term Care Act for people who are depended on it. For example through establishing a separate, temporary customer contact centre. In the coming years, we believe that it is possible to achieve a modest increase in the costs of care, nationally and within Achmea. Measures such as quality of care, collaboration with the health care chain, portfolio choices of providers and additional own responsibilities for the insured will achieve this effect. We continue to focus on reducing costs and finding ways to improve the quality of health care In 2015, the cost reduction programme that has already been put in motion will continue. Digitisation and process improvements of the customer relations and operations departments will lead to more efficient processes. No major investments are expected to be made in Zeist, 28 May 2015 The Directors of Achmea Zorgverzekeringen N.V., N.F.J. Hoogers (Chairman) J.E.P. Tanis Achmea Zorgverzekeringen N.V. 27

28 Supervisory Board Report 1. GENERAL In 2014, the structure with one Supervisory Board for Achmea Zorgverzekeringen N.V. including its subsidiaries that are supervised, changed into a structure with supervisory boards for Achmea Zorgverzekeringen N.V. and for its subsidiaries Zilveren Kruis Achmea Zorgverzekeringen N.V, Interpolis Zorgverzekeringen N.V, Avéro Achmea Zorgverzekeringen N.V, Agis Zorgverzekeringen N.V, Agis Ziektekostenverzekeringen N.V. and OZF Achmea Zorgverzekeringen N.V. Every board has its own regulations. The composition of these boards is the same. The boards have the same structure, meet integrally and during every meeting the applicable board pays special attention to the specific legal entity. As indicated in our report of 2013, the structure of the Board of Directors has changed in December Similar changes have been implemented throughout Achmea. It is the opinion of the Supervisory Board that the amendment of the regulations will be the next step. This will be organised mutatis mutandis uniformly within Achmea and will take place in early COMPOSITION OF THE SUPERVISORY BOARD During the first months of 2014, the Supervisory Board functioned with two members. As of 16 June 2014 Mrs. A.C.W. Sneller became a third member of the Supervisory Board. Mr. P.F.M. Overmars stepped down as member of the Supervisory Board at 26 March COMPOSITION OF THE BOARD OF DIRECTORS In 2014, the Board of Directors consisted of Mr. N.F.J. Hoogers and Mr. J.E.P. Tanis. 4. MEETINGS AND OTHER SESSIONS The main topics of discussion of the five Supervisory Board meetings in 2014 were, besides information and discussion on relevant issues such as pricing and care contracting, mainly financial reports, review reports on risk management, the level of the provisions, strategic planning and risk & compliance issues. The issues concerning risk & compliance in particular were discussed in a straightforward way and at length. Also possible reputational risks and dilemmas concerning accessibility, quality and affordability of care were frequently discussed. Furthermore, other important decisions on the commercial and financial policies were discussed as well as the outcome of the credibility survey, the company image and public relations developments. In addition, the merger plan of Agis Zorgverzekeringen N.V. and Zilveren Kruis Achmea Zorgverzekeringen N.V. were discussed and the change of articles of association of Agis Ziektekostenverzekeringen N.V. Also the Own Risk and Solvency Assessment (ORSA) was discussed in- depth, as well as the (actions following the) De Nederlandsche Bank (DNB) report regarding risk management and the report of the Dutch Healthcare Authority (NZa) on material control systems and fraud. Also the programmes Kwaliteit van Zorg (Quality of Care) and Klantbelang Centraal (Customer Focus) were discussed in detail, as well as the Business Information Plan, in which the IT projects of the Achmea insurance companies have been prioritised. Finally, the Supervisory Board was informed about developments in the market and the health care business. Special attention was frequently paid to the developments in the long-term care. The Supervisory Board meetings were attended by the two members of the Board of Directors of Achmea Zorgverzekeringen N.V, a board member of the Care and Health division and, on behalf of the shareholder, the referent of the Executive Board of Achmea Group. In addition, the Supervisory Board was introduced to the Risk & Compliance manager of the Care and Health division in the September meeting. The Risk & Compliance manager has autonomous contact with the chairman of the Supervisory Board and will regularly attend the Supervisory Board meetings to explain the Operational Risk & Compliance Report in person. The meetings have had a constructive tone. The Supervisory Board appreciates the transparent position that the directors have adopted and the clear manner in which also difficult issues have been discussed with the Supervisory Board. In addition, the Supervisory Board is very impressed with the directors and how they have timely informed the members on important developments and via the secretarial office on developments that (will) get media coverage. Achmea Zorgverzekeringen N.V. 28

29 Supervisory Board Report 5. CONTINUING EDUCATION The members of the Supervisory Board of Achmea Zorgverzekeringen N.V also have a seat on the Supervisory Board of Achmea Group. The chairman of the Supervisory Board of Achmea monitors the presence of a programme for continuing education that is developed for the members of the Supervisory Board, with the aim to maintain the expertise of the board and if necessary to broaden this expertise. Each member participates in this programme that has been developed for the Supervisory Board of Achmea Group and therefore meets the requirements of continuing education. In addition, the Supervisory Board has a programme of its own for continuing education. In 2014, three meetings for continuing education were scheduled prior to the meeting of the Supervisory Board. The topics of these meetings were Health care procurement cycle for the division Care and Health, Accountability to the Supervisors' and 'Business Strategy'. The Supervisory Board is of the opinion that these meetings, which were organised by directors and (senior) managers of the Care and Health division, have been very instructive. The meetings enhance knowledge on the relevant topics of the members and consequently improve the quality of the Supervisory Board s role. The members of the Supervisory Board of the Achmea Group were also invited to these meetings. Several members of the Achmea Group Supervisory Board attended the continuing education meetings of the Supervisory Board. 6. FINANCIAL STATEMENTS At its meeting on 28 May 2015, the Supervisory Board discussed the Board of Directors report and the 2014 Financial Statements. The Supervisory Board made a positive recommendation to the shareholders to adopt the 2014 Financial Statements. 7. ACKNOWLEDGEMENTS The Supervisory Board is of the opinion that it has been able to properly fulfil its role as supervisor and advisor of the Board of Directors under the Articles of Association and that it received sufficient assistance from the Board of Directors. The Supervisory Board is confident that this approach will be continued in The supervisory Board and Achmea Zorgverzekeringen N.V. would like to thank Mr. Overmars for his Achmea Zorgverzekeringen N.V. Supervisory Board activities in Zeist, 28 May 2015 The Supervisory Board of Achmea Zorgverzekeringen N.V., S.T. van Lonkhuijzen-Hoekstra A.C.W. Sneller Interim Chairman Achmea Zorgverzekeringen N.V. 29

30 Consolidated Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION (BEFORE APPROPRIATION OF RESULT) (X 1,000) NOTES Achmea Zorgverzekeringen N.V. 30

31 Consolidated Financial Statements CONSOLIDATED STATEMENT OF FINANCIAL POSITION (BEFORE APPROPRIATION OF RESULT) (X 1,000) NOTES Achmea Zorgverzekeringen N.V. 31

32 Consolidated Financial Statements CONSOLIDATED INCOME STATEMENT (X 1,000) TECHNICAL ACCOUNT NON-LIFE NOTES Achmea Zorgverzekeringen N.V. 32

33 Consolidated Financial Statements CONSOLIDATED INCOME STATEMENT (X 1,000) NON-TECHNICAL ACCOUNT NON-LIFE NOTES Achmea Zorgverzekeringen N.V. 33

34 Consolidated Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (X 1,000) NOTES All items that may be classified subsequently to the Income statement are accounted for as part of Revaluation reserve. Achmea Zorgverzekeringen N.V. 34

35 Consolidated Financial Statements CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY (X 1,000) Reference is made to Note 10. CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY (X 1,000) Achmea Zorgverzekeringen N.V. 35

36 Consolidated Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS (X 1,000) Achmea Zorgverzekeringen N.V. 36

37 Notes to the Consolidated Financial Statements GENERAL INFORMATION Activities Achmea Zorgverzekeringen N.V. is incorporated in the Netherlands and seated in Zeist. The head office is located at Dellaertweg 1 in Leiden. The activities of Achmea Zorgverzekeringen N.V consist primarily of the exercise of the health insurance business. The company has no profit objective and is exempted for the corporation tax. Group relationships Achmea Zorgverzekeringen N.V is part of the Achmea Group. Achmea B.V. owns 100% of the shares of Achmea Zorgverzekeringen N.V. and is the ultimate parent company of the Achmea Group and the ultimate controlling party. Relationships with companies of the Achmea Group are included in the investments, the receivables and liabilities. Please refer to the Related Party Transactions section. 1. ACCOUNTING POLICIES A AUTHORISATION FINANCIAL STATEMENTS The Achmea Zorgverzekeringen N.V. Consolidated Financial Statements for the year ended 31 December 2014 were authorised for issue in accordance with a resolution of the Board of Directors on 28 May At the same date, the Supervisory Board gave its advice to the General Meeting of Shareholders on adoption of the Financial Statements. The Board of Directors may decide to amend the Financial Statements as long as these have not been adopted by the General Meeting of Shareholders. The General Meeting of Shareholders may decide not to adopt the Financial Statements, but may not amend these. B BASIS OF PRESENTATION The Achmea Zorgverzekeringen N.V. Consolidated Financial Statements, including the 2013 comparative figures, have been prepared in accordance with the International Financial Reporting Standards - including International Accounting Standards (IAS) and Interpretations - as at 31 December 2014 and as adopted by the European Union (hereafter EU and EU-IFRS). Furthermore, the Achmea Zorgverzekeringen N.V. Consolidated Financial Statements comply with the requirements of Article 362 (9) Book 2, part 9 of the Dutch Civil Code. The exemption pursuant to Article 402 Book 2, part 9 of the Dutch Civil Code, applies to the Company Income Statement of Achmea Zorgverzekeringen N.V. All amounts in the Consolidated Financial Statements are in thousands of euros unless stated otherwise. C INITIAL APPLICATION OF ACCOUNTING POLICIES The following Standards and amendments have been adopted by Achmea Zorgverzekeringen N.V. as of 1 January IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS This standard defines the principles of control and establishes control as the sole basis for determining which entities are to be consolidated in the financial statements. The standard also sets out requirements on how to apply the control principles. IFRS 10 replaces all the guidance on control and consolidation in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation Special Purpose Entities. The standard has no impact on Profit for the year and Total equity. IFRS 11 JOINT ARRANGEMENTS This standard replaces IAS 31 Interest in Joint Ventures and SIC-13 Jointly Controlled Entities-Non-Monetary Contributions by Venturers. IFRS 11 removes the option to account for joint arrangements using proportionate consolidation. Instead, joint arrangements that meet the definition of a joint venture under IFRS 11 must be accounted for, using the equity method. The standard has no impact on Profit for the year and Total equity. Achmea Zorgverzekeringen N.V. 37

38 Notes to the Consolidated Financial Statements IFRS 12 DISCLOSURE OF INTERESTS IN OTHER ENTITIES IFRS 12 provides disclosure requirements on interests in subsidiaries, associates, joint ventures, and structured entities. This standard affects disclosure only and has therefore no impact on Profit for the year and Total equity. This new standard has limited impact on the disclosures related to Achmea Zorgverzekeringen N.V. s interest in unconsolidated entities. Achmea Zorgverzekeringen N.V. has included the required disclosures in Note 4. In accordance with the transitional provisions of IFRS 12, comparatives for disclosures regarding unconsolidated structured entities are not presented. OTHER STANDARDS/AMENDMENTS AND INTERPRETATIONS In addition, Achmea Zorgverzekeringen N.V. has adopted the following standards/amendments in 2014 which had no impact on Profit for the year and/or Total equity: IAS 32 OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES (AMENDMENT) The amendments address inconsistencies in current practice when applying the offsetting criteria in IAS 32 Financial Instruments: Presentation. The amendments clarify the meaning of currently has a legally enforceable right to offset and that some gross settlement systems may be considered equivalent to net settlement. IAS 39 FINANCIAL INSTRUMENTS: RECOGNITION AND MEASUREMENT (AMENDMENT) The narrow-scope amendments allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated to effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met. ANNUAL IMPROVEMENTS TO IFRSS CYCLE Annual Improvements to IFRSs Cycle is a collection of amendments to IFRSs in response to eight issues addressed during the cycle for annual improvements to IFRSs. ANNUAL IMPROVEMENTS TO IFRSS CYCLE Annual Improvements to IFRSs Cycle is a collection of amendments to IFRSs in response to four issues addressed during the cycle. IFRIC 21 LEVIES IFRIC 21 is an interpretation of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The Interpretation clarifies that the obligating event that gives rise to a liability to pay a levy is the activity described in the relevant legislation that triggers the payment of the levy. IAS 19 EMPLOYEE BENEFITS (AMENDMENT) The IASB issued narrow scope amendments that apply to contributions from employees or third parties to defined benefit plans. The objective of the amendment is to simplify the accounting for contributions that are independent of the number of years of employee service, for example employee contributions that are calculated according to a fixed percentage of salary. IAS 27 REISSUED AS IAS 27 SEPARATE FINANCIAL STATEMENTS The revised IAS 27 contains accounting and disclosure requirements only for investments in subsidiaries, joint ventures and associates in company Financial Statements. IAS 28 REISSUED AS IAS 28 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES The revised IAS 28 prescribes the accounting for investments in associates and sets out requirements for the application of the equity method when accounting for investments in associates and joint ventures. D CHANGES IN STANDARDS AND AMENDMENTS WITH FUTURE APPLICATION DATE The following Standards and Interpretations were issued in 2014 or prior years and are not applied by Achmea Zorgverzekeringen N.V. in preparing its Consolidated Financial Statements These are: Accounting standard Description Expected impact on Total equity / Profit for the year IFRS 9 FINANCIAL INSTRUMENTS IFRS 9 introduces an approach for the classification of financial assets, which is driven by cash flow characteristics and the business model in which an asset is held. For most financial liabilities the existing amortised cost measurement will be Achmea Zorgverzekeringen N.V. is assessing the impact of this standard, taken into Achmea Zorgverzekeringen N.V. 38

39 Notes to the Consolidated Financial Statements maintained in IFRS 9. IFRS 9 states that an entity choosing to measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity's own credit risk in other comprehensive income. The new model also results in a single impairment model being applied to all financial instruments. As part of IFRS 9, the IASB has introduced an expected-loss impairment model that will require entities to account for expected credit losses from when financial instruments are first recognised and to recognise full lifetime expected losses in case of a significant credit deterioration. account the interaction with the future standard for the accounting of insurance contracts. IFRS 9 introduces a model for hedge accounting that aligns the accounting treatment with risk management activities. The standard is effective for reporting periods beginning on or after 1 January 2018, with early application permitted. As at 31 December 2014, this standard have not been endorsed by the EU. IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS AND IAS 28 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES (AMENDMENTS) The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). Furthermore, narrow-scope amendments were issued, introducing clarifications to the requirements when accounting for investment entities. The amendments are effective for reporting periods on or after 1 January As at 31 December 2014, these amendments have not been endorsed by the EU. These amendments will have no impact on Profit for the year and Total equity. IFRS 11 JOINT ARRANGEMENTS (AMENDMENT) IFRS 14 REGULATORY DEFERRAL ACCOUNTS IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS IAS 1 PRESENTATION OF FINANCIAL The amendments add new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. These amendments are effective for reporting periods beginning on or after 1 January As at 31 December 2014, these amendments have not been endorsed by the EU. The aim of this interim Standard is to enhance the comparability of financial reporting by entities that are engaged in rate-regulated activities. This standard is effective for reporting periods beginning on or after 1 January 2016, with early application permitted. As at 31 December 2014, these amendments have not been endorsed by the EU. The Standard replaces IAS 18 Revenue, IAS 11 Construction Contracts and related Interpretations. The core principle of the new Standard is for companies to recognise revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new Standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multipleelement arrangements. IFRS 15 Revenue from Contracts with Customers is effective for reporting periods beginning on or after 1 January 2017, with early application permitted. As at 31 December 2014, these amendments have not been endorsed by the EU. These amendments are designed by the IASB to further encourage companies to apply professional judgement in determining what information to disclose in their financial statements. For example, the amendments make clear that materiality The amendments will have no impact on Profit for the year and Total equity. This Standard is not applicable to Achmea Zorgverzekeringen N.V. and therefore this Standard will have no impact on Profit for the year and Total equity. As Achmea Zorgverzekeringen N.V. is primarily an insurance company, the Standard is expected to have no material impact on Profit for the year and Total equity. As these amendments are related to disclosures, they will have no impact on Profit Achmea Zorgverzekeringen N.V. 39

40 Notes to the Consolidated Financial Statements STATEMENTS IAS 16 PROPERTY, PLANT AND EQUIPMENT (AMENDMENT) IAS 38 INTANGIBLE ASSETS (AMENDMENT) IAS 41 AGRICULTURE (AMENDMENT) IAS 27 SEPARATE FINANCIAL STATEMENTS ANNUAL IMPROVEMENTS TO IFRSS CYCLE applies to the whole of financial statements and that the inclusion of immaterial information can inhibit the usefulness of financial disclosures. Furthermore, the amendments clarify that companies should use professional judgement in determining where and in what order information is presented in the financial disclosures. The amendments are effective for reporting periods on or after 1 January 2016, with early application permitted. As at 31 December 2014, these amendments have not been endorsed by the EU. In these amendments, the IASB clarified that the use of revenue-based methods to calculate the depreciation of an asset is in general not appropriate. Furthermore, the IASB issued amendments that change the financial reporting for bearer plants. The IASB decided that bearer plants should be accounted for in the same way as property, plant and equipment in IAS 16, because their operation is similar to that of manufacturing. Both amendments are effective for reporting periods beginning on or after 1 January 2016, with early application permitted. As at 31 December 2014, these amendments have not been endorsed by the EU. These amendments clarify that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. These amendments are effective for reporting periods beginning on or after 1 January 2016, with early application permitted. As at 31 December 2014, these amendments have not been endorsed by the EU. The IASB decided that bearer plants should be accounted for in the same way as property, plant and equipment in IAS 16, because their operation is similar to that of manufacturing. These amendments are effective for reporting periods beginning on or after 1 January 2016, with early application permitted. As at 31 December 2014, these amendments have not been endorsed by the EU. The amendments to IAS 27 will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The amendments to IAS 27 are effective for reporting periods beginning on or after 1 January 2016, with early application permitted. As at 31 December 2014, these amendments have not been endorsed by the EU. Annual Improvements to IFRSs Cycle is a collection of amendments to IFRSs in response to four issues addressed during the cycle. These amendments are effective for reporting periods beginning on or after 1 January 2016, with early application permitted. As at 30 June 2014, these amendments have not been endorsed by the EU. for the year and Total equity. Both amendments will have no impact on Profit for the year and Total equity. These amendments will have no impact on Profit for the year and Total equity. These amendments will have no impact on Profit for the year and Total equity. The amendments will have no impact on Achmea Zorgverzekeringen N.V. s Company Financial Statements as Achmea Zorgverzekeringen N.V. uses the option provided in section 362 (8) Book 2, part 9 of the Dutch Civil Code. These amendments will have no impact on Profit for the year and Total equity. E AMENDMENTS RELATED TO ACCOUNTING POLICIES, PRIOR PERIOD CORRECTIONS AND CHANGES IN PRESENTATION Amounts ceded to reinsurers To provide the user with more insights with the actual features of the Amounts ceded to reinsurers the presentation in the Financial Statements is improved. As of 2014, Amounts ceded to reinsurers amounting to 30.1 million (2013: 45.7 million) is presented as a single line-item in the Balance Sheet. Until 2013, the Amounts ceded to reinsurers was presented as part of Receivables. Had Amounts ceded to reinsurers been presented as a single line-item in 2013, Total Receivables would have decreased by the same amounts. Comparative figures have been adjusted accordingly. This correction has no impact on Profit for the year or Total equity. Achmea Zorgverzekeringen N.V. 40

41 Notes to the Consolidated Financial Statements Investments Based on an assessment in 2014 it was decided that it would be more appropriate to classify contracts currently reported as deposits with credit institutions as bonds. This change in presentation results in an increase of bonds as at 31 December 2014 of 573 million (31 December 2013: 790 million) and a decrease of Deposits with credit institutions with the same amount. For comparison reasons, the figures reported as per 31 December 2013 have been adjusted accordingly. Holding costs Achmea introduced a new method in 2014 for allocating costs relating to support staff departments to Achmea Zorgverzekeringen N.V. A closer assessment on the nature of the holding costs led to a shift in allocation to the Technical account Operating Expenses. The change in presentation provides an improved insight in the actual expenses of the insurance business. As a result the Operating expenses amount to 510 million (2013: 519 million) whereas the Other expenses are 159 million (2013: 51 million). Comparative figures have been adjusted accordingly. This correction has no impact on Profit for the year or Total equity. F CHANGES IN ACCOUNTING ESTIMATES In preparing these Consolidated Financial Statements, the significant judgements made by management in applying Achmea Zorgverzekeringen N.V.'s accounting policies and the key sources of estimation uncertainties were the same as those that were applied to the Consolidated Financial Statements 2013, except for the accounting of medical expenses incurred by insured persons abroad (foreign claims). These foreign claims are settled partly through Dutch Health Insurance Fund (Zorg Instituut Nederland). Dutch Health Insurance Fund pays foreign health care providers through its network of foreign liaison bodies and then allocates these costs to Dutch health insurers. The total duration of this process often requires several years and the information received about the accident year was very limited. As a result, Achmea Zorgverzekeringen N.V. estimated the foreign claims to be expected but not yet allocated to Achmea Zorgverzekeringen N.V. by Dutch Health Insurance Fund based on the declarations of the last year. Recently, there has been an expansion in the available data, including data about accident year, received from Dutch Health Insurance Fund. In addition, data processing related to these claims is now fully electronically. As a result, Achmea Zorgverzekeringen N.V. was able to more reliably estimate foreign claims not yet reported to Achmea Zorgverzekeringen N.V. This change in estimation technique resulted in additional Insurance liabilities related to these claims amounting to 64.9 million and Total equity through Profit for the year decreased by the same amount. G CONSOLIDATION FRAMEWORK Basis for consolidation All of Achmea Zorgverzekeringen N.V. s subsidiaries are included in the Consolidated Financial Statements, based on Achmea Zorgverzekeringen N.V. s accounting framework. The following principles apply to Achmea Zorgverzekeringen N.V.'s Consolidated Financial Statements: Subsidiaries Subsidiaries (including consolidated structured entities) are entities over which Achmea Zorgverzekeringen N.V. has control. Achmea Zorgverzekeringen N.V. controls an entity when Achmea Zorgverzekeringen N.V. is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The assessment of control is based on the substance of the relationship between Achmea Zorgverzekeringen N.V. and the entity and, among other things, considers existing and potential voting rights that are substantive. For a right to be substantive, Achmea Zorgverzekeringen N.V. must have the practical ability to exercise that right. Third-party interests in these entities are presented as Non-controlling interest within Total equity. Investment funds managed by Achmea Zorgverzekeringen N.V. in which Achmea Zorgverzekeringen N.V. holds an interest are consolidated in the Consolidated Financial Statements if Achmea Zorgverzekeringen N.V. has control over that investment fund and it is exposed, or has rights, to variable returns from its involvement with the investment fund and has the ability to affect those returns through its control over the investment fund. The assessment of control is based on the substance of the relationship between Achmea Zorgverzekeringen N.V. and the investment fund and, amongst others, considers existing and potential voting rights that are currently exercisable and convertible. In assessing control, all interests held by Achmea Zorgverzekeringen N.V. in the investment fund are considered, regardless if the financial risk related to the investment is borne by Achmea Zorgverzekeringen N.V. On consolidation of an investment fund, a liability is recognised to the extent that Achmea Zorgverzekeringen N.V. is legally obliged to buy back participations held by third parties. The liability is presented in the Consolidated Financial Statements as Other liabilities. Where this is not the case, other participations held by third parties are presented as Achmea Zorgverzekeringen N.V. 41

42 Notes to the Consolidated Financial Statements Non-controlling interests. The assets allocated to participations held by third parties are presented as Investments in the Consolidated Financial Statements. Joint ventures Entities over which Achmea Zorgverzekeringen N.V. and other Entities share joint control by means of contractual arrangements are considered to be joint ventures. Achmea Zorgverzekeringen N.V. accounts for joint ventures using the equity method. Associates Entities over which Achmea Zorgverzekeringen N.V. exercises significant influence are accounted for using the equity method. Generally, significant influence is presumed to exist when the participation in ordinary share capital or voting rights (including potential voting rights) is between 20 and 50%. Intra-group adjustments Intra-group transactions have been eliminated in the Consolidated Financial Statements. Profits and losses resulting from transactions with associates or joint ventures are eliminated to the extent of Achmea Zorgverzekeringen N.V. s interest in the associate or joint venture. Business combinations of entities under common control For the accounting of business combinations of entities or businesses under common control Achmea Zorgverzekeringen N.V. uses the pooling of interest method in case of a (legal) merger and carry over accounting (transfer based on the carrying amount) in case of an acquisition. Such transactions do not have an impact on Profit for the year and Total equity of Achmea Zorgverzekeringen N.V. H ACCOUNTING FRAMEWORK Consolidated statement of cash flows The Consolidated Statement of Cash Flows has been set up according to the indirect method with a breakdown into cash flows from operating, investing and financing activities. Cash and cash equivalents comprise cash, bank balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of Achmea Zorgverzekeringen N.V. s cash management processes are recognised as a component of Cash and cash equivalents. In Total cash flow from operating activities, Profit for the year is adjusted for those items in the income statements, and changes in operating assets and liabilities, which do not result in actual cash flows during the year. Due to the nature of Achmea Zorgverzekeringen N.V. s activities cash flows related to Investments and the Insurance liabilities are presented as part of Total cash flows from operating activities. Foreign currency differences The Consolidated Financial Statements are presented in Euros, which is Achmea Zorgverzekeringen N.V.'s functional and presentation currency. Items included in the Company Financial Statements of Achmea Zorgverzekeringen N.V.'s subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the functional currency). Transactions in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at reporting date exchange rates of monetary assets and liabilities denominated in currencies other than the functional currency are recognised in Profit for the year, except when deferred in Total equity as part of qualifying cash flow hedges or qualifying net investment hedges. Recognition financial instruments When Achmea Zorgverzekeringen N.V. becomes a party to the contractual provision of a financial instrument (i.e. at trade date), Achmea Zorgverzekeringen N.V. recognises the instrument at fair value including transaction cost (unless it is classified as 'at fair value through profit or loss'). Derecognition financial instruments A financial asset (or part of a financial asset) is derecognised when the contractual rights to receive cash flows from the financial asset have expired or when Achmea Zorgverzekeringen N.V. has transferred substantially all risks and rewards of ownership. If Achmea Zorgverzekeringen N.V. neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, it is derecognised if Achmea Zorgverzekeringen N.V. no longer has control over the asset. In transfers where control over the asset is retained, Achmea Zorgverzekeringen N.V. 42

43 Notes to the Consolidated Financial Statements Achmea Zorgverzekeringen N.V. continues to recognise the asset to the extent of its continuing involvement. The extent of continuing involvement is determined by the extent to which Achmea Zorgverzekeringen N.V. is exposed to changes in the value of the asset. A financial liability (or a part of a financial liability) is derecognised when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expired). Upon derecognition, the difference between the disposal proceeds and the carrying amount is recognised in the Income Statement as a realised gain or loss. Any cumulative unrealised gains or losses previously recognised in Total equity are transferred from Total equity to the Income Statement. Achmea Zorgverzekeringen N.V. uses the average cost method when derecognising financial assets and liabilities. Offsetting of financial assets and liabilities Financial assets and liabilities are offset and reported at the net amount when Achmea Zorgverzekeringen N.V.: - Has a legally enforceable right to offset the recognised amounts; and - Intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Hedge accounting Achmea Zorgverzekeringen N.V. applies fair value hedge accounting for certain investment portfolios. When Achmea Zorgverzekeringen N.V. applies fair value hedge accounting, a fair value adjustment is recognised in the Income Statement to reflect the changes in the fair value of the hedged items attributable to the hedged risk. Achmea Zorgverzekeringen N.V. assesses the effectiveness of the hedge relationship at each reporting date. The hedge relationship is discontinued when the effectiveness is not within the 80%-125% range or when the hedge is terminated or revoked. Achmea Zorgverzekeringen N.V. starts amortising the related fair value adjustment over the remaining duration of the hedged item when the hedge relationship is discontinued. Impairment In general, an impairment of an asset exists when its carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. At each reporting date, Achmea Zorgverzekeringen N.V. assesses whether there is an indication that an asset could be impaired and whether it is necessary to recognise an impairment loss. Impairments on Investments are recognised as Impairments on Investments in the Income Statement. All other impairments are recognised as Other (technical) expenses own account in the Income Statement. Impairment losses recognised in prior years are reversed if the reversal can be objectively attributed to the disappearance or removal of the impairment event since the impairment loss was recognised. If this is the case, the carrying amount of the asset is increased to its recoverable amount. An increase in the carrying amount due to the reversal of the impairment loss will not exceed the carrying amount if no impairment loss would have been recognised in prior periods. The increase due to a reversal of an impairment loss is recognised in the Income Statement (Impairments on Investments and in Other (technical) expenses own account for other reversals). Impairment losses on equity instruments classified as 'Available for sale' are not reversed through the Income Statement. Subsequent fair value changes are recognised in the Revaluation reserve, part of Total equity. For more details relating to the specific accounting policies for impairment, reference is made to the accounting policies for the specific items as included in I Assets and Liabilities. Held for sale classification Assets or components of assets and related liabilities are classified as 'Held for sale' when it is highly probable that the carrying amount will be recovered principally through a sale transaction rather than through continuing use. A sale of an asset or a group of assets is highly probable if: - Achmea Zorgverzekeringen N.V. is committed to a plan to sell these assets and has an active programme to locate a buyer; - The assets are actively marketed for sale at a price that is reasonable in relation to its current fair value; and - The sale is expected to qualify for recognition as a completed sale within one year from the date of classification as 'Held for sale'. Assets and liabilities classified as 'Held for sale' are measured at the lower of their carrying amount or fair value less costs to sell and are presented separately in the Consolidated Statement of Financial Position. If a loss occurs when classifying assets and liabilities as 'Held for sale', this loss is recognised in Other expenses in the Consolidated Income Statement. Income from service contracts When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with the transaction is recognised by reference to the stage of completion of the transaction at the end of the reporting period. The outcome of a transaction can be estimated reliably when the amount of revenue can be measured reliably, it is probable that the economic benefits associated with the Achmea Zorgverzekeringen N.V. 43

44 Notes to the Consolidated Financial Statements transaction will flow to Achmea, the stage of completion of the transaction at the end of the reporting period can be measured reliably and the costs incurred for the transaction and the cost to complete the transaction can be measured reliably. When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue is recognised only to the extent of expenses recognised that are recoverable ( zero profit method ). Revenue is measured at the fair value of the consideration received or receivable. Revenue is accounted for based on the stage of completion method, which depends on the nature of the contract: in case a contract mainly constitutes the rendering of services, revenue is based on proportion of services performed to date as percentage of total services to be performed. In case service is provided by an indeterminate number of acts over a specified period, revenue is accounted for on a straight line basis. I ASSETS AND LIABILITIES All assets and liabilities are measured at fair value unless a different measurement is stated in the accounting policies. Investments Investments classified as 'Available for sale' Investments backing Insurance liabilities are classified as Available for sale except for investments backing insurance liabilities measured at fair value. Furthermore, all investments not backing insurance are classified as 'Available for sale'. Investments classified as 'Available for sale' are measured at fair value. Exchange differences resulting from changes in the amortised cost of fixed-income investments are recognised in the Income Statement. Other changes in fair value are included in the Revaluation reserve within Total equity. Upon derecognition of the investment any cumulative unrealised gains or losses, previously recognised in Total equity, are transferred from Total equity to the Income Statement as Realised gains and losses. Interest income on fixed-income investments is determined by using the effective interest rate method. At each reporting date, Achmea Zorgverzekeringen N.V. assesses whether there is objective evidence that an asset is impaired. If any such evidence exists the decline in the fair value below the (amortised) cost that has been recognised in Total equity is transferred to the Income Statement. In the case of investments in equities classified as 'Available for sale', objective evidence that the cost may not be recovered, can be demonstrated through a significant (20% or more) or prolonged (12 consecutive months or longer) decline in the fair value below its cost. Fixed-income investments are impaired if there is objective evidence that, as a result of one or more loss events (e.g. financial difficulty at the issuer or breach of contract), estimated future cash flows are impacted negatively. Investments classified as 'At fair value through profit or loss' The classification 'At fair value through profit or loss' is used for investments that are either designated at initial recognition to be measured at fair value with changes in fair value recognised in the Income Statement, or as 'Held for trading'. Achmea Zorgverzekeringen N.V. designates an investment as 'At fair value through profit or loss' whenever: - this designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (also referred to as an 'accounting mismatch'); - financial assets, financial liabilities or both are managed as a group, and their performance is evaluated by management on a fair value basis in accordance with a documented risk management or investment strategy; or - financial instruments contain one or more embedded derivatives, except if the embedded derivative does not modify significantly the associated cash flows. Achmea Zorgverzekeringen N.V. usually does not invest in financial instruments principally for the purpose of selling or repurchasing them in the near term (i.e. for trading purposes). Equity and similar investments Equity investments and similar investments are classified as either 'Available for sale' or 'At fair value through profit or loss'. When optional dividends are taken up as shares, an amount equal to the cash dividend is recognised in the Income Statement. Part of the portfolio of Equity and similar investments consists of Private equity. Private equity is classified in accordance with the framework as described above either 'At fair value through profit or loss' or 'Available for sale' depending on the measurement basis of the related Insurance liabilities. The fair value of Private equity that is not listed on a stock exchange is based on models as recommended in the International Private Equity and Venture Capital Valuation Guidelines. Achmea Zorgverzekeringen N.V. 44

45 Notes to the Consolidated Financial Statements Fixed-income investments (including Bonds issued by and receivables from group companies, Bonds and other fixed-income investments, Receivables from other loans and Deposits with credit institutions) Fixed-income investments are classified as 'Available for sale' or At fair value through profit and loss. The investments are measured at fair value. Unrealised fair value changes are transferred to the Revaluation Reserve, part of Total Equity. Derivatives All derivatives are defined as 'Held for trading'. Achmea Zorgverzekeringen N.V. uses derivatives to manage its exposure to market risks arising from operating, investing and/or financing activities. Derivatives embedded in other financial instruments are separated and measured separately if they are not closely related to the host instrument. A convertible bond is separated into a bond part classified as 'Available for sale' and an equity conversion option classified as a derivative. The bond part is measured according to the valuation of a similar bond with the same characteristics. Depending on their value, derivatives are either presented as Investments (assets) or as Derivatives (liabilities). Amounts ceded to reinsurers This item contains the receivables on the Dutch Health Insurance Fund under the legislation of the High Cost Compensation (HKC). This item is stated at nominal value. Receivables Receivables are measured at amortised cost, which usually equals the face value, adjusted for accumulated impairment losses to reflect identified incurred losses. Contribution from Dutch Health Insurance Fund The receivables from Dutch Health Insurance Fund are receivables which are to be settled with the General Fund Exceptional Medical Expenses (AFBZ) and the Dutch Health Insurance Fund. The receivables on the Dutch Health Insurance Fund are determined based on the relevant financial year risk equalisation model, rates of settlement and costing and management estimates. Cash and cash equivalents Cash and cash equivalents comprise cash, bank balances and call deposits and are measured at fair value. Prepayments and accrued income Prepayments and accrued income are measured at amortised cost. Total equity The share of non-controlling third-party interest in participations where Achmea Zorgverzekeringen N.V. exercises dominant control is presented separately under Total equity. Third-party interest is equal to third-party interest in the participation s total equity, measured in line with the policies of Achmea Zorgverzekeringen N.V. Insurance liabilities Insurance contracts are defined as contracts that transfer significant insurance risk. Insurance risk exists if a scenario exists under which, based on an insured event, additional payments have to be made. Insurance risk is considered significant if the payment on occurrence of an insured event differs at least 10% from the payment if the event does not occur. General measurement principles Earned premiums for Health insurance contracts are generally recognised in proportion to the period of insurance coverage provided. The assumptions used in the calculation of the provisions are based on objective externally published data or, when not available, internal data. Achmea Zorgverzekeringen N.V. tests the adequacy of the recognised Insurance liabilities and related assets at each reporting date and more often if deemed necessary. The test considers current estimates of all contractual cash flows of the Insurance liabilities, including expected cost for claim handling. If the test shows that the Insurance liabilities are inadequate, Achmea Zorgverzekeringen N.V. will recognise a loss by increasing the related Insurance liabilities. Insurance liability for unearned premiums and unexpired risks The Insurance liability for unearned premiums and unexpired risks include a sum for premium deficiency which is calculated for each insurance portfolio or label on the basis of estimates of future claims, costs, premium earned and proportionate investment income. Achmea Zorgverzekeringen N.V. 45

46 Notes to the Consolidated Financial Statements Insurance liability for outstanding claims including incurred but not reported claims The Insurance liability for outstanding claims relates to insurance claims that have not been settled at reporting date. These claims are determined either case-by-case or statistically. The Insurance liability also includes amounts for incurred but not reported claims at reporting date. In determining the provisions, costs for claim handling are taken into account. The Insurance liability for outstanding claims is based on estimates of expected losses and unexpired risks for all lines of business. This takes into consideration management's judgement on the anticipated level of inflation, regulatory risks and trends in claims and claim handling. Estimates of expected losses are developed using historical claims experience, other known trends and developments, and local regulatory requirements. Post-employment benefits The net obligation in respect of defined benefit pension plans is calculated separately for each plan using the 'projected unit credit method'. In accordance with this method, the future benefits that employees have earned in return for their service in the current period and prior periods are estimated. The rates used for salary developments, discounting and other adjustments reflect the specific conditions in The Netherlands. The liability is discounted to determine the present value. Subsequently the fair value of plan assets is deducted in order to calculate the Net defined benefit liability (asset). Current service cost and net interest on the Net defined benefit liability (asset) based on assumptions at the beginning of the reporting period are included in the Consolidated Income Statement. Remeasurements of the net defined benefit liability are included in the Consolidated statement of comprehensive income. In calculating the Net defined benefit liability future employee contributions are included. Past service cost are recognised as an expense at the earlier of: - plan amendment or occurrence of the curtailment; and - when it recognises related service cost or termination benefits. A gain or loss on settlement of a defined benefit plan is recognised when the settlement occurs. The present value of defined benefit assets at reporting date is recognised to the amount of the economic benefit that will be available to Achmea Zorgverzekeringen N.V. in the form of refund from the plan or reductions in future contributions. Other provisions Other provisions are recognised when a legal or constructive obligation, which can be reliably estimated, exists as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the provision is to be used over a period longer than one year, expected cash flows are discounted. Liabilities Liabilities are reported at amortised cost, unless stated otherwise. Accruals and deferred income Accrued liabilities are expected to be settled within a period of 12 months after the financial year, and are included at amortised cost unless stated otherwise. J KEY ACCOUNTING ESTIMATES For the measurement of certain items of the Consolidated Statement of Financial Position, Achmea Zorgverzekeringen N.V. uses assumptions and estimates concerning future results or other developments, including the likelihood, timing or amounts of future transactions or events. Inherent to estimates is that the actual results may differ materially. Specific estimates regarding the healthcare industry are presented in the Risk Management Paragraph. The accounting estimates that are most critical to Achmea Zorgverzekeringen N.V.'s business operations and to the understanding of its results and which involve complex or subjective decisions or assessments are presented below. Control assessment In making the assessment whether Achmea Zorgverzekeringen N.V. controls an investee, Achmea Zorgverzekeringen N.V. analyses whether it has power over the investee (existing rights that give it the current ability to direct the relevant activities). The outcome of this analysis depends on the purpose and design of the investee, what are the relevant activities (that drive the investee s returns) and how decisions about them are taken and whether rights of the investor give current ability to direct the relevant activities. In preforming this assessment, Achmea Zorgverzekeringen N.V. has defined the most relevant activity as the ability to determine the strategic policies of an investee. The outcome of the analysis also depends on whether Achmea Zorgverzekeringen N.V. is exposed to or has rights to variable returns from its involvement with the investee and whether Achmea Zorgverzekeringen N.V. has the ability to use its powers over the investee to affect the amount of its returns. If an investee performs activities for the benefit of the public and not only for the benefit of Achmea Achmea Zorgverzekeringen N.V. 46

47 Notes to the Consolidated Financial Statements Zorgverzekeringen N.V. and/or its customers, no ability for Achmea Zorgverzekeringen N.V. to use its power over the investee to affect Achmea Zorgverzekeringen N.V. s return is presumed to exist. Different assumptions may result in a different outcome of the control assessment. Impairment testing of financial assets There are a number of significant risks and uncertainties inherent in the process of monitoring financial assets and determining if an impairment loss exists. For example, Achmea Zorgverzekeringen N.V.'s assessment of an issuer's ability to meet all of its contractual obligations when the creditworthiness of that issuer or the economic outlook of the issuer changes. Achmea Zorgverzekeringen N.V. applies judgement to establish whether a loss event has occurred resulting in an impairment loss for a fixed-income investment. Specifically, Achmea Zorgverzekeringen N.V. assesses an issuer's ability to meet both principal and interest payments when the financial condition of the issuer changes. Objective evidence of impairment of an equity investment classified as 'Available for sale' includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity investment may not be recovered. A significant or prolonged decline in the fair value of an equity investment below its cost is also objective evidence for impairment. Equity investments held in an unrealised loss position that are below cost for over twelve consecutive months or significantly below cost (20%) at reporting date are impaired. When determining the impairment loss, qualitative factors are also used to determine if impairment is required before these thresholds are met. Fair value of financial assets determined using valuation techniques In the absence of an (active) market, the fair value of non-quoted financial assets and liabilities is estimated by using present value or other valuation techniques. Reference is made to Note 2 Fair value hierarchy for a detailed description of the methods used. Valuation techniques are subjective in nature and significant judgement is involved in establishing fair values for certain financial assets and liabilities. Valuation techniques involve various assumptions on the pricing factors. The use of different valuation techniques and assumptions could have an effect on the fair value. Contribution from Dutch Health Insurance fund Settlement of medical care costs between Dutch health insurers and hospitals, mental health institutions ( GGZ-Instellingen ) and rehabilitation centres is based on so-called DBC op weg naar Transparantie (DOT) that covers the whole duration of a medical treatment. DOTs are based on a pre-arranged budget. Before 2012 this settlement was based on so-called Diagnose Behandel Combinaties (DBC) with an upfront funding which is included in Contribution from Dutch Health Insurance Fund. The private health insurance system in force in the Netherlands consists of two parts: basic health insurance and supplementary health insurance. Coverage within basic health insurance is heavily determined by law and influenced by political processes. The basic health system (inherently) comprises uncertainties due to the calculation methods applied. A system of risk mitigating features is in force in the Netherlands to reduce the uncertainties raised by the system. The measurement of receivables regarding the Dutch Health Insurance Fund is an inherently uncertain process, involving assumptions for national healthcare costs and allocation of healthcare costs to budget parameters. For more details regarding the uncertainties and the risk mitigating factors in health insurance, a reference is made to the Risk management section. Any change in the assumptions could have an impact on the settlement with the Dutch government (Dutch Health Insurance Fund). Insurance liabilities The measurement of Insurance liabilities is an inherently uncertain process, involving assumptions for changes in legislation, social, economic and demographic trends, inflation, investment returns, policyholder behaviour, and other factors. The data used to calibrate the Insurance liability outstanding claims related to Dutch health-insurance contracts is based on historical information. The results on the equalisation fund (including standard nominal premium) and claims level are preliminary and will probably change and shift between insurers for some years. Achmea Zorgverzekeringen N.V. reassesses provisions for the underwriting year on an annual basis based on the latest information on claims level, macro-neutrality and settlements with the Dutch government (equalisation fund allocation for the related underwriting year). When appropriate, Achmea Zorgverzekeringen N.V. has made additional provisions. Total premiums earned own account Total premiums earned own account includes equalisation fund contributions. These contributions also include all estimated amounts to be settled by virtue of ex-post compensation mechanisms. A provisional settlement for 2014 cannot be carried out before the summer of Accordingly, when preparing the financial statements, estimates of the contributions relating in particular to the costs of hospital care and mental healthcare have to be used, including the breakdown into fixed costs, variable costs and the effects of high cost compensation and subsequent settlement. Achmea Zorgverzekeringen N.V. 47

48 Notes to the Consolidated Financial Statements The equalisation fund contributions item also includes the adjustment of the estimates for previous years. Total claims and movements in insurance liabilities The DBC system used leads to uncertainty regarding the figure for the item Medical care in hospitals and mental health care institutions. The changeover to DBC health care products also means that new empirical figures have to be constructed. However, the contracts with the hospitals have eliminated. most of this uncertainty. Estimates have been used to help prepare the financial statements, because part of the total annual expense has not been claimed yet. Ultimately, the DBC s might still not be lawful, if for instance the basic registration is not in order. The financial risk is then substantially mitigated by the contractual provisions and the risk equalisation system. 2. FAIR VALUE HIERARCHIE A ASSETS AND LIABILITIES MEASURED AT FAIR VALUE This note provides an analysis of assets and liabilities that are measured subsequently to initial recognition at fair value, grouped into three levels (fair value hierarchy) based on the significance of the inputs used in making the fair value measurements. The levels are defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes assets and liabilities valued using quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in markets that are considered less than active or valuation techniques where all significant inputs are directly or indirectly observable from market data. Level 3: Valuation techniques using significant non-observable inputs. This category includes all assets and liabilities where the valuation technique includes inputs not based on observable data and the non-observable inputs have a significant effect on the valuation of the assets or liability. Cash and cash equivalents are classified as level 1 when not subject to restrictions. Commercial paper, included within Deposits with credit institutions, is classified as level 1 due to fact that these are traded in money markets. Other deposits with credit institutions are in general classified as level 2, due to the facts that these are not traded and subject to restrictions. Achmea Zorgverzekeringen N.V. 48

49 Notes to the Consolidated Financial Statements FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE ON A RECURRING & NON-RECURRING BASIS AT (X 1,000) Main changes in the fair value hierarchy in 2014 At each reporting date Achmea assesses the classification of assets and liabilities measured at fair value. The assessment of the classification in the fair value hierarchy requires judgement, for example the importance of (un)observable inputs used in determining the fair value or with respect to activity of the market. In case of inactive markets, judgement is required on the valuation techniques to be used in order to determine the fair value as well as the interpretation of the level of using market data. As a result, the outcome of the classification process may differ between reporting periods. Achmea s policy is to determine the level of the fair value hierarchy each reporting period and to recognise transfers into and out of fair value hierarchy levels as of the beginning of the reporting period. In 2014, no changes were made to level-classification of asset and liabilities measured at fair value. Valuation techniques used and valuation process within Achmea Zorgverzekeringen N.V. for Level 2 and 3 measurements Depending on the specific assets and liabilities Achmea Zorgverzekeringen N.V. has set valuation policies and procedures for determining the fair value. Below, for each type of assets or liability a summary is provided of the valuation process, a description of the technique used and the relevant inputs. Equity and similar investments When available, Achmea Zorgverzekeringen N.V. uses quoted market prices in active markets to determine the fair value of its equities and similar investments. The fair values of investments held in non-quoted investment funds are determined by management after taking into consideration information provided by the fund managers. If no market prices are available, internal models are used to determine fair value. The level 2 classified Equities and similar investments comprise Real estate funds. The fair value of Real estate funds, classified as Available for Sale investments, represents the Net Asset Value of funds managed by Achmea Zorgverzekeringen N.V. Achmea Zorgverzekeringen N.V. reviews these fair values and performs analytical procedures and trend analysis to ensure the fair values are appropriate. The level 3 classified Equities and similar investments comprise private equity which is classified as Available for Sale investment. The private equity investment portfolio mainly consists of investments with a highly diversified nature in terms of sector, geographical region and type of investment. The fair value of this portfolio is determined using the Net Asset Value as reported by the fund manager or general partner, which is considered to be the best proxy of fair value of the investment. If an adjustment needs to be recorded in the reported Net Asset Value, this is reflected in the fair value. The pricing models are based on models as recommended in the Achmea Zorgverzekeringen N.V. 49

50 Notes to the Consolidated Financial Statements International Private Equity and Venture Capital Valuation Guidelines. Achmea Zorgverzekeringen N.V. reviews the valuations and performs analytical procedures to ensure the fair values are appropriate. Bonds and other fixed-income investments (including Receivables from other Loans and Deposits with credit institutions) In general, the fair value of these fixed-income investments is determined by means of a net present value methodology using estimated future cash flows, taking into account current interest rates applicable to financial instruments with similar yield, credit quality and maturity characteristics. The level 2 classified Deposits with credit institutions comprise short-term deposits with banks with a fixed maturity. These deposits are not tradable and subject to restrictions due their fixed maturity. The fair value of these deposits is in general equal to the nominal value taking into account the time value of money were material. Derivatives (assets and liabilities) The level 2 classified derivatives comprise currency derivatives. Where quoted market prices are not available, other valuation techniques, such as option pricing or stochastic modelling, are applied. The valuation is performed by a data vendor. The valuation techniques incorporate all factors that a typical market participant would consider and are based on observable market data when available. Fair values of currency derivatives represent amounts estimated to be received from or paid to a third party in settlement of these instruments. These derivates are valued using directly observed prices from exchangetraded derivatives or external pricing services or if not available using pricing models based on the net present value of estimated future cash flows. The pricing models which are used are standard industry standard valuation models (like Black and Scholes-model) and make use of current market data. Achmea Zorgverzekeringen N.V. normally mitigates counterparty credit risk in derivative contracts by entering collateral agreements into the contracts where practical. The movements of financial instruments with a level 3 fair value on a recurring basis are as follows: MOVEMENTS OF FINANCIAL INSTRUMENTS WITH A LEVEL 3 FAIR VALUE (X 1,000) This level 3 financial instruments are all Equities and similar investments. Fair value changes related to Equities and similar investments included in the Income Statement are presented as part of (Un)realised gains and losses on investments. Fair value changes included in Other comprehensive income related to Equities and similar investments are presented as part of Revaluation Reserve. SIGNIFICANT UNOBSERVABLE INPUTS FOR LEVEL 3 ASSETS AND LIABILITIES AT FAIR VALUE (X 1,000) FAIR VALUE AT 31 DECEMBER 2014 VALUATION TECHNIQUE UNOBSERVABLE INPUT RANGE (WEIGTHED AVERAGE) RELATIONSHIP OF UNOBSERVABLE INPUTS TO FAIR VALUE Equities and similar investments mainly consist of investments with a highly diversified nature in terms of sector, geographical region and type of investment. There is no significant unobservable input or combination of inputs that can be used to perform a reasonable possible sensitivity analysis for this portfolio. Achmea Zorgverzekeringen N.V. 50

51 Notes to the Consolidated Financial Statements B ASSET AND LIABILITIES NOT MEASURED AT FAIR VALUE FOR WHICH THE FAIR VALUE IS DISCLOSED The table below provides an overview of all assets and liabilities that are not measured at fair value, but for which the fair value is disclosed in the notes. ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE FOR WHICH THE FAIR VALUE IS DISCLOSED (X 1,000) CARRYING AMOUNT AS AT 2014 QUOTED PRICE IN ACTIVE MARKETS FOR IDENTICAL ASSETS SIGNIGICANT OTHER OBSERVABLE INPUTS SIGNIFICANT UNOBSERVABLE INPUTS FAIR VALUE AS AT 31 DECEMBER 2014 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL ASSETS AND LIABILITIES NOT MEASURED AT FAIR VALUE FOR WHICH THE FAIR VALUE IS DISCLOSED (X 1,000) CARRYING AMOUNT AS AT 2013 QUOTED PRICE IN ACTIVE MARKETS FOR IDENTICAL ASSETS SIGNIGICANT OTHER OBSERVABLE INPUTS SIGNIFICANT UNOBSERVABLE INPUTS FAIR VALUE AS AT 31 DECEMBER 2013 LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Receivables are in general classified as level 2, due to the fact that the amount deducted for counterparty default risk is insignificant compared to the fair value of the nominal cash flows of these receivables. Other liabilities, except for Cash liabilities, are classified as level 2 due to the fact that there is no active market for these financial instruments. Cash liabilities are classified as level 1. Valuation techniques used and valuation process within Achmea for Level 2 and 3 measurements Depending on the specific assets and liabilities Achmea Zorgverzekeringen N.V. has set valuation policies and procedures for determining the fair value. Below, for each type of assets or liability a summary is provided of the valuation process, a description of the technique used and the relevant inputs. Receivables and Prepayments and accrued income The Level 2 classified Receivables comprise mainly short-term amounts due related to the ordinary operating activities of Achmea Zorgverzekeringen N.V. These receivables are measured at amortised cost less accumulated impairment losses. The fair value of these receivables is determined based on discounted value of the expected cash flows, taking into accounted expected credit losses. For receivables expected to be recovered within twelve months after reporting date the carrying amount is a reasonable approximation of the fair value. Liabilities (including Liabilities out of direct insurance, Other liabilities and Accruals and deferred income) The Level 2 classified Liabilities comprise mainly short-term amounts payable related to the ordinary operating activities of Achmea Zorgverzekeringen N.V. These liabilities are measured at amortised cost. The fair value of these liabilities is determined based on discounted value of the expected cash flows. For liabilities expected to be settled within twelve months after reporting date the carrying amount is a reasonable approximation of the fair value. Achmea Zorgverzekeringen N.V. 51

52 Notes to the Consolidated Financial Statements 3. INTERESTS IN SUBSIDIARIES Information about principle subsidiaries Set out below are Achmea Zorgverzekeringen N.V. s subsidiaries as at 31 December All are wholly owned, directly or indirectly, unless stated otherwise, and are involved in insurance business, asset management or services related to these activities. The voting power in these subsidiaries held by Achmea Zorgverzekeringen N.V. is equal to the shareholding. The country of incorporation or registration is also their principal place of business. INTERESTS IN SUBSIDIARIES PLACE OF BUSINESS / COUNTRY OF INCORPORATION % OF OWNERSHIP INTEREST HELD BY ACHMEA ZORGVERZEKERINGEN N.V. % OF OWNERSHIP INTEREST HELD BY THE NON- CONTROLLING INTEREST The legally required list of participations as set forth in articles 379 and 414 of Book 2 of the Dutch Civil Code has been registered with the Trade Register in Midden Nederland. Significant restrictions related to subsidiaries Certain of Achmea Zorgverzekeringen N.V. s subsidiaries, principally insurance companies, are subject to restrictions on the amounts of funds they may transfer in the form of cash dividends or otherwise to their parent companies. The reserve for the health insurance fund business has been transferred under universal title to the other reserves of Zilveren Kruis Achmea Zorgverzekeringen N.V. ( million), Agis Zorgverzekeringen N.V. ( million) and OZF Achmea Zorgverzekeringen N.V. ( 2.9 million). These reserves include a net item of million that the regulator has designated as earmarked reserve (previously statutory reserve). Pursuant to the Zvw (Health Insurance Act), these reserves will be credited to the mentioned Achmea Zorgverzekeringen N.V. basicinsurance entities as at 31 December With regard to the administration of the AWBZ (Exceptional Medical Expenses Act), a sum of 9.9 million (31 December 2013: 9.3 million) has been designated as earmarked reserve, as this act is financed from public funds. This sum consists of the budget differences for past years in respect of the organizational costs of the care administration offices. Should the positive sum earmarked for the AWBZ become greater than 20% of the organizational cost budget for the current financial year then the surplus will be creamed off by the ZiNL (Health Insurance Fund). Restrictions apply to the free distribution of the Retained earnings, because the company is exempt from corporation tax. A precondition for this exemption is that the company is only permitted to distribute profit to institutions that benefit public health. Achmea Zorgverzekeringen N.V. 52

53 Notes to the Consolidated Financial Statements 4. INVESTMENTS BONDS ISSUED BY AND RECEIVABLES FROM GROUP COMPANIES (X 1,000) Please refer to Related party transactions. OTHER FINANCIAL INVESTMENTS (X 1,000) AVAILABLE FOR SALE TOTAL 31 DECEMBER 2014 (X 1,000) AVAILABLE FOR SALE TOTAL 31 DECEMBER 2013 Legal ownership of the majority of the company s investment portfolio has been transferred to Stichting Achmea Zorgverzekeringen Beleggingen, which manages the relevant investments, with the company bearing the full economic risks and rewards of these investments. The assets in question are recognised in continuity under investments in the company s Statement of Financial Position. Based on their contractual maturity an amount of 23.9 million (2013: 1.4 million) of Other financial investments is expected to be recovered after twelve months after reporting date. All assets with no contractual maturity are presented as non-current, e.g. expected to be recovered after twelve months after reporting date. INVESTMENTS MEASURED AT FAIR VALUE (X 1,000) Achmea Zorgverzekeringen N.V. 53

54 Notes to the Consolidated Financial Statements EQUITIES AND SIMILAR INVESTMENTS (X 1,000) The table below shows the nature of the investment funds: NATURE OF INVESTMENT FUNDS (X 1,000) BONDS AND OTHER FIXED-INCOME INVESTMENTS (X 1,000) Government and government related or guaranteed bonds include bonds issued by supranationals and (local) governments as well as sovereign bonds denominated in currencies other than the domestic currencies. Furthermore it includes government owned or sponsored entities and government guaranteed (corporate) bond issues. Corporate bonds include investment grade bonds, that are relatively safe, having a high bond rating. Furthermore, corporate bonds include high yield bonds, having a lower rating than investment grade bonds. These corporate bonds are not guaranteed by governments. GOVERNMENT AND GOVERNMENT RELATED OR GUARANTEED BONDS (X 1,000) For more details regarding Achmea Zorgverzekeringen N.V. s risk management policies reference is made to the Risk management section. DEPOSITS WITH CREDIT INSTITUTIONS (X 1,000) Deposits are not subject to restrictions. Achmea Zorgverzekeringen N.V. 54

55 Notes to the Consolidated Financial Statements IMPAIRMENTS (X 1,000) In 2014 impairments were mainly due to stock prices dropping. The nominal value of the impaired bonds amounts to 10 million (31 december 2013: nil). For 2014, interest income related to the impaired part of Bonds was nil (2013: nil). Impairment losses are included in Impairments on investments. 5. DERIVATIVES (X 1,000) ASSETS LIABILITIES NET AMOUNT ASSETS LIABILITIES NET AMOUNT ANALYSIS OF EXPECTED TIME TO MATURITY OF UNDISCOUNTED CASH FLOWS OF THE DERIVATIVES (LIABILITIES) TOTAL < 1 YEAR 1-3 YEARS 3-5 YEARS > 5 YEARS 2013 TOTAL < 1 YEAR 1-3 YEARS 3-5 YEARS > 5 YEARS AMOUNTS CEDED TO REINSURERS 2014 (X 1,000) RECEIVABLES RECEIVABLES FROM DIRECT INSURANCE 2014 (X 1,000) 2013 CONTRIBUTION FROM DUTCH HEALTH INSURANCE FUND (X 1,000) Achmea Zorgverzekeringen N.V. 55

56 Notes to the Consolidated Financial Statements This item increased by 698 million due to the change in the composition of the portfolio of policyholders and the increased standard contribution per premium equivalent. OTHER RECEIVABLES 2014 (X 1,000) 2013 The receivables, except Contribution from Dutch Health insurance fund, are expected to be recovered within twelve months after reporting date. For all receivables the carrying amount is a reasonable approximation of the fair value. Impairment losses recognised in 2014 related to receivables amounted to 40 million (2013: 6 million) and are included in Other technical expenses. The receivables from hospitals and mental healthcare institutions are advance payments that health insurers provide as compensation for liquidity shortfalls at these institutions. This is the result of the DOT/DBC system, under which a claim can only be submitted once the treatment period has ended. Generally, the advances to health care providers are covered by work in progress. The law on structural measures relating to health insurance defaulters ( Wet Structurele maatregelen wanbetalers zorgverzekering ) includes measures to tackle those insured parties who decline to pay their nominal premium. Defaulters are not allowed to terminate their insurance policy. The consequences of this law have been taken into account when determining the size of the provision for doubtful contribution debts. With regard to the items Advances to hospitals and Advances to mental healthcare institutions and other healthcare providers, Zilveren Kruis Achmea Zorgverzekeringen N.V. is the party that enters into the contracts with the hospitals, mental healthcare institutions and other healthcare providers concerned, and sets off all payments from and to these parties with the other Achmea basic insurance companies. For a further clarification of the receivables from group companies, please refer to the section Transaction with related parties. 8. OTHER ASSETS CASH AND CASH EQUIVALENTS Cash and bank balances are at free disposal of Achmea Zorgverzekeringen N.V. 9. PREPAYMENTS AND ACCRUED INCOME PREPAYMENTS AND ACCRUED INCOME For all prepayments the carrying amount is a reasonable approximation of the fair value. For an overview of the Receivables from group companies, please refer to the section Related party transactions. Achmea Zorgverzekeringen N.V. 56

57 Notes to the Consolidated Financial Statements 10. TOTAL EQUITY Solvency Achmea Zorgverzekeringen N.V.'s internal solvency standard is determined by the Executive Board of Achmea B.V. being the ultimate mother company, in conjunction with Achmea's Group Capital and Liquidity Committee. These calculations are based on the outcomes of regular risk analyses as well as on the quantitative findings of the economic capital model. This leads to a quantitative substantiation of the required solvency ratio to be maintained above the statutory solvency ratio. There is, moreover, a correlation between the solvency standard maintained at the level of Achmea Zorgverzekeringen N.V. and the solvency present at the Achmea Group level. For Achmea Zorgverzekeringen N.V. the internal solvency requirement (Solvency I) is currently set at 130%. The table below shows the company solvency margins present and required, taking any prudential filters into account. COMPANY SOLVENCY MARGIN 2014 % 2013 % Share capital The authorised capital consists of 250,000,000 ordinary shares each of a nominal value of 1. of these shares 59,620,822 have been issued and fully paid-up. In 2014 and 2013, there were no movements in the share capital. Share premium In 2014 and 2013, there were no movements in the share premium reserve. Revaluation reserve Based on the accounting principles used by Achmea Zorgverzekeringen N.V., a revaluation reserve has been formed when appropriate. The majority of the revaluation reserve is related to investments classified as Available for sale. The revaluation reserve contains a sum of 214 million in net unrealised revaluation losses in respect of assets measured at fair value. According to the Dutch legal and regulatory framework this amount may not be deducted for the purposes of determining the non-distributable part of the revaluation reserve. Retained Earnings For details of the movements in Retained Earnings, please refer to the Consolidated Statement of changes in Total equity. The reserve for the health insurance fund business has been transferred under universal title to the other reserves of Zilveren Kruis Achmea Zorgverzekeringen N.V. ( million), Agis Zorgverzekeringen N.V. ( million) and OZF Achmea Zorgverzekeringen N.V. ( 2.9 million). These reserves include a net item of million that the regulator has designated as earmarked reserve (previously statutory reserve). Pursuant to the Zvw (Health Insurance Act), these reserves will be credited to the mentioned Achmea Zorgverzekeringen N.V. basicinsurance entities as at 31 December With regard to the administration of the AWBZ (Exceptional Medical Expenses Act), a sum of 9.9 million (31 December 2013: 9.3 million) has been designated as earmarked reserve, as this act is financed from public funds. This sum consists of the budget differences for past years in respect of the organisational costs of the care administration offices. Should the positive sum earmarked for the AWBZ become greater than 20% of the organisational cost budget for the current financial year then the surplus will be creamed off by the ZiNL (Health Insurance Fund). Restrictions apply to the free distribution of the Retained earnings, because the company is exempt from corporation tax. A precondition for this exemption is that the company is only permitted to distribute profit to institutions that benefit public health. Achmea Zorgverzekeringen N.V. 57

58 Notes to the Consolidated Financial Statements Profit for the year For details of the Profit for the year, please refer to the section Other Information. Restrictions apply to the free distribution of the profit for the year. Please refer to the notes as stated under the retained earnings. NON-CONTROLLING INTEREST (X 1,000) The non-controlling interest is the share of investments held by FBTO Zorgverzekeringen N.V. in the closed-end mutual investment funds in which also Achmea Zorgverzekeringen N.V. and her subsidiaries participate. The share of FBTO Zorgverzekeringen N.V. fluctuates due to payments, withdrawals and changes in values of investments. Profit for the year attributable to the non-controlling interest is 1.0 million (2013: 1.2 million). 11. INSURANCE LIABILITIES This balance sheet item must be read in conjunction with the Amounts ceded to reinsurers balance sheet item. The Statement of Financial Position features the gross picture taken from the statements of movements set out below in respect of the separate elements of the Insurance liabilities. INSURANCE LIABILITIES 2014 (X 1,000) 2013 The Insurance liabilities include a sum for claim handling costs of 24.3 million (2013: 26.5 million). The Insurance liabilities for unearned premiums and unexpired risks include a provision for premium deficiency of million (2013: 20.6 million). An adequacy test is performed each quarter in order to ensure that sufficient provisions have been formed. The Insurance liability for unearned premiums and unexpired risks and the Insurance liability for outstanding claims including IBNR have been subject to quantitative testing. The outcome of the quantitative adequacy test is an expected value (excluding prudence) of the Insurance liability at reporting date of million (2013: 21.2 million) in respect of the unearned premiums and unexpired risks and 3,978.0 million (2013: 4,218.9 million) in respect of the Insurance liability for outstanding claims including IBNR. ANALYSIS BY ESTIMATED TIME TO MATURITY OF INSURANCE LIABILITY (X 1,000) 2014 WITHIN 1 YEAR 1-5 YEARS 5-15 YEARS OVER 15 YEARS TOTAL 2013 WITHIN 1 YEAR 1-5 YEARS 5-15 YEARS OVER 15 YEARS TOTAL Achmea Zorgverzekeringen N.V. 58

59 Notes to the Consolidated Financial Statements MOVEMENT TABLE INSURANCE LIABILITIES FOR UNEARNED PREMIUMS AND UNEXPIRED RISKS (X 1,000) GROSS REINSURANCE SHARE GROSS REINSURANCE SHARE MOVEMENT TABLE INSURANCE LIABILITIES OUTSTANDING CLAIMS (INCLUDING IBNR) (X 1,000) GROSS REINSURANCE SHARE GROSS REINSURANCE SHARE The composition of the receivable and liability is based on premiums, claims and other movements by underwriting year. Development of claims before reinsurance Achmea Zorgverzekeringen N.V. manages the insurance risk of the Insurance liabilities before reinsurance and therefore the claim development table is presented before reinsurance. (BEFORE REINSURANCE) TOTAL (X 1,000) The data used for drawing up this overview is based on historical information. Each year, Achmea Zorgverzekeringen N.V. recalculates the claims provisions for each claims year based on the most recent information for claims, macro-neutrality and settlements by the ZiNL. If necessary the provisions have been increased or released. Achmea Zorgverzekeringen N.V. 59

60 Notes to the Consolidated Financial Statements The technical provision for outstanding claims at 31 December 2014 in relation to claims year 2012 and 2011 shows a negative balance due to the fact that Achmea Zorgverzekeringen N.V. closed several contracts with health care institutions based on lump sum. These contracts will be settled in PROVISIONS POST-EMPLOYMENT BENEFITS 2014 (X 1,000) 2013 OZF Achmea Zorgverzekeringen, 100% subsidiary of Achmea Zorgverzekeringen N.V., maintains a defined benefit retirement plan for the employees of OZF Achmea Zorgverzekeringen N.V. This plan generally covers all employees and provides benefits that are related to the average remuneration and service of employees upon retirement. Benefits related to medical costs are not included. Annual contributions related to the defined benefit plans are paid to adequately finance the accrued liabilities during year of the plans calculated in accordance with local legal requirements. Furthermore, if applicable, additional contributions are paid so that defined benefit plans comply with applicable local regulations concerning investments and funding levels. The pension plan is executed by Stichting Bedrijfstakpensioenfonds Zorgverzekeraars (SBZ). Post-employment benefits are essentially of a long-term nature. MOVEMENT TABLE POST-EMPLOYMENT BENEFITS (X 1,000) DEFINED BENEFIT OBLIGATION FAIR VALUE OF INVESTMENTS BACKING DEFINED BENEFIT OBLIGATION EFFECT OF ASSET NET DEFINED BENEFIT NET DEFINED BENEFIT CEILING LIABILITY 2014 LIABILITY 2013 The future contributions from employees to the pension plan are taken into account in determining the defined benefit obligation and current service costs. Achmea Zorgverzekeringen N.V. 60

61 Notes to the Consolidated Financial Statements SIGNIFICANT ACTUARIAL ASSUMPTIONS AT REPORTING DATE (EXPRESSED AS WEIGHTED AVERAGE ASSUMPTIONS) The rate used to discount the defined benefit obligation is determined by reference to market yields on high quality corporate bonds. OZF Achmea Zorgverzekeringen N.V. applies the Towers Watson Rate:Link curve without any adjustments. Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience in each territory. In determining the defined benefit obligation the AG prognosetafel has been applied. These assumptions translate into an average life expectancy in years for a pensioner retiring at the age as defined in the pension plan: The weighted average duration of the Defined Benefit Obligation is 26 years (2013: 23 years). MATURITY ANALYSIS OF EXPECTED UNDISCOUNTED CASH FLOWS RELATED TO DEFINED BENEFIT OBLIGATION (X 1,000) The investments backing defined benefit obligation are qualifying plan assets. The plan assets mainly consist of listed instrument of a highly diversified nature, primarily investments in Equity instruments and similar investments amounting to 2,018 million (31 December 2013: 214 million) and Debt instruments amounting to 3,292 million (31 December 2013: 599 million). The impact of changes in the most significant actuarial assumptions used on the defined benefit obligation is shown in the table below. IMPACT FOR THE REMAINING DEFINED BENEFIT OBLIGATION (X 1,000) 2014 CHANGE IN ASSUMPTION INCREASE IN ASSUMPTION DECREASE IN ASSUMPTION Achmea Zorgverzekeringen N.V. 61

62 Notes to the Consolidated Financial Statements (X 1,000) 2013 CHANGE IN ASSUMPTION INCREASE IN ASSUMPTION DECREASE IN ASSUMPTION 1) The change in percentage of the assumptions listed in the table above are in absolute amounts. This means that the assumption changes with 100 bp. 2) The change in the mortality rate of 1 year means that the life expectancy of the participants will increase or decrease with 1 year. The sensitivity analyses are based on a change in an assumption while holding all other assumptions unchanged. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the Defined Benefit Obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognised within the Consolidated Statement of Financial Position. Furthermore, the mitigating impact of any changes in the value of the plan assets is not taken into account. OZF Achmea Zorgverzekeringen N.V. expects to pay 0.3 million in contributions to the defined benefit plan for employees of OZF Achmea Zorgverzekeringen N.V. in OTHER PROVISIONS (X 1,000) The Other provisions reserves concerns legal claims. 13. LIABILITIES LIABILITIES OUT OF DIRECT INSURANCE 2014 (X 1,000) 2013 LIABILITIES OUT OF REINSURANCE 2014 (X 1,000) 2013 DEBTS TO CREDIT INSTITUTIONS 2014 (X 1,000) 2013 Achmea Zorgverzekeringen N.V. 62

63 Notes to the Consolidated Financial Statements OTHER LIABILITIES 2014 (X 1,000) 2013 The item other contains various costs to be paid. Other liabilities are expected to be settled within twelve months after reporting date. For these other liabilities the carrying amount is a reasonable approximation of the fair value. For an overview of the Liabilities to Group companies, please refer to the section Related party transactions. 14. ACCRUALS AND DEFERRED INCOME ACCRUALS AND DEFERRED INCOME 2014 (X 1,000) CONTINGENCIES Legal procedures Achmea Zorgverzekeringen N.V.is involved in lawsuits and arbitration proceedings. These actions relate to claims instituted by and against these companies arising from ordinary operations and mergers, including the activities carried out in their capacity as insurers, credit providers, service providers, employers, investors and tax payers. Although it is not possible to predict or define the outcome of pending or imminent legal proceedings, the Board of directors believes that it is unlikely that the outcome of the actions will have a material, negative impact on the financial position of Achmea Zorgverzekeringen N.V. Contingent liabilities CONTINGENT LIABILITIES 2014 (X 1,000) 2013 Achmea Zorgverzekeringen N.V. has given guarantees to the Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden N.V. up to a maximum of 34.8 million (2013: 36.4 million). Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden N.V. is a company in which the participating insurance companies pool the claims and risks related to terrorism. The commitments consist primarily of a not deposited part of a commitment to LSP Health Economics Fund C.V., a care innovation Fund. Fiscal entity The company is part of a fiscal unity with Achmea B.V. for the Value-Added Tax (VAT) and, in that capacity, is jointly and severally liable for the tax debts of the fiscal unity as a whole. The company is exempt from corporation tax, therefore it may not distribute profit unless to institutions for the benefit of public health. Achmea Zorgverzekeringen N.V. 63

64 Notes to the Consolidated Financial Statements 16. RELATED PARTY TRANSACTIONS Identity of related party transactions Parties are considered to be related if one party has the ability to control (e.g. subsidiaries) or exercise significant influence over the other party in making financial or operating decisions. Since Achmea B.V. as head of the Achmea Group exercises direct or indirect control over all legal entities that form part of the Achmea Group, Achmea Zorgverzekeringen N.V. deems these entities to be related parties too. Achmea Zorgverzekeringen N.V. also considers Stichting Pensioenfonds Achmea and Stichting Bedrijfstakpensioenfonds Zorgverzekeraars (postemployment benefit plans) as a related party. Members of the Executive and Supervisory Board and their close family members are also considered related parties to Achmea Zorgverzekeringen N.V. Achmea Zorgverzekeringen N.V. maintains business relationships with related parties as part of the company s ordinary activities (particularly in the area of insurance). Such Related party transactions have a commercial basis and are based on market prices. Both individually and collectively, these transactions are not considered material to Achmea Zorgverzekeringen N.V. Costs for shared service centers and holding costs are allocated to entities on the basis of amounts mainly based on past experience with regard to time spent by employees, work carried out and transactions processed. As of 2014 Achmea Zorgverzekeringen N.V. is charged with these extra costs, presented as Operating expenses. Shareholders The shareholder of Achmea Zorgverzekeringen N.V. is Achmea B.V., which as at 31 December 2014 held 100% of the shares (100% of the voting rights). Consolidated participations in subsidiaries Overview of entities in which Achmea Zorgverzekeringen N.V. has directly or indirectly a majority interest as per 31 December 2014: SUBSIDIARIES NAME OF THE COMPANY NATURE CONSOLIDATED INTEREST % TOTAL INTEREST % REGISTERED OFFICE Remuneration Scope The Dutch Act called Wet Normering Topinkomens, commonly abbreviated to WNT, which limits the maximum remuneration of top-ranking (semi-) public officials may earn, designates a number of publicly funded organisations that are required to disclose remuneration details of top-ranking officials in an explanatory note in their financial statements. Health insurers which provide basic health insurance are designated organisations in this sense. The purpose of the WNT is to enforce a socially responsible ceiling for the salaries earned by top-ranking officials in the (semi) public sector. For Health insurers a separate ceiling for the salaries earned by top-ranking officials is determined. Achmea subscribes to the transparency objective of the WNT in respect of its basic health insurance activities. The WNT applies to the Achmea basic health insurance companies. The WNT regulations were not drawn up for large groups, such as Achmea, that have an organisational structure where the directors are involved in multiple entities which fall outside the scope of the WNT. Consequently, when applying the regulations, it is necessary to use an Achmea Zorgverzekeringen N.V. 64

65 Notes to the Consolidated Financial Statements appropriate interpretation of the term top-ranking official as defined in the WNT. The members of the Board of Directors of the Care and Health division fulfil all of the managerial activities and assume all of the responsibilities stated in the WNT for Achmea Zorgverzekeringen N.V. as a whole, which includes the Achmea basic health insurance entities Agis Zorgverzekeringen N.V., Avéro Achmea Zorgverzekeringen N.V., Interpolis Zorgverzekeringen N.V., OZF Achmea Zorgverzekeringen N.V. and Zilveren Kruis Achmea Zorgverzekeringen N.V. In view of the nature and organisational structure of Achmea B.V., the members of the Board of Directors of Care and Health division also perform Group-wide activities on behalf of Achmea B.V. as a financial conglomerate. Their range of duties is therefore broader than the scope defined by the WNT (which applies only to basic health insurance). Even though the members of the Board of Directors of Care and Health division undertake more activities than solely those focusing on the basic health insurance entities, these officials are the closest match to the WNT's definition of top-ranking official. Since these officials undertake activities that are broader than solely managing the basic health insurance entities, the explanatory note required by the WNT is included in the financial statements of Achmea Zorgverzekeringen N.V., the parent company of the basic health insurance entities (wholly owned subsidiaries). In this regard the remuneration for top-ranking officials is based on the classification of more than one million insured. Achmea Zorgverzekeringen N.V. offers supplementary health insurance. The members of the highest supervisory body (the Supervisory Board) also qualify as top-ranking officials. In 2014, the situation changed from one Supervisory Board for Achmea Zorgverzekeringen N.V. including its subsidiaries that are supervised into a legal structure with supervisory boards of their own for Achmea Zorgverzekeringen N.V. and her (sub)subsidiaries Zilveren Kruis Achmea Zorgverzekeringen N.V., Interpolis Zorgverzekeringen N.V., Avéro Achmea Zorgverzekeringen N.V., Agis Zorgverzekeringen N.V., Agis Ziektekostenverzekeringen N.V. and OZF Achmea Zorgverzekeringen N.V. The three members of the Supervisory Board of Achmea Zorgverzekeringen N.V. and the basic health insurance entities, who are also members of the Supervisory Board of Achmea B.V., are considered to be top-ranking officials. Based on the definition the top-ranking officials of Achmea Zorgverzekeringen N.V. and its subsidiaries in respect of the WNT are considered to be: - the directors of the basic health insurance entities which are also member of the Board of Directors of Care and Health division; - the members of the Board of Directors of Care and Health division, who are responsible for the administration and day-to-day management of Achmea Zorgverzekeringen N.V. and the basic insurance entities as a whole; - the members of the Supervisory Board of Achmea Zorgverzekeringen N.V. and the basic health insurance entities. Policy The content and associated responsibilities of the position of member of the Board of Directors of the Care and Health division determine the importance of the position. The importance of the position is assessed based on aspects such as its impact and responsibility and the complexity of the managerial context in which the person must operate. The total remuneration, determined in accordance with the requirements of the WNT, consists of the following components: Fixed remuneration and other short-term employee benefits Fixed remuneration and other short-term employee benefits consists of compensations such as salaries, gross payments and variable remunerations insofar these were awarded before the WNT was applied to the Board of Directors of the Care and Health division. As from target year 2013 no new variable remuneration has been awarded. Taxable fixed and variable expense compensation. This includes fixed expense compensation, which is subject to taxation and covers expenses incurred by employees based on their position. If applicable also, the benefit value for private use of a company car is included. No taxable variable expense compensation is paid. Deferred payments to staff In accordance with the provisions of the WNT, pensions are included in this category. In addition to their salaries, in 2014 Achmea makes contributions to plans that provide pension benefits for Directors of Achmea. In 2013 these plans were still based on final pay. As per January 1st 2014 these plans were harmonised for all employees of Achmea: Contributions are based on an average salary expectation and is accounted for as a collectively defined contribution plan and executed by the Achmea Pension Fund. According to the WNT, remuneration related to Post-employment benefits should be based on the contributions by the employer during the financial year. The amounts included in the table below are therefore based on these contributions paid. In 2014, Achmea as an employer had to pay a crisis levy of 16% over wages earned in 2013 to the extent these wages were higher than 150,000. The total amount of crisis levy related to the remuneration in 2013 was 0.1 million for all members of the Board of directors. Achmea Zorgverzekeringen N.V. 65

66 Notes to the Consolidated Financial Statements The amount of crisis levy is not included in the total remuneration. In 2015, this fiscal measure was not extended and therefore no crisis levy will have to be paid by Achmea over wages earned in The three members of the Supervisory Board of Achmea Zorgverzekeringen N.V. and the basic health insurance companies, who are also members of the Supervisory Board of Achmea B.V., do not receive any separate remuneration for their role as Supervisory Board members for Achmea Zorgverzekeringen N.V. and the basic health insurance companies. The expenses related to the Supervisory Board members are not allocated to the separate operations of Achmea Group. Hence, the compensation included in the disclosure is nil. Implementation Top-Ranking officials The table below presents the remuneration of the Board of Directors of the Care and Health division. All active and former board members have a full-time employment contract. The following table includes the remuneration that was paid to active and former board members in financial year WNT-REMUNERATION OF BOARD OF DIRECTORS IN 2014 (X 1) START - END DATE FIXED REMUNERATION AND OTHER SHORT- TERM EMPLOYEE BENEFITS TAXABLE FIXED AND VARIABLE EXPENSE COMPENSATION TOTAL EXCLUDING POST EMPLOYMENT BENEFITS POST- EMPLOYMENT BENEFITS** TERMINATION BENEFITS TOTAL INCLUDING POST- EMPLOYMENT BENEFITS *) Statutory Directors **) Individual contributions based on Collectively Defined Contribution plans Achmea Zorgverzekeringen N.V. 66

67 Notes to the Consolidated Financial Statements WNT-REMUNERATION OF BOARD OF DIRECTORS IN 2013 (X 1) START - END DATE FIXED REMUNERATION AND OTHER SHORT- TERM EMPLOYEE BENEFITS TAXABLE FIXED AND VARIABLE EXPENSE COMPENSATION TOTAL EXCLUDING POST EMPLOYMENT BENEFITS POST- EMPLOYMENT BENEFITS** TERMINATION BENEFITS TOTAL INCLUDING POST- EMPLOYMENT BENEFITS * appointed Statutory Director as per 10 December 2013 ** contributions to defined benefit plans that provide pension benefits (current cost and back service) *** The post-employment benefits in the first three months of 2014 are including coming and back service The appointment of former Director Finance H. Hendriks as board member ended June 30, From July 2013, he was engaged in several other temporary appointments in which he did no longer assume responsibility for the basic health insurance entities as a whole. Hence, for the WNT, we considered him to be a former top ranking official as from July 1, However adapting a more strict interpretation of the WNT it could have been argued that the former Director Finance had not ceased being a top ranking official for the timespan of these temporary appointments, simply because of the fact of the temporariness of these appointments. Based on this interpretation and recent case law regarding the WNT the WNT 2013 disclosure for Hendriks should have included a full year rather than only a half year. Hence the total WNT remuneration for 2013 should have been more (excluding post-employment benefits) than the amount disclosed in the 2013 annual report of Achmea Zorgverzekeringen N.V. The comparative figures for 2013 in this report are based on the adjusted figures. Based on the adjusted figures, the total remuneration of H. Hendriks did not exceed the maximum as set by the Minister of Health, Welfare and Sports for The performance related remuneration as included under Fixed remuneration and other short-term employee benefits is calculated based on the requirements of the WNT implying that all cash payments are included. Under IFRS these performance related remunerations are appointed to the year granted. Awards of variable remuneration in 2014 apply to performance in years prior to the applicability of the WNT and amount to 70,082 (2013: 236,887) for the Board of Directors of the Care and Health division in total. Achmea Zorgverzekeringen N.V. 67

68 Notes to the Consolidated Financial Statements For top-ranking officials no termination benefits were paid during 2014 and For the Chair and all other members of the Board of Directors, the total remuneration excluding post-employment benefits in 2014 is below the maximum of as set by the Minister of Health, Welfare and Sport for This applies to newly appointed members as well as to members of the Board with a salary agreed before the implementation of the WNT. WNT REMUNERATION OTHER TOP RANKING OFFICIALS IN 2014 (X 1) POSITION START - END DATE REMUNERATION CHARGED WNT REMUNERATION OTHER TOP RANKING OFFICIALS IN 2013 ( 1) POSITION START - END DATE REMUNERATION CHARGED The allocation of remuneration expenses of other top ranking officials to the operations of Achmea Zorgverzekeringen N.V. is not performed on a person by person level. All mentioned members of the Board of Directors and Supervisory Board worked for Achmea Zorgverzekeringen N.V., Agis Zorgverzekeringen N.V., Avéro Achmea Zorgverzekeringen N.V., Zilveren Kruis Achmea Zorgverzekeringen N.V., OZF Achmea Zorgverzekeringen N.V., Interpolis Zorgverzekeringen N.V. and Agis Ziektekostenverzekeringen N.V. Non top-ranking officials The remuneration of non-top ranking officials of the basic Health insurance companies must be disclosed not only insofar as they exceed the maximum as set by the minister of Health, Welfare and Sports but as soon as they exceed the general WNT 2014 maximum amounting to 230,474 including post-employment benefits. Internal non-top ranking officials with a remuneration that exceeds the general WNT maximum amount of 230,474 (2013: 228,599) and who perform activities for the basic health insurance companies, are disclosed in the following table. The post-employment benefits relate to contributions to the pension plan as per 1 January 2014, in which contributions are based on an average salary ambition and is accounted for as a Collective Defined Contribution scheme. The remuneration for the three disclosed non top-ranking officials in the table below exceeds the general WNT maximum amount of 230,474 because of their existing remuneration agreements, such as the pension plan for Health Insurance companies that relies on an aged dependent employers contribution. Achmea Zorgverzekeringen N.V. 68

69 Notes to the Consolidated Financial Statements WNT REMUNERATION OF NON TOP-RANKING OFFICIALS IN 2014 (X 1) POSITION START - END DATE FIXED REMUNERATION AND OTHER SHORT-TERM EMPLOYEE BENEFITS TAXABLE FIXED AND VARIABLE EXPENSE COMPENSATION POST- EMPLOYMENT BENEFITS WNT REMUNERATION OF NON TOP-RANKING OFFICIALS IN 2013 (X 1) POSITION START - END DATE FIXED REMUNERATION AND OTHER SHORT-TERM EMPLOYEE BENEFITS TAXABLE FIXED AND VARIABLE EXPENSE COMPENSATION POST- EMPLOYMENT BENEFITS * The three non top-ranking officials disclosed in the 2014 table correspond with the first three non-ranking officials in the 2013 table. Termination benefits that were paid to non top-ranking officials, in 2014 to an employee under the Collective Labour Agreement, exceed the general WNT maximum amount (2014: Euros 230,474) because of the obligatory arrangement under the Redundancy Scheme of Achmea ( Sociaal Plan ). In this particular case leading to an excess of the general WNT amount because of the outcome of the so-called kantonrechtersformule. TERMINATION BENEFITS IN 2014 POSITION END DATE (X 1) TERMINATION BENEFIT PAID TERMINATION BENEFITS IN 2013 POSITION END DATE (X 1) TERMINATION BENEFIT PAID Related party transactions Unless stated otherwise below, when it comes to the outstanding balances with related parties, no guarantees have been given or received, loan loss provisions included in relation to the amount of outstanding balances or charges relating to uncollectable or doubtful debts included in the Income Statement. TRANSACTIONS WITH SHAREHOLDERS AND ULTIMATE PARENT COMPANY (X 1,000) Achmea Zorgverzekeringen N.V. 69

70 Notes to the Consolidated Financial Statements TRANSACTIONS WITH ASSOCIATES OF THE ACHMEA GROUP (X 1,000) Other operating costs and personnel costs Costs for shared service centres and holding costs are allocated to entities on the basis of amounts mainly based on past experience with regard to time spent by employees, work carried out and transactions processed. All personnel, with the exception of the employees of OZF Achmea Zorgverzekeringen N.V., who work for Achmea Zorgverzekeringen N.V., is employed by Achmea Interne Diensten N.V., a subsidiary of Achmea B.V. The Achmea Group s pension commitments have been placed with Stichting Pensioenfonds Achmea. The staff costs and other operating expenses associated with the activities are passed on to Achmea Zorgverzekeringen N.V. The associated pension expenses are allocated on the basis of the pensionable salary of current employees. Achmea Zorgverzekeringen N.V. as part of the Achmea Group also undertakes many transactions with other group companies, in particular in the field of internal supporting services such as facilities services and IT. When attributable, the operating expenses associated with the company s activities are allocated to the Achmea Group s entities on a commercial basis. The related costs have been reported in the statement of the result under administrative costs. The current account balances resulting from these transactions are included in the statement of the financial position under Other receivables and Other liabilities. Other expenses In 2014 non-recurring charges are allocated by Achmea Interne Diensten N.V. and are considered to be no part of insurance business. These costs consist of pension charges due to due to settlement of the pension contract as from 2014 ( 67.2 million) and restructuring charges ( 25.2 million) due to our Acceleration and Innovation change programme. Transactions, receivables and liabilities with other related parties Key management personnel The Board of Directors of Achmea Zorgverzekeringen N.V. is defined as key management personnel as mentioned in IAS 24. Loans provided to key management personnel amounted to 0.4 million at the end of 2014 (2013: 0.6 million). The weighted average interest rate of these loans is 4.1% (2013: 4.1%). Achmea Zorgverzekeringen N.V. 70

71 Notes to the Consolidated Financial Statements Pension liabilities Achmea Interne Diensten N.V. has placed the pension commitments for employees of Achmea Zorgverzekeringen N.V. with Stichting Pensioenfonds Achmea (SPA) and Stichting Bedrijfstakpensioenfonds Zorgverzekeraars (SBZ). As part of the collective labour agreement in the Netherlands, Achmea reached agreement with the labour unions regarding an adjustment of the pension scheme, with exception of the pension scheme of OZF Achmea Zorgverzekeringen N.V., which is effective as of 1 January The new pension scheme is a so-called Collective Defined Contribution (CDC) scheme. The financial and actuarial risks are in substance transferred to the employees, implying amongst others that the future increase on vested rights for current employees has become conditional on the funded status within the plan. The related CDC contributions are allocated by Achmea Interne Diensten N.V. to Achmea Zorgverzekeringen N.V. on the basis of pensionable salary of current employees. A provision has been made for the defined benefit obligations related to the pension scheme of OZF Achmea Zorgverzekeringen N.V. In relation to the vested rights of the directors of Achmea B.V. a provision has been made at the level of the legal entity of Achmea Interne Diensten N.V. The provision is determined on the basis of the number of active years of service until the balance sheet date, the estimated level of salary as at the expected retirement date and the market interest rate on the high-quality bonds issued by the entities. These liabilities will be reduced by any assets related to this scheme. IAS 19 Employee Benefits is applicable to Achmea Zorgverzekeringen N.V. based on the situation that the defined benefit plans share risks between entities under common control. For the disclosures on the IAS 19 Employee Benefits (based on IAS ) reference is made to Note 24 of the 2014 financial statements of Achmea B.V. ( Pension costs charged to Achmea Zorgverzekeringen N.V. amount to 62.2 million in 2014 (2013: 49.2 million) are based on the (average) cost allocation from the operational holding by which personnel is employed to the operational divisions, distribution channels and the sharedservice centers. Rabobank Rabobank is shareholder of Achmea since Achmea issued shares Achmea B.V. to Rabobank in respect to the acquisition of Interpolis by Achmea. For its operations, Achmea Zorgverzekeringen N.V. uses various regular banking services of the Rabobank Group. All services and transactions with Rabobank are in an orderly transaction and based on regular market rates. Insurance services delivered to Rabobank Rabobank has insured several risks with Achmea, including a group Health insurance contract with Zilveren Kruis Achmea. The premiums related to this insurance coverage over 2014 are 73 million (2013: 81 million). Distribution channel Local Rabobank offices are a major distribution channel for Achmea's Dutch insurance products. Affiliated members ('aangesloten leden') of the Rabobank are granted a 10% discount on the basic health insurance premiums and a discount between a scale from 10% till 25% for premiums for the supplementary health insurance. Independer Independer is part Achmea B.V. Due to the self-governing structure of Independer in relation to the other entities of the Achmea Group, transactions are strictly on arm s length basis. The total amount of commissions paid to group companies in 2014 is 4.2 million. Achmea Zorgverzekeringen N.V. 71

72 Notes to the Consolidated Financial Statements 17. TECHNICAL ACCOUNT BY REPORTING GROUP TECHNICAL ACCOUNT BY REPORTING GROUP BASIC HEALTH INSURANCE (X 1,000) SUPPLEMENTARY HEALTH INSURANCE TOTAL 2014 TECHNICAL ACCOUNT BY REPORTING GROUP BASIC HEALTH INSURANCE (X 1,000) SUPPLEMENTARY HEALTH INSURANCE TOTAL PREMIUMS EARNED OWN ACCOUNT GROSS WRITTEN PREMIUMS (X 1,000) Premiums earned are defined as sums charged to third parties after the deduction of legal contributions and after the change in technical provisions for unearned premiums and unexpired risks. This item also includes contribution from Central Funds of the Algemeen Fonds Bijzondere Ziektekosten (AFBZ) and the Zorgverzekeringsfonds (Dutch Health Insurance Fund) for provision costs and administrative expenses. The gross contribution from the Dutch Health Insurance Fund is derived from the most recently received provisional budget calculation. The equalisation, subsequent costing, HKC and safety net scheme have been determined on the basis of the relevant text of the section Uncertainties in the health care industry in the Risk Management Paragraph. The recognised gross written premiums are entirely earned inside the Netherlands. The HKC premium paid amounts to 66.5 million and was deducted as reinsurers share. 19. INVESTMENT INCOME ALLOCATED FROM THE NON-TECHNICAL ACCOUNT TO THE TECHNICAL ACCOUNT The allocation of the return on investments to the technical account is based on a normative rate of return related to insurance liabilities based on ALM-studies. The so determined results on investments from insurance activities are accounted for in the technical account. Achmea Zorgverzekeringen N.V. 72

73 Notes to the Consolidated Financial Statements Results on investments with no relation to the insurance liabilities will be accounted for in the non-technical account. 20. OTHER TECHNICAL INCOME OWN ACCOUNT (X 1,000) CLAIMS AND MOVEMENTS IN INSURANCE LIABILITIES (X 1,000) GROSS REINSURANCE GROSS REINSURANCE The amounts included in this item relate to all the claims and benefits to be allocated to the financial year, including the claims handling costs, and increased or decreased by the movement in the Insurance liabilities. In addition, the HKC contribution received was deducted as reinsurers' share. The expected settlement amounts arising from overstatement and understatement of funding of hospitals for the years 2012 to 2014 inclusive have been accounted for in the income statement. 22. OPERATING EXPENSES (X 1,000) Achmea introduced a new method in 2014 for allocating costs relating to support staff departments to Achmea Zorgverzekeringen N.V. This change provides an improved insight in the actual operating expenses of Achmea Zorgverzekeringen N.V. The expenses for shared service centers and corporate expenses are allocated to Achmea Zorgverzekeringen N.V. based on the activities performed. Until 2013 these were based on fixed amounts and/or possibility to influence the costs based on, amongst others, services provided, activities performed and/or transactions processed. For comparison, the 2013 figures are adjusted. As a result, an amount of 97 million is transferred from the other expenses to the operating expenses. For further clarification of the transactions with group companies regarding operating expenses, please refer to section Related party transactions. Acquisition costs Acquisition costs are costs related to the entering into policies (including commissions paid to third parties). These costs are charged directly to the result of the financial year. Achmea Zorgverzekeringen N.V. 73

74 Notes to the Consolidated Financial Statements Administrative expenses All personnel with the exception of the personnel of OZF Achmea Zorgverzekeringen N.V. is employed by Achmea Interne Diensten N.V. The personnel costs and other operating expenses associated with the activities of Achmea Zorgverzekeringen N.V. are charged from group companies to Achmea Zorgverzekeringen N.V. Achmea Interne Diensten N.V. allocates the pension expenses to the various Achmea Group entities. Allocation is effected on the basis of the pensionable salary of the current employees. For more information, please refer to section Related party transactions. All personnel of OZF Achmea Zorgverzekeringen N.V. is employed by OZF Achmea Zorgverzekeringen N.V. The personnel costs of the current personnel amount to 1.2 million (2013: 1.4 million). These costs are reported under the operational expenses. Auditor s fees By virtue of Book 2, Title 9, Article 382a, section 3 of the Dutch Civil Code, the individual components of our external auditor s fees are not shown. To this end, please refer to the Consolidated Financial Statements of Achmea B.V. 23. OTHER TECHNICAL EXPENSES OWN ACCOUNT (X 1,000) The increase of release of the provision for doubtful debts is due to the change in the composition of the debtors portfolio and better payment behaviour. 24. INVESTMENT INCOME DIRECT INCOME (X 1000) BY ACCOUNTING TREATMENT BY CATEGORY BY TYPE Achmea Zorgverzekeringen N.V. 74

75 Notes to the Consolidated Financial Statements REALISED GAINS ON INVESTMENTS (X 1000) BY ACCOUNTING TREATMENT BY CATEGORY UNREALISED GAINS ON INVESTMENTS (X 1,000) BY ACCOUNTING TREATMENT BY CATEGORY INVESTMENT EXPENSES ADMINISTRATIVE AND INTEREST EXPENSES (X 1,000) IMPAIRMENTS ON INVESTMENTS (X 1,000) BY ACCOUNTING TREATMENT BY CATEGORY Achmea Zorgverzekeringen N.V. 75

76 Notes to the Consolidated Financial Statements REALISED LOSSES ON INVESTMENTS (X 1,000) BY ACCOUNTING TREATMENT BY CATEGORY OTHER FINANCIAL INVESTMENTS: 27. UNREALISED LOSSES ON INVESTMENTS (X 1,000) BY ACCOUNTING TREATMENT BY CATEGORY OTHER INCOME (X 1,000) OTHER EXPENSES (X 1,000) Achmea Zorgverzekeringen N.V. 76

77 Notes to the Consolidated Financial Statements In 2014 non-recurring charges are allocated by Achmea Interne Diensten N.V. and are considered to be no part of insurance business. These costs consist of pension charges due to due to settlement of the pension contract as from 2014 ( 67.2 million) and restructuring charges ( 25.2 million) due to our Acceleration and Innovation change programme. Achmea Zorgverzekeringen N.V. 77

78 Notes to the Consolidated Financial Statements 30. RISK MANAGEMENT INTRODUCTION Achmea Zorgverzekeringen N.V. is part of Achmea Group and falls within the scope of the overall risk management structure within Achmea Group. Where applicable, specific information regarding risks and risk control measures for Achmea Zorgverzekeringen N.V. (including its 100% subsidiaries) is included. Achmea Zorgverzekeringen N.V. offers supplementary health insurance and via its 100% subsidiaries basic health insurance. In the following sections we outline Achmea s approach to risk management: A. Insurance risk B. Market risk C. Counterparty default risk D. Liquidity risk E. Operational risk F. Compliance For each risk category a description is given of the risk profile, our risk response and a sensitivity analysis when relevant. For a description of our risk management framework including a description of our risk appetite and risk governance we refer to the Risk Management section of the Report of the Board of Directors. A INSURANCE RISK Insurance risk is defined as the risk of loss, or of adverse change in the value of insurance liabilities, resulting from inadequate pricing and provisioning assumptions. Catastrophe risk and concentration risk, if present, are included separately in the risk types mentioned. Achmea Zorgverzekeringen N.V. and its 100% subsidiaries are exposed to health risk as a result of its insurance products. The Insurance Risk Policy describes how insurance risks are managed, our risk response. A key ingredient is the Product Life Cycle (PLC) approach. This is described first. Subsequent sections cover each insurance risk type, providing more detail on the risk profile, the risk response and sensitivities. PRODUCT LIFE CYCLE (PLC) APPROACH The Product Life Cycle (PLC) approach is used in order to set down details of the management of insurance risk. This cycle encompasses: - Business planning - Product development - Underwriting - Reinsurance - Policy management - Claim process and reserving - Assessment of assumptions - Reporting & Analysis - Product Review & Portfolio Analysis For the introduction of new insurance products, Achmea has formulated a product approval and review policy. In the product development process the target group and the client needs are used to determine the coverage, the conditions, the price and the underwriting criteria. These are used to calculate the anticipated loss burden which establishes the risk premiums. For the financial expectations and to quantify the risks, a profit test is performed. The Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden N.V. (NHT) covers all claims on Dutch policies related to terrorism attacks of up to 1 billion. Achmea Zorgverzekeringen N.V. and its 100% subsidiaries pays annual premiums to the NHT and guarantees totalling 35 million in 2014 (2013: 36 million). Terrorism claims above this maximum are excluded in the policies. In Health Netherlands, because of the risk-absorbing effect of the settlement of health costs, reinsurance currently does not play a role. Achmea Zorgverzekeringen N.V. 78

79 Notes to the Consolidated Financial Statements Achmea has an active policy to settle claims. As soon as reasonably possible, an arrangement is made with the claimant, so that the risk of further growth of claims is mitigated. For each claim a provision is made where the objective is that the average run-off result is positive. The Insurance liabilities are tested at least twice a year for adequacy, and more often if deemed necessary. Assumptions are used in pricing, product development and the liability adequacy test. On an annual basis an assumptions study is carried out where each assumption is evaluated. The study is based on both our own history, portfolio data in line with the strategy of the Business Plan phase, and on the external publications from, for example, the Association of Insurers, Zorginstituut Nederland and Zorgverzekeraars Nederland, the Actuarieel Genootschap and the Uitvoeringsinstituut werknemersverzekeringen. Other important phases in the management of insurance risk are the business plan process, underwriting process, policy management and reporting and analyses. - The business plan sets out the plans for developing the portfolio over the next three years. - The underwriting process consists of assessing, accepting (under possible conditions) and pricing individual risks within existing product ranges. For the Dutch basic health insurance, the Health Insurance Law is followed under which a general obligation to accept is in force. - Policy management deals with the administration of individual policies as well as portfolios. - Finally, all aspects are subject to a periodic analyses, review and reporting. HEALTH RISK Health risk is defined as the risk of loss or of adverse change in the value of insurance liabilities resulting from: - changes in the level, trend, or volatility of the expenses incurred in servicing insurance contracts; - fluctuations in the timing, frequency and severity of insured events, and in the timing and amount of claim settlements; - significant uncertainty of pricing and provisioning assumptions related to outbreaks of major epidemics, as well as the unusual accumulation of risks under such extreme circumstances; the changes in the level, trend or volatility of the underlying risk drivers (longevity rates, incidence rates, lapse rates, expenses, recovery and revision rates) for disability insurance. Health risk is present in medical expenses (Health NSLT). MEDICAL EXPENSES Risk profile The health insurance system in the Netherlands consists of two components: a basic and a supplementary insurance. Achmea Zorgverzekeringen N.V. and its 100% subsidiaries offer both basic and supplementary insurance to individual and group policyholders. For the basic health insurance Achmea offers the direct settlement ( natura ), the refund ( restitutie ) and the combination policy. For the supplementary insurance a refund policy is offered. HEALTH PORTFOLIO ANALYSES ( MILLION) LIABILITIES GWP % LIABILITIES GWP % The basic insurance is mandatory for anyone who lives or works in the Netherlands and must be bought with a health insurer in the Netherlands. Each insurer has a duty to accept. It covers the basic standard of care and the 100% subsidiaries of Achmea Zorgverzekeringen N.V. offer the three kind of insurance policies (direct settlement, refund and the combination). Premiums for the basic health insurance are largely influenced by political decision-making. The Dutch government determines the extent of coverage under the basic insurance package and the conditions applicable to the basic insurance package, including enrolment and the maximum discount for group contracts (10% of the gross premium). In addition, the government determines the payments from the health insurance equalisation fund to insurers and the standard nominal premium, the sum of which should be sufficient to cover the initially expected nationwide costs. Achmea Zorgverzekeringen N.V. 79

80 Notes to the Consolidated Financial Statements In addition to the health insurance premiums received from customers, Achmea receives compensation from the equalisation fund that is financed by employers and the Dutch government. Payments by this fund depend on the risk profile of the portfolio of insured customers. In combination with the standard nominal premium, payments from this fund are expected to equalise the claims level for all insurers. Therefore, in such a system with risk-compensation measures, the risk of a non-average portfolio of insured customers is in general supposed to be limited. These risks cover, amongst others, age, gender, medical status, type of employment, socio-economic status and geographic location, as well as an increase in the overall cost of health care. On average, the total premium (including fund payments) of homogeneous risk groups should equal their costs. Thus in this regard health insurance is no different from non-life and additional health insurance. However, for some costs, there still exist risk equalization compensation ( ex post ) which reduce the risk, namely for mental health care and hospital care (as of 2014). But these mechanisms will be greatly reduced in the following years. Supplementary health insurance offers policyholders an opportunity to expand the cover provided by the basic health insurance. This insurance is optional and is comparable in nature and method to non-life insurance. The cover provided by these insurances is not tied to government stipulations and the insurer has the opportunity to differentiate the premium. Achmea Zorgverzekeringen N.V. offers a variety of general and dedicated supplementary health insurance packages. Premiums for supplementary health insurance are tailored to the cover offered. As of 2015, the long-term care from the AWBZ is transferred to the Basic Health Risk (Health Insurance Act). For all insurers and for Achmea Zorgverzekeringen N.V. and its 100% subsidiaries the transfer of the AWBZ entails considerable financial risks. It provides an increase in the capital requirement under Solvency I and also under Solvency II (Partial Internal Model). The uncertainties for a health insurer are specifically in basic health insurance, and occur for various reasons. Uncertainties in the healthcare industry The current personal health insurance system consists of two parts. The first part is the basic health insurance scheme, which is a compulsory insurance scheme for all residents of the Netherlands and for all non-residents subject to wage tax in respect of work performed in the Netherlands under an employment relationship. It is the government that lays down the coverage provided as basic health insurance in practice. The health insurer is under an obligation to accept all persons who qualify as insured persons, irrespective of their age or health risks. What s more, the nominal premium that the insurer charges the insured person must be the same for all insured persons. The second part of the system is the (voluntary) supplementary insurance scheme. The coverage provided by this insurance is not governed by government regulations. Furthermore, the insurer has the option of applying premium differentiation to this insurance. Funding system regarding the cost of hospital care and mental healthcare The current funding system for hospital care and mental healthcare is creating a number of uncertainties for health insurers. These will be discussed briefly below. Please note that this section confines itself to the system in force in A. Hospital care: the system of DOT and rules for registration and claims As a result of the complexity of the in 2012 changed DBC-system, the size of the health costs of hospital care in 2014 is still uncertain. With the settlement of the so-called self assessments are most of the uncertainties regarding 2012 and 2013 solved, conform the mandate of the Dutch Health authority (Nederlandse Zorgautoriteit, NZa). Regarding 2014 there are still uncertainties because the results of the self assessments can not exactly be projected and no research has been done by hospitals yet. Achmea Zorgverzekeringen N.V. agreed their arrangements with hospitals for the claims year by means of ceiling contracts (or contract prices) and thus limiting its risks to a significant extent. B. Hospital care: determining the fixed/variable ratio The ratio between the fixed component of hospital costs (which is 100% based on subsequent settlement) and the variable component (which is not settled subsequently) is essential to the result of health insurers. A pre-set fixed/variable ratio will apply for each subsegment of the regulated segment of hospital care. These are registered in a subsequent settlement scheme and are not hospital-specific. Achmea Zorgverzekeringen N.V. 80

81 Notes to the Consolidated Financial Statements There is still (however limited) uncertainty about the fixed/variable ratio for the claims still to be submitted and the allocation of the contract prices to the services and, thus to the fixed or variable part. C. Funding of mental healthcare In 2014, for the mental healthcare institutions a performance-based funding is used, comparable to the hospital care. In practice, this means that the health insurers risk is determined by the system how the insurer bought the mental healthcare at the mental healthcare institutions. The insurance-related risk for mental healthcare is limited for the health insurer, thanks to the High Cost Compensation (HKC), the bandwidth scheme (see below) and the 100% subsequent settlement of the mental healthcare for insured persons less than 18 years old. D. Uncertainties resulting from the effects of the risk equalisation system Due to the risk equalisation system used, it takes about three years before the individual health insurers can proceed to a definitive settlement. Accordingly, uncertainties regarding the equalisation contributions accumulate during this period. The results of the second provisional settlement 2011 are available. This gives the health insurer useful information on the outcomes of the risk equalisation under the Health Insurance Act up to and including 2011 and thus also a more accurate picture of the position for the years after The availability of the results for these years has also reduced the degree of uncertainty about the effects of allocation errors. Hospitals are trying harder and harder to submit accurate claims. No revenue recognition statements for the year 2014 will be made for the health insurers. This translates itself into correspondingly greater risks for the health insurers because inaccurate claims are still being entered in the risk equalisation system. The uncertainties discussed above could affect both the result for 2014 and the level of the technical provisions item for the basic health insurance as at the close of Mechanisms available to reduce the uncertainties Apart from the contractual provisions, the industry has two mechanisms it can use to compensate for the above uncertainties: the risk equalisation model and an accelerated information system. These two systems are discussed below. 1. The risk equalisation model From an insurance point of view, it is impossible to combine an obligation to accept all persons with a ban on premium differentiation unless there is also a system of income settlement that does not involve the insured person. A risk mitigation system is also needed to mitigate the above-mentioned uncertainties in the funding of hospital care and mental healthcare. This system, the risk equalisation model, consists of two components: the ex-ante component and the ex-post component. During a particular year (ex-ante), a health insurer receives a contribution from the equalisation fund for each insured person that is calculated using a number of equalisation criteria. A notional premium is deducted from this contribution. This notional premium is the base used to establish the health insurer's nominal premium. The ex-ante contribution means that the health insurer receives a net contribution per insured person that corresponds to the forecasted healthcare expense for that insured person. Although this means that at the level of the individual insurer the expected claims can be largely covered by the expected revenues, the actual claims will deviate from the forecast. This is why subsequently, the contribution from the equalisation fund is partly brought into line with the actual claims. This also reduces some of the uncertainty relating to the funding of both hospital care and mental healthcare. This is the ex-post component, which consists of a number of steps. Ex-post compensation mechanisms The precise format and degree of deployment of the ex-post compensation mechanisms is decided on beforehand. This enables health insurers to take the effects of the ex-post compensation mechanisms into account when calculating their premiums. In 2014, these mechanisms comprise the following four components: a. The macro-cost supporting policy The supporting policy has two components. Achmea Zorgverzekeringen N.V. 81

82 Notes to the Consolidated Financial Statements 1. Once subsequent settlement has been carried out for an insured person, the costs for that insured person are mapped out. Next, the equalisation contribution is increased to the level of the macro-costs. After this, the difference between the macro-costs and the macro-equalisation contribution (after the subsequent settlement for the insured person) is deducted from the health insurers equalisation contribution, based on an equal amount per premium-paying insured person. This adjustment prevents excess sums from having a disproportionate knock-on effect on those health insurers with a risk profile that deviates significantly from the norm. 2. This component is only deployed if changes to the package to be insured are made between the time when the equalisation contribution is granted and 1 January of the equalisation year. This part of the supporting policy is being applied to the first provisional assessment of the equalisation contribution 2014 by the ZiNL. b. High cost compensation for medicinal mental healthcare A system of high cost compensation is applied to the costs of medicinal mental healthcare for those insured persons aged 18 years or older. Costs above the threshold of 25,000 are equalised to the tune of 90%. c. Bandwidth scheme for variable hospital costs and medicinal mental healthcare If after the above compensation mechanisms have been applied the resulting variable hospital costs per premium-paying insured person payable by an insurer vary by more than 40 from the market average (either positively or negatively), then 90% of this variance will be subsequently settled with the equalisation fund. If after all compensation mechanisms have been applied the resulting costs of medicinal mental healthcare payable by an insurer vary by more than (either positively or negatively) then 90% of this variance will be subsequently settled with the equalisation fund. d. Integrated subsequent settlement of fixed costs for hospital treatment and costs of medicinal mental healthcare for insured persons less than 18 years old The fixed costs of hospital treatment and the costs of medicinal mental healthcare for insured persons less than 18 years old will be subsequently settled to the tune of 100%. Risk response Achmea Zorgverzekeringen N.V. s management is responsible for managing and monitoring health insurance risks (first line). They are supported by a professional Actuarial (Insurance Risk) function (second line) which provides policy framework, facilitates, monitors and reports the insurance risks and if necessary, escalates. Measures have been taken to mitigate the uncertainties on the amount of income stated above. Information from past years basic insurance claims is available for study and to determine standard amounts in the ex-ante risk equalisation model. Some portion of uncertainties is reduced through provisional information made available by ZiNL on budget parameters. Achmea Zorgverzekeringen N.V. and its 100% subsidiaries have taken a number of measures to mitigate the uncertainties on cost of care. The Insurance liabilities for outstanding claims and receivables from Dutch Health Insurance Fund are based on best estimates of expected amounts. A prudent approach to uncertainties is taken into account by a separate risk margin provision. Claim estimates are generated periodically by both care procurement and actuaries in order to gain insight into relevant developments and the adequacy of insurance liabilities. Achmea Zorgverzekeringen N.V. and its 100% subsidiaries also use a customer value model. With the customer value model the result of existing and possible new group contracts (prospects) is estimated and uncertainty of the result is reduced. In addition to these measures, there is more information available on a national level about the macro claims. Furthermore Achmea Zorgverzekeringen N.V. and its 100% subsidiaries reduced the upward potential of the financial risk for hospital and mental health care claims by the use of the specific contractual agreements with health care providers about a cap of the total health costs (ceilings and fixed sum contracts). Based on annual evaluations, it has been decided not to re-insure the health risks, other than the legal obligations as HKC (high cost compensation, for the years up to 2011) and MHK ( meerjaren hoge kosten ) from Sensitivities The Care and Health division performs a sensitivity analysis. An impact analysis is performed around the many uncertainties concerning the basic health insurance. Primarily, these are the uncertainties surrounding the forecasting of the health care costs and estimating the various budget components from the risk equalisation. Achmea Zorgverzekeringen N.V. 82

83 Notes to the Consolidated Financial Statements There are several insurance uncertainties (including macro costing and revenue offsetting the greatest impact) and scenarios are calculated in terms of the impact on the profit for the year. For the calculation of the maximum impact (in other words, based on the worst-case scenario) on the net result that may occur over a horizon of one year a certainty level of 99.5% is assumed for both the budget components and the cost of care. The table below lists the results of this impact analysis of Basis Health Insurance. They are compared with the available capital including prudence margin in Insurance liabilities. If the change between budget items and the cost of care can be absorbed with the capital (including prudence) then the capital with a certainty of 99.5% is sufficient for the worst-case situation. RESULTS IMPACT ANALYSES COMPARED TO AVAILABLE SOLVENCY ( MILLION) The performed impact analyses at the end of 2014 have shown that the existing capital in conjunction with the prudence margin is more than sufficient to undergo the Worst Case (with a confidence level of 99.5%) in a one year horizon. B MARKET RISK Market risk is the risk of loss resulting from the level or volatility of market prices of financial instruments which have an impact upon the value of the assets and liabilities. It encompasses equity risk, interest rate risk, property risk, spread risk and currency risk. Achmea Zorgverzekeringen N.V. and its 100% subsidiaries are exposed to market risk in its insurance operations. Specific risk events which could have a significant impact are extreme shocks on the financial markets and an extreme increase of the interest rates. ALM Framework For its Dutch insurance companies, including Achmea Zorgverzekeringen N.V. and its 100% subsidiaries, Achmea manages market risk positions within an Asset & Liability Management (ALM) framework developed to achieve long-term investment returns in excess of its obligations under insurance and investment contracts. The ALM s key objective is to maximise the risk versus expected returns within the defined risk appetite. The total investment portfolio of Achmea is split into a matching portfolio and a return portfolio for generating investment income by taking market risks. The composition of the matching portfolio is based on the liquidity of the liabilities. Illiquid liabilities are matched using a higher percentage of credits then liquid liabilities. A risk budget for market risk of the return portfolio is set based on the ALM study. The budget for market risk is determined on the basis of Achmea s risk appetite which sets limits in terms of the relation of available capital to required capital, the maximum loss accepted, the maximum share of capital allowed for financial risks and a targeted credit rating. In the ALM study different asset mixes are tested for their effect on expected profit and these limits of the risk appetite. This research is executed at least annually or more frequently when appropriate. Following this an optimal return portfolio (the strategic investment mix) is determined that fits the set risk budget and provides the highest return given additional restrictions on, for example, liquidity and minimum size per asset class. Periodic monitoring is in place, focussing on deviations from the strategic mix, and managing the interest rate exposure. Investment decisions are taken at Group level, but the limits have to be adhered to by each distinct regulated entity for which a separate portfolio of assets is maintained. Investments of Achmea Zorgverzekeringen N.V. The capital of Achmea Zorgverzekeringen N.V. and its 100% subsidiaries is jointly invested in two closed-end common funds: - Achmea fixed income health Fund; - Achmea variable securities health Fund. The Achmea fixed income health Fund invests in fixed income investments and the Achmea variable securities health Fund invests in equities. These two funds are fully consolidated in the consolidates annual report of Achmea Zorgverzekeringen N.V. The funds consist of 91% fixed income investments. Of these 43% has an AAA/rating, 32% has an AA-A/rating, 22% has a BBB-BB/rating and 3% is unrated. The investments can be bought and sold on a day-to-day basis. Surplus of liquidity is invested in short-term fixed-income investments. Achmea Zorgverzekeringen N.V. 83

84 Notes to the Consolidated Financial Statements The following sections provide if relevant more detail per risk type. EQUITY RISK Equity risk is the risk of loss resulting from the sensitivity of the values of assets and liabilities to changes in the level or volatility of market prices of equities. Achmea Zorgverzekeringen N.V. s exposure to equity risk is divided among the following sectors: Consumer ( 49 million), Energy ( 11 million), Financials ( 51 million), Healthcare ( 20 million), Industries ( 18 million), Information Technology ( 21 million), Materials and Construction ( 7 million), Services ( 12 million) and other sectors ( 36 million). Sensitivity of equities for a change in market value of +10% is 22.3 million (2013: 18.7 million) and -10% is million (2013: million). As Achmea Zorgverzekeringen N.V. s equity investments are classified as Available for sale this will in general only affect total equity as, besides impairment losses, changes in market values are only reflected in Total equity and not in Profit for the year. Total equity will be 0.9% lower if equity investments decline by 10%, and solvency will be 1.7% lower. INTEREST RATE RISK Interest rate risk is the risk of loss resulting from the sensitivity of the values of assets and liabilities to changes in the term structure of interest rates (both nominal and real) or in the volatility of interest rates. Risk response Achmea s interest rate policy for the Dutch insurance entities is to manage the interest rate risk of investments and liabilities on an economic basis using different scenarios for parallel shifts in the interest rate curves. The negative change in the difference between assets and liabilities must remain within an allowed bandwidth; changes in the composition of the investment portfolio are implemented to correct mismatches. Interest rate derivatives are used to improve the matching of insurance liabilities as part of this process. The interest rate sensitivity of the net position is assessed on a monthly basis, both on regulated entity and Achmea Group level. For this assessment, parallel shocks are applied to the investment portfolios. The sensitivity for a shock of 40 basis points and 100 basis points has to be within certain bandwidths. These are -1% and -3% of available capital. Achmea hedges interest rate risk that originates from the insurance liabilities, by means of an overlay management process that makes use of interest rate derivatives (swaps and swaptions). The total value of the interest rate derivative position ultimo 2014 is nil (2013: nil). Sensitivities The actual sensitivities are within the bandwidth of the policy for the Dutch insurance entities. For internal monitoring and management, Achmea uses scenarios of interest rate sensitivity shocks with effect presented on economic basis. The result of Achmea Zorgverzekeringen N.V. may be influenced depending on the accounting classification of affected balance posts or recognition of impairments. The impact of an increase in interest rates of 1% on available capital at year-end 2014 is million. The impact of a similar size decrease is approximately million. Sensitivities only relate to parallel shifts in the interest rate curves. SCENARIO INTEREST RATE SHOCKS AVAILABLE CAPITAL EFFECT INTEREST RATE SHOCK -1% EFFECT INTEREST RATE SHOCK -0.4% EFFECT INTEREST RATE SHOCK +0.4% ( MILLION) EFFECT INTEREST RATE SHOCK +1% SPREAD RISK Spread risk is the risk of loss resulting from the sensitivity of the values of assets and liabilities to changes in the level or volatility of credits spreads over the risk-free interest rate term structure. Achmea Zorgverzekeringen N.V. s main exposure to spread risk is from investment grade credits ( million). Achmea Zorgverzekeringen N.V. mitigates the spread risk through a conservative investment strategy that balances the exposure types (corporates, financials, covered bonds, government related bonds and asset backed securities), the maturity profile and the regional allocation. The credit rating of the fixed income instruments is presented in the counterparty default risk paragraph. Achmea Zorgverzekeringen N.V. 84

85 Notes to the Consolidated Financial Statements CURRENCY RISK Currency risk is the risk resulting from the sensitivity of the values of assets and liabilities to changes in the level or volatility of currency exchange rates. Risk profile The exchange rate risk table below shows the total exposure to the major currencies at year-end. EXCHANGE RATE RISK ASSETS TOTAL EXPOSURE ( MILLION) NOTIONAL AMOUTS NOTIONAL AMOUTS OF THE HEDGE OF THE HEDGE INSTRUMENTS NET EXPOSURE TOTAL EXPOSURE INSTRUMENTS NET EXPOSURE LIABILITIES NET POSITION Risk response Achmea s policies on foreign currencies and hedging strategies do not aim to fully hedge foreign currency exposure. Exposure in the investment portfolio is generally hedged. Achmea Zorgverzekeringen N.V. is exposed to currency risk, specifically in US dollars, as part of the regular investment portfolio (equities and fixed-income investments). In 2014, the investment portfolio, denominated in US dollars, was hedged to a large extent. The table below summarises the notional amounts and fair values of the currency derivatives of Achmea Zorgverzekeringen N.V. and its 100% subsidiaries: CURRENCY DERIVATIVES NOTIONAL AMOUNT FAIR VALUE ASSETS ( MILLION) FAIR VALUE FAIR VALUE FAIR VALUE LIABILITIES NOTIONAL AMOUNT ASSETS LIABILITIES Achmea Zorgverzekeringen N.V. 85

86 Notes to the Consolidated Financial Statements During 2014, Achmea Zorgverzekeringen N.V. only applied fair value hedge accounting. Fair value hedge accounting implies that the fair value movements from the hedging instrument and the fair value movements from the hedged item that are attributable to the hedging risk are recognised in the income statement. Foreign exchange contracts are used as hedging instruments. The fair value of a foreign exchange contract varies identically with the foreign exchange rate and this equals the fair value changes related to foreign currency differences of an investment in a foreign currency. Therefore, hedge accounting related to foreign exchange can be 100 per cent effective. These results are presented below: RESULT ON HEDGE ACCOUNTING Sensitivities Achmea Zorgverzekeringen N.V. uses scenario analysis to assess the effect of changes in foreign currency exchange rates against the euro on Total equity and Profit for the year. The table below shows the impact of a change in foreign exchange rates on total equity and profit for the year based on the situation at year-end. EURO VERSUS ALL OTHER FOREIGN CURRENCIES +10% TOTAL EQUITY PROFIT FOR THE YEAR TOTAL EQUITY PROFIT FOR THE YEAR On the basis that all other variables remain stable, a 10% decrease of the euro against all other foreign currencies at 31 December 2014 would have had the opposite effect on the amounts shown in the table above. C COUNTERPARTY DEFAULT RISK Counterparty default risk is the risk of loss resulting from unexpected default, or deterioration in the credit standing (e.g. migration), of the counterparties and debtors of Achmea Zorgverzekeringen N.V. over the forthcoming 12 months. Risk profile Achmea Zorgverzekeringen N.V. and her 100% subsidiaries are exposed to counterparty risk in the area of investments, treasury, healthcare providers, intermediaries, and policyholders. Financial assets as presented in the Consolidated Statement of Financial Position and related Notes, represent the maximum exposure to credit risk. The following table provides information on the aggregated counterparty risk exposure for the financial investments categorised by external rating and assets not rated. EXTERNAL CREDIT RATING ASSETS ( MILLION) 2014 AAA SOVEREIGN AAA AA A BBB BELOW BBB NOT RATED TOTAL Achmea Zorgverzekeringen N.V. 86

87 Notes to the Consolidated Financial Statements EXTERNAL CREDIT RATING ASSETS ( MILLION) 2013 AAA SOVEREIGN AAA AA A BBB BELOW BBB NOT RATED TOTAL The table below provides an overview of asset and liabilities subject to offsetting, enforceable master netting agreements and similar agreements. FINANCIAL ASSETS SUBJECT OF OFFSETTING, ENFORCEABLE MASTER NETTING ARRANGEMENTS AND SIMILAR AGREEMENTS ( MILLION) 2014 GROSS AMOUNTS OF RECOGNISED FINANCIAL ASSETS GROSS AMOUNTS OF RECOGNISED FINANCIAL LIABILITIES SET OFF IN THE STATEMENT OF FINANCIAL POSITION NET AMOUNTS OF FINANCIAL ASSETS PRESENTED IN THE STATEMENT OF FINANCIAL POSITION FINANCIAL INSTRUMENTS CASH COLLATERAL RECEIVED (EXCLUDING SURPLUS COLLATERAL) NET AMOUNT 2013 The following table provides impairment charges for bonds categorised by external (S&P) credit ratings. IMPAIRMENT CHARGES BONDS RECOGNISED IN INCOME STATEMENT ( MILLION) The following table provides an overview of the carrying amounts of financial assets that are past due or have been impaired and the ageing of financial assets. Achmea Zorgverzekeringen N.V. 87

88 Notes to the Consolidated Financial Statements FINANCIAL ASSETS THAT ARE PAST DUE OR IMPAIRED NEITHER PAST DUE NOR IMPAIRED PAST DUE BUT NOT IMPAIRED IMPAIRED ASSETS ( MILLION) TOTAL CARRYING AMOUNT 2014 CARRYING AMOUNT CARRYING AMOUNT PRINCIPAL 0-3 MONTHS 3 MONTHS - 1 YEAR 1 YEAR MORE THAN 1 YEAR PAST DUE CARRYING AMOUNT AFTER IMPAIRMENT FINANCIAL ASSETS THAT ARE PAST DUE OR IMPAIRED NEITHER PAST DUE NOR IMPAIRED PAST DUE BUT NOT IMPAIRED IMPAIRED ASSETS ( MILLION) TOTAL CARRYING AMOUNT 2013 CARRYING AMOUNT CARRYING AMOUNT PRINCIPAL 0-3 MONTHS 3 MONTHS - 1 YEAR 1 YEAR MORE THAN 1 YEAR PAST DUE CARRYING AMOUNT AFTER IMPAIRMENT Receivables include 1,110 million (2013: 1,320 million), which are payments to hospitals and other health care providers regarding the delayed invoicing caused by the implementation of the DBCs. Reference is made to Note 7 Receivables. Risk response The counterparty risk group level governance framework is defined in the Counterparty Risk Policy by explicitly describing roles and responsibilities, the process for initiating transactions with new counterparties, the limit distribution per counterparty within Achmea departments and legal entities and the limit revision and exposure control process. The principles of this policy are linked to the Achmea Capital Adequacy Policy. In this way, exposure concentrations are ensured to be conservatively less than capital surplus on both Group level and the level of Achmea Zorgverzekeringen N.V. and its 100% subsidiaries. The main prevention objective in managing counterparty risk is to prevent concentrations, ensure that portfolios are well diversified and ensure that risks are sufficiently reduced or mitigated. Alternatively, the main contingency objective in managing counterparty risk is to ensure that recovery processes are well organised and capital surplus is sufficient to withstand credit events. An important element in this policy is to require ratings from multiple agencies and use the second-best rating to offset subjectivity. Furthermore, Achmea monitors the credit default swap (CDS) spread of financial institutions on a daily basis and lowers the exposure limit if the CDS spread stays too high for too long. Concentration limits enforce diversification across counterparties. Additionally, investment management requirements ensure further diversification across counterparties, regions and sectors on investment portfolio level. Achmea Zorgverzekeringen N.V. 88

89 Notes to the Consolidated Financial Statements At the heart of this policy is a rating-based system of exposure limits per counterparty as given in the following table: MAXIMUM GROUP-LEVEL EXPOSURE ( MILLION) Derivative transactions are only initiated with counterparties that meet Achmea s rating requirements and collateral requirements. ISDA master agreements (International Swaps and Derivative Association) are in place between Achmea entities and its derivative counterparties. The policy defines collateral requirements that must be specified in the individually negotiated Credit Support Annexes. Only government bonds issued by highly rated countries and cash collateral in Euros, US dollars, British pounds and Swiss francs are accepted as collateral.. Independent valuation of derivatives, daily settlement of collateral and increasing haircuts related to remaining maturity of the received collateral, further reduces the counterparty default risk. In response to European Market Infrastructure Regulation (EMIR), Achmea has an explicit policy in place for both centrally cleared OTC derivative contracts and non-centrally cleared derivative contracts. There is an explicit policy for managing counterparty risk from the portfolio of government bonds in the core of Achmea s investment portfolio. With respect to counterparty risk of receivables regarding private persons unable to pay their health premiums there are procedures are in place. The Dutch government has a policy that obliges the insurer to provide all Dutch citizens with health insurance. As a consequence, private persons who are unable to pay their premium must be provided health care by law. Hence, on the liability side we cannot terminate this risk. To enable insurers to manage this risk, the Dutch government has put in place regulations through the Dutch Health Insurance Fund (ZiNL), which compensates for all unearned premiums due for more than six months. This risk for Achmea is therefore limited to at most six months of unearned premiums per private person. In addition to this, Achmea holds capital to buffer for the risk of more private persons failing to make their payments. D LIQUIDITY RISK Liquidity risk is the risk that actual and potential payments and collateral obligations cannot be met when due. Achmea distinguishes between funding liquidity risk and market liquidity risk. The first type of liquidity risk is defined as the risk that a company will not be able to meet efficiently both expected and unexpected current and future cash flows and collateral needs without affecting either daily operations or the financial condition of the company. The latter is defined as the risk that the company cannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption. Risk profile Maturity analyses of the insurance liabilities are presented in Note 11 Insurance liabilities. Risk response Achmea s funding strategy is based on assuring access to international capital and credit markets at low cost, underpinned by credit ratings in line with its peers. In general, each operation is responsible for funding its own activities. Access to capital and credit markets are arranged both at legal entity and at holding level. The holding may be involved in financing the operations of certain subsidiaries, through capital increases or subordinated loans. Funding at holding level could come from dividends from subsidiaries, issuance of debt and committed and uncommitted credit lines with a number of national and international banks. Achmea Zorgverzekeringen N.V. 89

90 Notes to the Consolidated Financial Statements The following risk appetite is defined with respect to liquidity risk: - To maintain sufficient liquidity in a moderate stress scenario on both holding and legal entity levels to be able to meet its liquidity needs at all times. - To maintain sufficient liquidity and flexibility in Achmea s risk profile in order to be able to reduce Achmea s market and counterparty default risk by making 1 billion liquid within 3 months. - To maintain sufficient liquidity and flexibility in Achmea s risk profile in order to reduce its economic capital, based on a 99.95% confidence level, by at least 350 million within three months. The consequences of the risk appetite statements on liquidity are further elaborated in the Liquidity Risk Policy. Linked to the business plan, liquidity planning takes place at both subsidiary and holding level. Those plans are updated on a monthly basis and more often if necessary. Reporting to the FRC on the liquidity position takes place on a quarterly basis. A liquidity contingency plan is drafted describing the procedures and options to arrange liquidity in times of stress. This plan describes possible actions and sources of funds taking into account the behaviour of other counterparties. Achmea has defined relevant metrics for each of its legal entities, including Achmea Zorgverzekeringen N.V. and its 100% subsidiaries, as well as the Holding. The metrics aim to provide a forward looking view on the liquidity position and liquidity risk exposure for various time horizons under normal conditions as well as for a range of moderate and extreme stress events. Combined with limits, they support Achmea to satisfy its risk appetite statements as defined by the FRC and provide early warning signs when Achmea runs the risk of having insufficient liquidity to meet its liabilities. Furthermore, they enable Achmea to provide quantitative information about its liquidity position on different levels to supervisors and market participants. With regard to extreme scenarios, several contingency actions are defined in order to generate liquidity. Insurance specific liquidity risk is managed by divisions. In their liquidity planning, cash inflows and outflows from insurance activities are taken into account. Huge distortions could arise in case of a catastrophe, when payments have to be made, while corresponding payments are not yet received from reinsurers, and for payments from health pooling organisations in the Netherlands. Liquidity risk within the insurance operations of Achmea Zorgverzekeringen N.V. and its 100% subsidiaries is mitigated through the availability of cash and cash equivalents and investments in liquid assets. E OPERATIONAL RISK Operational risk is defined as the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events. Risk profile Operational Risk includes the following 7 categories of risk events and management actions: Internal Fraud, External Fraud, Execution, delivery and process-management, Clients, products and business practice, Business disruption and system failure, Damage to physical assets and Employment practices and workplace safety. Achmea recognizes from strategic assessment several material operational risks, and for each measures have been taken. The ambition to become the most trusted insurer puts increasing pressure on the organisation. From various programs such as customers interest central, trusted communication and new customer service concepts further interpretation is given. The Product Approval and Review Process is improved. A dedicated team for product approval is available to assist were necessary. Further improvement of the process is necessary. ICT systems are essential in realising the ambition to e-insurer. There is a risk that too little speed in the realisation of target architecture is made. The sophistication and frequency of cybercrime are increasing. The risk is that attacks are not recognised in time and are insufficient decisively handled. Measures have been taken in the form of setting up a Security Operating Centre, phasing out of outdated infrastructure and streamlining security processes. An Information risk Management Policy is published and being implemented. Changing customer behaviour and (new) competition necessitate to continuous adjustments. There is a risk that the organisation does not realise these adjustments sufficiently fast. Integrity and behaviour of staff is an inherent risk. Attracting and retaining staff with the right skills and talents is challenging. Risk response Operational Risk Management (ORM) is the process that aims to identify the uncertain events that can impede the achievement of the business objectives and to manage them within the limits of operational risk appetite of the organisation. In this way the ORM process supports the organisation in achieving its objectives. Achmea Zorgverzekeringen N.V. s management is responsible for managing and Achmea Zorgverzekeringen N.V. 90

91 Notes to the Consolidated Financial Statements monitoring operational risks (first line). They are supported by a professional ORM function (second line) which provides policy framework, facilitates, monitors and reports the operational risks and if necessary, escalates. The ORM process supports management when compromising between operational risks, commercial interests and efficiency. Operational risks are mainly identified and assessed in Risk Self Assessments, supported by scenario s analysis and analysis of internal and external loss data. The divisions identify their risks, on a planned and ad hoc manner. This is with respect to strategic, tactical and operational aspects of business and projects and programs. Part of the decision making process is that the management assesses the risks against commercial interests and efficiency and then comes up with a proposal to deal with the risk (risk response). The selection is based on the extent to which management is willing to accept the risk as part of the strategy of the organisation and the costs of prevention. To support the implementation of, and compliance with, the Operational Risk Management Policy, the first and second line, periodically discuss policy compliance and, where necessary, take action. To ensure the continuity of our service during (major) crises, critical chains are identified based on business impact analysis. Where necessary, additional measures are taken. The crisis communication plan ensures clear communication with the stakeholders taking into account all forms of media. Information risks are managed in cooperation between the divisions, information management and ORM column. For regaining the public s trust in the sector, Operational Risk and Compliance participated in the drafting, implementation and enforcement of the controlled remuneration policy. Risk takers were identified, a risk analysis on the remuneration policy was performed and risk adjustment in the performance management process was taken care of. In 2014 the Operational Risk departments facilitated the assessment of strategic risks. These Strategic Risk Assessments were performed in each division and on group level in close collaboration with the Achmea Groepsraad. Management kept oversight of the identified risks and the way to mitigate these as part of the business plans. The results of the Strategic Risk Assessments are also used as input for the selection of scenarios and stress tests in the context of ORSA and the assessment of the accuracy of the Operational Risk capital. The performance of risk assessments is an ongoing process during the year enriched with the outcomes of Operational Risk scenario s which focus on further quantifying and mitigating the biggest operational risks. Operational investment policy has been outsourced to external asset managers. These asset managers operate within the investment mandate framework drawn up to this end. This document sets out the separate and relative limits for certain investment categories as well as the benchmark that must be observed and the tracking errors used to check the active management (alpha optimisation) of the investment portfolio. Achmea Zorgverzekeringen N.V. uses Vektis s price information system to settle claims. This means both current and historic price information is available at all times, and also that automated price checks can be carried out. The quality of services provided is monitored on the basis of the general policy for the outsourcing of activities. Claims processing work is outsourced to DFA, Vecozo and CHA (Clearing House Apothekers). Written agreements have been entered into with these service providers that regulate such matters as the nature and quality of the service to be provided. The processing of claims is in fact the main work carried out in Achmea Zorgverzekering N.V. s claims checking building. The claims checking building is home to a large number of retrospective checks. A number of these checks relate to the 'Farmacie (Pharmacy)' claims for which CHA has done the preliminary work. Carrying out these audits retrospectively is a good way of checking on whether CHA is complying with the quality requirements. The service that DFA provides is to reclaim the uncovered sums from the insured parties on Achmea Zorgverzekeringen N.V. s behalf. In all cases, the care provider continues to bear the bad debt risk. This reclaiming process takes a maximum of 5 months. Sums received are refunded to Achmea Zorgverzekeringen N.V. Achmea Zorgverzekeringen N.V. settles with the care provider the claims that DFA cannot collect. The quality of the services that DFA provides is also monitored using the complaints from insured parties and care providers about this activity. F COMPLIANCE Achmea defines a compliance risk as a risk one may incur when one fails to comply with applicable laws, regulations, rules, organisational standards, and codes of conduct. Failing to comply may result in legal- or regulatory sanctions, material financial loss, or reputational Achmea Zorgverzekeringen N.V. 91

92 Notes to the Consolidated Financial Statements damage. Compliance directly contributes to the ambition of Achmea to become the most trusted insurer. This ambition includes a strong focus on customer interests. Compliance will enable and supervise management to comply with laws, regulations and internal codes of conduct. Compliance has translated the most important legal provisions into compliance themes within the Achmea Control Framework and based on these themes management performs self assessments. Achmea s Laws & Regulation Committee identifies new and amended legislation and determines the impact on the organisation. Implementation is the responsibility of operational management. In case of profound impact on Achmea, the committee will advise the Executive Board to start a comprehensive implementation project. Within the organisation, the compliance function is identified at the level of group entities (including OpCo s) and at the level of Group holding. Risk & Compliance on group level is responsible for the identification of compliance issues, creating compliance awareness, providing compliance advice and the communication and monitoring of the compliance risks. Risk & Compliance has incorporated frameworks for policies and procedures. Another important element of its activities is the communication with regulators. Together with the Board Office, Risk & Compliance coordinates all contacts with the regulators. Compliance is the responsibility of Operational Management, supported by the Divisional Compliance Officer. To support the Executive Board and the coordination group, the central staff department Risk & Compliance is in charge. The Division Compliance Officer is hierarchically under the direction of the division and is functionally controlled by the Group Compliance Officer (GCO). The local Compliance Officers provide all compliance related matters to Risk & Compliance. Risk & Compliance consolidates all these items into a consolidated report to the Executive Board and Audit & Risk Committee of the Supervisory Board. There is a vast and growing amount of supervisory investigations with a huge impact on the business. Not only from local regulations but also international legislation that becomes applicable such as FATCA, UK Bribery act, European legislation on privacy etc. Much effort is required to assist the regulators in their investigations and this is coordinated by the Laws & Regulation Committee. It will be important to demonstrate that improvements from reported issues are shown according to plan. A number of initiatives from the integrated cross-divisional change agenda enhanced the focus on customers interests. With the assistance of the compliance department the customer policy information has been clarified, the product development process and customer advise processes, including Execution Only, has been improved. A relatively increasing number of incidents relates to privacy issues. This can be explained by the move of Achmea toward a digital insurer and society s increased focus on privacy issues. Risk & Compliance will give more attention to the monitoring of privacy issues and the preparation for the coming European legislation on privacy, including big data initiatives Continuous monitoring will be an important instrument to provide assurance that compliance with legal provisions is guaranteed. Achmea Zorgverzekeringen N.V. 92

93 Notes to the Consolidated Financial Statements Subsequent events On 1 January 2015, 100% subsidiary Agis Zorgverzekeringen N.V. has been merged into 100% subsidiary Zilveren Kruis Zorgverzekeringen N.V. There are no events with significant financial consequences for Achmea Zorgverzekeringen N.V. or companies involved in the consolidation of this company occurred after the balance sheet date. Authorisation of the Consolidated Financial Statements Zeist, 28 May 2015 Board of Directors of Achmea Zorgverzekeringen N.V., N.F.J. Hoogers Chairman J.E.P. Tanis The members of the Supervisory Board of Achmea Zorgverzekeringen N.V. S.T. van Lonkhuijzen-Hoekstra Interim Chairman A.C.W. Sneller Achmea Zorgverzekeringen N.V. 93

94 Company Financial Statements COMPANY BALANCE SHEET (BEFORE APPROPRIATION OF RESULT) (X 1,000) NOTES Achmea Zorgverzekeringen N.V. 94

95 Company Financial Statements COMPANY BALANCE SHEET (BEFORE APPROPRIATION OF RESULT) (X 1,000) NOTES Achmea Zorgverzekeringen N.V. 95

96 Company Financial Statements COMPANY PROFIT AND LOSS ACCOUNT (X 1,000) NOTES Achmea Zorgverzekeringen N.V. 96

97 Notes to the Company Financial Statements 1. ACCOUNTING POLICIES General In the Company Income Statement of Achmea Zorgverzekeringen N.V., use has been made of the exemption pursuant to Section 402 Book 2, part 9 of the Dutch Civil Code. Concerning the Company cash flow statement of Achmea Zorgverzekeringen N.V., use has been made of the principle according to Section of the Dutch Accounting Standards (RJ). The legally required list of participations as set forth in articles 379 and 414 of Book2 of the Dutch Civil Code has been registered with the Trade Register in Midden Nederland. Principles for the measurement of assets and liabilities and the determination of the result Achmea Zorgverzekeringen N.V. makes use of the option provided in section 362 (8) Book 2, part 9 of the Dutch Civil Code. This means that the principles for the recognition and measurement of assets and liabilities and determination of Profit for the year applied in the Company Financial Statements of Achmea Zorgverzekeringen N.V. are the same as those applied in the Consolidated Financial Statements. Investments in group companies are recognised at net asset value with goodwill, if any, recorded under intangible assets. The Company Financial Statements have been prepared in accordance with Book 2, part 9 of the Dutch Civil Code. Reference is made to the Accounting policies in the Consolidated Financial Statements for a description of the accounting principles used. All amounts in the Company Financial Statements are in thousands of euros unless stated otherwise. 2. INVESTMENTS (X 1,000) TOTAL 2014 TOTAL 2013 INVESTMENTS IN GROUP COMPANIES (X 1,000) NAME OF THE COMPANY COUNTRY CONTROLLING % 2014 CONTROLLING % 2013 BOOK VALUE 31 DECEMBER 2014 BOOK VALUE 31 DECEMBER 2013 The Investments in group companies contains subsidiaries except the participations in the closed-end common funds which are associates. In order to determine whether there is significant influence on a particular entity, the equity interest held by the other Achmea health insurers is considered in each case. Accordingly, Achmea Zorgverzekeringen N.V. exercises significant influence over the FBI s (the fiscal Achmea Zorgverzekeringen N.V. 97

98 Notes to the Company Financial Statements investment institutions) because along with the other Achmea health insurers it is indirectly represented on the FBI s board, and together with the other Achmea health insurers it jointly determines the investment policy (including its implementation), under which dividends distributed by the FBI are returned to the FBI and reinvested. Accordingly, in Achmea Zorgverzekeringen N.V. s financial statements the FBI s are recognised as investments in group companies. The abbreviated financial statements for the participations measured at fair value are set out in the following table. The figures are based on the participations latest financial statements. INVESTMENTS IN GROUP COMPANIES NAME OF THE COMPANY NATURE OF ACTIVITIES DATE OF ACQUISITION ASSETS 2014 LIABILITIES TURNOVER (X 1,000) 2014 PROFIT/LOSS BONDS ISSUED BY AND RECEIVABLES FROM GROUP COMPANIES (X 1,000) The purchase price as per 31 December 2014 of these investments amounts to 39.9 million (31 December 2013: nil). OTHER FINANCIAL INVESTMENTS (X 1,000) AVAILABLE FOR SALE TOTAL 31 DECEMBER 2014 AVAILABLE FOR SALE (X 1,000) TOTAL 31 DECEMBER 2013 The purchase price as per 31 December 2014 of Equities and similar investments amounts to 30.4 million (31 December 2013: 22.6 million). The purchase price as per 31 December 2014 of bonds and other fixed-income investments amounts to 7.5 million (31 December 2013: nil). Achmea Zorgverzekeringen N.V. 98

99 Notes to the Company Financial Statements INVESTMENTS MEASURED AT FAIR VALUE (X 1,000) EQUITIES AND SIMILAR INVESTMENTS BONDS AND OTHER FIXED- INCOME INVESTMENTS RECEIVABLES FROM OTHER LOANS TOTAL 2014 TOTAL 2013 EQUITIES AND SIMILAR INVESTMENTS (X 1,000) NATURE OF INVESTMENT FUNDS (X 1,000) RECEIVABLES FROM OTHER LOANS (X 1,000) BONDS AND OTHER FIXED-INCOME INVESTMENTS (X 1,000) Corporate bonds include investment grade bonds, that are relatively safe, having a high bond rating. Furthermore, corporate bonds include high yield bonds, having a lower rating than investment grade bonds. These corporate bonds are not guaranteed by governments. 3. DERIVATIVES (X 1,000) ASSETS LIABILITIES OFFSETT ASSETS LIABILITIES OFFSETT Achmea Zorgverzekeringen N.V. 99

100 Notes to the Company Financial Statements 4. RECEIVABLES RECEIVABLES FROM DIRECT INSURANCE 2014 (X 1,000) 2013 OTHER RECEIVABLES 2014 (X 1,000) 2013 The receivables are expected to be recovered within twelve months after reporting date. For these receivables the carrying amount is a reasonable approximation of the fair value. Impairment losses recognised in 2014 related to Receivables amounted to 1.1 million (2013: 0.1 million) and are included in Other expenses. For a further clarification of the receivables on group companies, please refer to the section Related party transactions. 5. OTHER ASSETS CASH AND CASH EQUIVALENTS 2014 (X 1,000) 2013 Cash and bank balances are at free disposal of Achmea Zorgverzekeringen N.V. 6. PREPAYMENTS AND ACCRUED INCOME PREPAYMENTS AND ACCRUED INCOME 2014 (X 1,000) 2013 For an overview of the Receivables from group companies, please refer to the section Related party transactions. 7. TOTAL EQUITY Solvency Achmea Zorgverzekeringen N.V.'s internal solvency standard is determined by the Executive Board of Achmea B.V. being the ultimate mother company, in conjunction with Achmea's Group Capital and Liquidity Committee. These calculations are based on the outcomes of regular risk analyses as well as on the quantitative findings of the economic capital model. This leads to a quantitative substantiation of the required Achmea Zorgverzekeringen N.V. 100

101 Notes to the Company Financial Statements solvency ratio to be maintained above the statutory solvency ratio. There is, moreover, a correlation between the solvency standard maintained at the level of Achmea Zorgverzekeringen N.V. and the solvency present at the Achmea Group level. For Achmea Zorgverzekeringen N.V. the internal solvency requirement (Solvency I) is currently set at 130%. By implementation of this change Achmea Zorgverzekeringen N.V. is in line with the Dutch Insurance sector, by which comparability within the sector of information has improved. The table below shows the company solvency margins present and required, taking any prudential filters into account. COMPANY SOLVENCY MARGIN (X 1 MILLION) 2014 % 2013 % CHANGES IN TOTAL EQUITY (X 1,000) 2014 SHARE CAPITAL SHARE PREMIUM REVALUA-TION RESERVE RETAINED EARNINGS PROFIT FOR THE YEAR TOTAL EQUITY CHANGES IN TOTAL EQUITY (X 1,000) 2013 SHARE CAPITAL SHARE PREMIUM REVALUA-TION RESERVE RETAINED EARNINGS PROFIT FOR THE YEAR TOTAL EQUITY Share capital The authorised capital consists of 250,000,000 ordinary shares each of a nominal value of 1 euro. 59,620,822 of these shares have been issued and fully paid-up. In 2014 and 2013, there were no movements in share capital. Achmea Zorgverzekeringen N.V. 101

102 Notes to the Company Financial Statements Share premium In 2014 and 2013, there were no movements in the share premium reserve. Revaluation reserve Based on the accounting principles used by Achmea Zorgverzekeringen N.V., a revaluation reserve has been formed when appropriate. The majority of the revaluation reserve is related to investments classified as Available for sale. The revaluation reserve contains a sum of 0.2 million in net unrealised revaluation losses in respect of assets measured at fair value. According to the Dutch legal and regulatory framework this amount may not be deducted for the purposes of determining the non-distributable part of the revaluation reserve. Retained earnings For details of the movements in Retained Earnings, please refer to the Statement of changes in Total equity. The reserve for the health insurance fund business has been transferred under universal title to the other reserves of Zilveren Kruis Achmea Zorgverzekeringen N.V. ( million), Agis Zorgverzekeringen N.V. ( million) and OZF Achmea Zorgverzekeringen N.V. ( 2.9 million). These reserves include a net item of million that the regulator has designated as earmarked reserve (previously statutory reserve). Pursuant to the Zvw (Health Insurance Act), these reserves will be credited to the mentioned Achmea Zorgverzekeringen N.V. basicinsurance entities as at 31 December With regard to the administration of the AWBZ (Exceptional Medical Expenses Act), a sum of 9.9 million (31 December 2013: 9.3 million) has been designated as earmarked reserve, as this act is financed from public funds. This sum consists of the budget differences for past years in respect of the organisational costs of the care administration offices. Should the positive sum earmarked for the AWBZ become greater than 20% of the organisational cost budget for the current financial year then the surplus will be creamed off by the Dutch Health Insurance Fund. Restrictions apply to the free distribution of the Retained earnings, because the company is exempt from corporation tax. A precondition for this exemption is that the company is only permitted to distribute profit to institutions that benefit public health. 8. INSURANCE LIABILITIES 2014 (X 1,000) 2013 The insurance liabilities include a sum for claim handling costs of 1.4 million (2013: 2.3 million). The insurance liabilities for unearned premiums and unexpired risks include a sum for premium deficiency of nil (2013: nil). An adequacy test is performed each quarter in order to ensure that sufficient insurance liabilities have been formed. The insurance liability for unearned premiums and unexpired risks and the insurance liability for outstanding claims including IBNR have been subject to qualitative and quantitative testing. The outcome of the quantitative adequacy test is an expected value (excluding prudence) of the insurance liability reporting date of 0.6 million (2013: 0.6 million) in respect of the unearned premiums and unexpired risks and 68.1 million (2013: million) in respect of outstanding claims including IBNR. The table below shows the insurance liabilities analysed by estimated time to maturity. The Health insurance contracts are analysed based on undiscounted cash flows. Achmea Zorgverzekeringen N.V. 102

103 Notes to the Company Financial Statements ANALYSIS BY ESTIMATED TIME TO MATURITY OF INSURANCE LIABILITY (X 1,000) 2014 WITHIN 1 YEAR 1-5 YEARS 5-15 YEARS OVER 15 YEARS TOTAL 2013 WITHIN 1 YEAR 1-5 YEARS 5-15 YEARS OVER 15 YEARS TOTAL INSURANCE LIABILITIES FOR UNEARNED PREMIUMS AND UNEXPIRED RISKS (X 1,000) GROSS GROSS INSURANCE LIABILITIES FOR OUTSTANDING CLAIMS (INCLUDING IBNR) (X 1,000) GROSS GROSS (BEFORE REINSURANCE) TOTAL (X 1,000) Achmea Zorgverzekeringen N.V. 103

104 Notes to the Company Financial Statements RUN-OFF DATA BY FINANCIAL YEAR, TOTAL GROSS (X 1,000) CLAIMS PROVISION AT CLOSE OF PREVIOUS FINANCIAL YEAR CLAIMS PAID IN FINANCIAL YEAR CLAIMS PROVISION AT CLOSE OF FINANCIAL YEAR SETTLEMENT INCOME 9. LIABILITIES LIABILITIES OUT OF DIRECT INSURANCE 2014 (X 1,000) 2013 LIABILITIES OUT OF REINSURANCE (X 1,000) DEBTS TO CREDIT INSTITUTIONS 2014 (X 1,000) 2013 OTHER LIABILITIES 2014 (X 1,000) 2013 The other liabilities are expected to be settled within twelve months after reporting date. For these other liabilities the carrying amount is a reasonable approximation of the fair value. For an overview of the Liabilities to Group companies, please refer to the section Related party transactions. Achmea Zorgverzekeringen N.V. 104

105 Notes to the Company Financial Statements 10. ACCRUALS AND DEFERRED INCOME ACCRUALS AND DEFERRED INCOME 2014 (X 1,000) 2013 Achmea Zorgverzekeringen N.V. 105

106 Notes to the Company Financial Statements NOTES TO THE PROFIT AND LOSS ACCOUNT NON-TECHNICAL ACCOUNT 11. RESULT OF SUBSIDIARIES AND ASSOCIATES 2014 (X 1,000) CONTINGENCIES Legal procedures Achmea Zorgverzekeringen N.V. is involved in lawsuits and arbitration proceedings. These actions relate to claims instituted by and against these companies arising from ordinary operations and mergers, including the activities carried out in their capacity as insurers, credit providers, service providers, employers, investors and tax payers. Although it is not possible to predict or define the outcome of pending or imminent legal proceedings, the Board of directors believes that it is unlikely that the outcome of the actions will have a material, negative impact on the financial position of Achmea Zorgverzekeringen N.V. Other contingent liabilities CONTINGENT LIABILITIES 2014 (X 1,000) 2013 The commitments consist primarily of a not deposited part of a commitment to LSP Health Economics Fund C.V., a care innovation Fund. Tax entity The company is part of a fiscal entity with Achmea B.V. for Value-added Tax (VAT) and, in that capacity, is jointly and severally liable for the tax debts of the fiscal unity as a whole. The company is exempt from corporation tax, therefore it may not distribute profit unless to institutions for the benefit of public health. Subsequent events On 1 January 2015, 100% subsidiary Agis Zorgverzekeringen N.V. has been merged into 100% subsidiary Zilveren Kruis Zorgverzekeringen N.V. No events with significant financial consequences for Achmea Zorgverzekeringen N.V. occurred after the balance sheet date. Achmea Zorgverzekeringen N.V. 106

107 Notes to the Company Financial Statements Authorisation of company financial statements Zeist, 28 May 2015 Board of Directors of Achmea Zorgverzekeringen N.V., N.F.J. Hoogers Chairman J.E.P. Tanis The members of the Supervisory Board of Achmea Zorgverzekeringen N.V., S.T. van Lonkhuijzen-Hoekstra Interim Chairman A.C.W. Sneller Achmea Zorgverzekeringen N.V. 107

108 Other Information Provisions in the articles of association regarding profit appropriation Article 30 of the company's articles of association contains the following provisions on profit appropriation: Distribution of profit pursuant to this Article will be made after adoption of the financial statements showing that this is permissible The profit is at the disposal of the General Meeting, on the understanding that the profit can only be used for the benefit of one or more organisations in the field of public health. The provisions in the previous sentence can be changed, as referred to in article 2:122 of the Dutch Civil code, also in case such a change is damaging the rights of others than shareholders. If a vote on distribution of profits is tied, the relevant profits will not be distributed The company may make distributions to shareholders and others entitled to the distributable profits only insofar as the company's equity exceeds the amount of the issued capital plus the reserves required to be maintained by law; A deficit may only be offset against the reserves required to be maintained by law to the extent that this is permitted by law. Profit appropriation at year-end 2013 The 2013 financial statements were adopted in the General Meeting of Shareholders held on 3 June The General Meeting of Shareholders approved the proposal to add the Profit for the year of million at year-end 2013 to the retained earnings. Proposal profit appropriation at year-end 2014 The Board of Directors proposes that the General Meeting of Shareholders appropriate the profit at year-end 2014 of million entirely to the retained earnings. This proposal has not yet been incorporated in the financial statements. Achmea Zorgverzekeringen N.V. 108

109 Other Information Independent auditor s report To the General Meeting and the Supervisory Board of Achmea Zorgverzekeringen N.V. Report on the financial statements 2014 Our opinion In our opinion: the consolidated financial statements give a true and fair view of the financial position of Achmea Zorgverzekeringen N.V. and its subsidiaries ( the group ) as at 31 December 2014 and of its result and cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union ( EU-IFRS ) and with Part 9 of Book 2 of the Dutch Civil Code and the Dutch policy rules for application of the Wet normering bezoldiging topfunctionarissen publieke en semipublieke sector ( WNT ); the company financial statements give a true and fair view of the financial position of Achmea Zorgverzekeringen N.V. as at 31 December 2014 and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code and the Dutch policy rules for application of the WNT. What we have audited We have audited the financial statements 2014 of Achmea Zorgverzekeringen N.V., Zeist ( the company ). The financial statements include the consolidated financial statements and the company financial statements. The consolidated financial statements comprise: the consolidated statement of financial position as at 31 December 2014; the following statements for the year then ended: the consolidated income statement and the consolidated statements of comprehensive income, changes in total equity and cash flows; and the notes, comprising a summary of the accounting policies and other explanatory information. The company financial statements comprise: the company balance sheet as at 31 December 2014; the company profit and loss account for the year then ended; and the notes, comprising a summary of the accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is EU-IFRS and the relevant provisions of Part 9 of Book 2 of the Dutch Civil Code for the consolidated financial statements and Part 9 of Book 2 of the Dutch Civil Code for the company financial statements. The basis for our opinion We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. Our responsibilities under those standards are further described in the Our responsibilities for the audit of the financial statements section of our report. We are independent of Achmea Zorgverzekeringen N.V. in accordance with the Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten (ViO) and other relevant independence requirements in the Netherlands. Furthermore, we have complied with the Verordening gedrags- en beroepsregels accountants (VGBA). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Achmea Zorgverzekeringen N.V. 109

110 Other Information Our audit approach Overview We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the board of directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by management that may represent a risk of material misstatement due to fraud. Because business operations and financial processes of the group are highly automated, the IT General Controls (ITGC) were particularly important in our audit. Therefore we addressed in our audit the continued operation of policies and procedures that are used to manage the IT activities. Materiality overall materiality: 25 million Audit scope we conducted audit work covering all significant components audit instructions have been sent to the component audit teams as part of the audit of the consolidated financial statements Key audit matters non-listed assets and liabilities measured at fair value, valued using market information and significant unobservable input uncertainties in the valuation liabilities arising from insurance contracts Materiality The scope of our audit is influenced by the application of materiality. Our audit opinion aims to provide reasonable assurance about whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of identified misstatements on our opinion. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall group materiality How we determined it Rationale for benchmark applied 25 million The lower of 0.5% of net earned premiums, averaged over the past three years, and the materiality agreed with Achmea B.V. for group management for group reporting purposes. We have applied the benchmark of 0.5% of net earned premiums, a generally accepted auditing practice, based on our analysis of the information needs of users of the financial statements and as this is important information for stakeholders, in particular for the regulator (Dutch Central Bank) and policyholders. On this basis we believe that net earned premiums of the company are an important metric for the financial performance of the company. The profit before tax, because it is relatively low, is not considered to be a suitable benchmark for determining materiality. We assessed the appropriateness of this consideration by comparing the determined materiality with the materiality amount of 25 million that was agreed with Achmea B.V. for group consolidation purposes to reflect the shareholders perspective. As the group reporting materiality was lower than the materiality determined at 0.5% of net earned premiums we used this lower amount for the audit of the consolidated financial statements of Achmea Zorgverzekeringen N.V. 110