ACHMEA 2012 ANNUAL REPORT

Transcription

1 Annual Report 2012

2 ACHMEA 2012 ANNUAL REPORT

3 Executive Board Statement We look back on a good year, although operating conditions remained challenging in Financial markets remained volatile, especially in the first half of the year, and we continued to witness a rapidly changing market environment. Slowing the pace at which healthcare costs rise is a focal point for politicians, consumers and the industry, while the challenging economic climate has impacted the Dutch housing market, reducing mortgage sales and subsequently the demand for life products. At the same time, customer interaction is changing, with many now choosing to interact with us through a variety of different media in one distribution channel. Amid this turbulence we continued to successfully implement our cost and complexity reduction programmes, while also investing heavily in innovations and in further strengthening our organisation, for example through investments in continuing to optimise health care procurement and developing commercial capabilities. Financial results Achmea delivered a robust performance in 2012, posting a net result of 453 million (2011: million). Gross written premiums increased by 4% to 20,455 million (2011: 19,650 million), while total operating expenses remained stable at 3,024 million (2011: 3,031 million). Profit before tax was 412 million (2011: million). While we recorded continued solid results in our Dutch Nonlife and Health businesses, the profitability of our Pension & Life Netherlands business increased significantly, positively affected by higher investment income. Profit before tax was negatively impacted by an additional provision of 180 million (2011: 171 million) for our long-term disability product WGA. The divestments of Achmea Vitale and Eureko Romania had a negative impact of 50 million, resulting in a profit before tax from regular activities of 462 million (2011: 51 million). Net profit came in at 453 million (2011: million). The aggregate tax benefit is the result of the tax exemption for health insurance activities and changes in our tax position. The Group s financial position remains strong, with a Group solvency of 209% (2011: 208%) and total equity of 10,374 million at year-end 2012, a 599 million increase year-on-year. Customer focus One of our primary ambitions is to be the most trusted insurer in the market. To achieve this, we first need to strengthen our customers belief in us, which we will do by ensuring that their best interests remain central in everything we do, that they are represented on our clients council, and that we offer them socially responsible products and services at reasonable prices. By listening to our customers wishes, and thinking from their perspective, we are able to respond quickly to changing behaviour and trends in the market, enabling them to reach us whenever and wherever they wish. The use of aggregators to compare product information and pricing is becoming more prevalent, and at Achmea the sale of insurance products through our direct, banking and broker channels in a cross-media fashion where customers interact with us through a variety of different media in one channel is increasing. The market is becoming more competitive, and growing numbers of customers are now choosing how and when to purchase products or contact their insurers. The 24/7 marketplace is upon us, and we are responding by using technology to help adjust our product propositions and develop our distribution channels, with the collection, analysis and interpretation of customer data taking on a key role. Cooperative background As an organisation with a cooperative background, social engagement is part of our identity, which is why we are establishing a variety of dialogue channels with society. Following on from the Achlum Convention, in 2012 we set up Volgens Nederland ( Holland says ), a project that will use the internet and a series of debates to connect with society on issues that are relevant for the company, our customers and society in general. We view social responsibility as being key to realising our ambition of being the most trusted insurer. In 2012 we signed the Principles for Sustainable Insurance (PSI) of the United Nations. Last year we extended the environmental, social and governance (ESG) integration of our investment portfolio. Furthermore, in 2012 we were ranked 11th in the annual Transparency Benchmarking research, as performed by the Dutch government, and were ranked first among 3

4 EXECUTIVE BOARD STATEMENT financial service providers. And despite the increased demands on accessibility and speed of claims handling, ten of our brands currently carry the customer oriented quality mark (Keurmerk Klantgericht Verzekeren). Good employership remains very important to us, as our people ultimately make our company and are there to deliver first-class customer service. We were ranked second in an annual employers satisfaction survey carried out by Dutch daily newspaper NRC Handelsblad, while the results of our annual Employee Engagement Survey hit an all-time high in We view this as proof that we truly value our people. Group developments We continued to strengthen our market position, supported by health insurer De Friesland Zorgverzekeraar. In the second half of 2012 we announced the acquisition of OVO, a Dutch specialist liability and fraud insurer, and the acquisition of Friesland Bank Assurantiën, one of the 25 largest insurance intermediaries in the Netherlands, following Rabobank s acquisition of Friesland Bank. During the year we also saw the first effects of our collaboration with Independer.nl. We use the acquired knowledge of consumer preferences and behaviour to make our insurance products even more client-focused. In the first half of 2012, we completed the divestment of Achmea Vitale. During the course of the year we also decided to separate our closed life book and create a dedicated organisational entity. This has been in place since the start of 2013, with the aim of maintaining value at the lowest possible cost, while ensuring customers remain well served. This enables us to look at alternative, efficient ways of using capital. In the second half of 2012 we closed a new 750 million senior unsecured revolving credit facility, while in July Achmea Hypotheekbank successfully refinanced its mortgage portfolio through the sale of almost 800 million of residential mortgage-backed securities. In October, Achmea Hypotheekbank also successfully completed the first issuance of 500 million of senior unsecured notes. During the year we redeemed $900 million of the stateguaranteed loan that we took out in the wake of the 2008 financial crisis. So far we have redeemed $1.8 billion of this loan ahead of schedule. In 2012, Chairman of the Supervisory Board Mr. Arnold Walravens and Supervisory Board member Mr. Flip Buurmeijer stood down. At the beginning of 2013 Mr. Henk Slijkhuis indicated that he will stand down at the General Meeting of Shareholders in March. In 2012, Mr. Thomas van Rijckevorsel stood down from the Executive Board and Mr. Gerard van Olphen stood down in February We thank all for the contributions they have made to the Group. Ms. Lineke Sneller was appointed to the Supervisory Board in January, and Achmea extends her a warm welcome. Looking ahead The economic climate looks as though it will remain challenging, as economic growth in the eurozone continues to slow. Business investment and consumer confidence remain low, while governments across Europe are increasing taxes and cutting spending which, in the short term, will weaken rather than strengthen the economy, even if long-term effects may be positive. In the Netherlands, the housing market was further impacted by the introduction on 1 January 2013 of regulations that require those taking out a mortgage especially starters to pay off their debt over a 30-year period if they want to qualify for interest deduction benefits. Regulatory change remains an ever-present reality. In 2012 it was announced that the introduction of the Solvency II capital requirements which are designed to ensure that insurers in the European Union hold enough capital to lower their insolvency risk would be postponed to 1 January 2014, and a further delay is expected. At the end of what has been another turbulent year for the financial sector, the Executive Board would like to thank everyone across the Achmea Group for their hard work and dedication. We extend the same thanks to our other stakeholders business partners, shareholders and, especially, to our customers. They ensure our cooperative roots remain vital and alive. Zeist, 5 March 2013 Willem van Duin Chairman of the Executive Board 4

5 Contents who we are PROFILE 6 key figures 9 brands 10 EXECUTIVE BOARD REPORT strategy 14 Group PERFORMANCE 21 segments Non-life NETHERLANDS 26 Health NETHERLANDS 32 PENSION & life NETHERLANDS 38 INTERNATIONAL 45 BANking NETHERLANDS 50 OTHER 54 INVESTMENTS 56 Capital and liquidity management 61 RISK MANAGEMENT 65 Human RESOURCES 72 Corporate social responsibility 75 Corporate governance supervisory board report 78 corporate governance 90 Executive BOARd 100 SUPERVISORY BOARd 101 OTHER INFORMATION abbreviated Consolidated financial STATEMENTS 104 STATEMENT OF THE EXECUTIVE BOARD OF ACHMEA B.V. 112 independent AUDITOR S REPORT 113 Five years key figures 114 ABBREVIATIONS 116 CONTACT DETAILS 117 5

6 Profile Profile Achmea is the Netherlands largest insurer. In addition, we have insurance operations in Greece, Turkey, Russia, Slovakia, Ireland, Bulgaria and Romania, and a greenfield operation in Australia. In the Netherlands we offer a full range of insurance and related financial products, while in most other countries we focus primarily on non-life and health insurance. In 2012, 94% of our gross written premiums were generated in the Netherlands, while 6% came from our operations in other countries. Achmea s primary goal is to develop products and services that give customers peace of mind knowing that they are well insured. By creating products and services that meet customers needs, we put their interests first. Our bold ambition is to be the most trusted insurer. In practice, most trusted is closely linked to being robust, transparent and delivering on promises. Customers need to trust that their insurer is going to be there for them at the moment they need them. And being the most trusted insurer also means being accessible to everyone. We achieve this by making our insurance available through a wide range of brands and distribution channels. Our cooperative history stretches back more than 200 years. We are unlisted and, as an organisation with a cooperative background, our main drive is long-term continuity rather than short-term profit. This is supported by our largest shareholders, Vereniging Achmea and Rabobank. The objective of Vereniging Achmea is to protect the continuity of Achmea and to safeguard the interests of all Achmea customers, ensuring that they are the organisation s ultimate owners. As a result, we focus on the long-term interests of our customers, (business) partners, employees, shareholders and society. Together, Vereniging Achmea and Achmea are working to further strengthen the involvement of our customers in our organisation. Our role as an insurer is to take care of the financial risks of our customers, whether that is providing employment insurance, or providing cover for their house, their car, or their health. Insurance is based on solidarity with premiums from the many used to cover the claims of the few. Because the risks are shared in this way, the costs for the individual stay manageable. In order to maintain this solidarity, it is important to reduce the risk of claims being made, which is why Achmea invests in prevention. If something does go wrong, we are there to ensure that the individual, the company or the organisation affected can take its place in society again, quickly and with minimal worry. This makes Achmea a vital part of society. our customers 500,000 55,000 1,400, ,000 2,500, ,000 80,000 18,000 1,290,000 INTERNATIONAL 1,930, ,000 3,000 3,500,000 Retail customers 170,000 Numbers are indicative as at 31 december Wholesale customers Agents International policies 6

7 who we are Profile Our Identity We are a community of committed and involved people, where the customer is secure in the knowledge that they are well insured. Our Group is customer driven, results oriented and shaped by our cooperative background Being professional Improving Connecting HIGHER GOAL Why do we exist? CORE QUALITIES What do we excel at? CORE VALUES What do we stand for? BOLD AMBITION Where are we going to? The most trusted insurer Empathising Innovating Delivering Our Group is customer driven, results oriented and shaped by our cooperative background. Our focus is on ensuring our customers are provided peace of mind through comprehensive insurance cover. Our long-standing core values guide us in our daily goals of unburdening our customers and ensuring they have peace of mind, while achieving continuity in our business. We have defined three core values, which are intended to help our employees achieve both our higher goal and our bold ambition of becoming the most trusted insurer. These core values are empathising, innovating and delivering. They show how we want to interact with each other and with our customers, and they apply to all our employees. Empathising We listen to our customers and our other stakeholders. By ensuring that we unburden our customers and satisfy our stakeholders, we give meaning to what we do. This can only be achieved by working together, which is based on mutual trust. Innovating We understand what concerns our customers, which enables us to unburden them by providing ever-better solutions and products. This is only possible because, as a company, we encourage and promote innovation, dare to think differently and act to make it possible. Delivering We say what we do and we do what we say: we are results oriented and deliver on our promises to stakeholders. We are reliable and work transparently. Customers, as well as colleagues, shareholders and distribution partners, can be confident that promises and agreements are met. And if this is not the case, then they can tell us. Achieving good results is both energising and fulfilling. 7

8 who we are Profile We can give even greater power to these values by helping our employees pursue professionalism, and continually support to develop their skills. Our aim is the ongoing improvement of our business processes so that customers feel well served. This is a key component in feeling well insured. Connection is at the heart of what we aim to achieve through a combination of professional skills, efficient business processes and, above all, customer focus. We are working harder than ever to exceed our customers expectations, and deliver the products and services that they demand. By reinforcing and sharpening the commercial focus of our operating units, we will do everything we can to give our customers the right products, at the right price, delivered through the right channels. And to meet the needs of our customers even quicker and translate them internally we continually work on improving our products, processes and systems. With concentrated product development capabilities, which cover the non-life, health and life segments, our product divisions are part of our drive to position the customer firmly at the heart of everything we do. We operate four distribution divisions that are committed to a specific channel or customer group and empower the various brands. A solid, efficient organisational platform supports our front office capabilities, ensuring that we continue to put our customers interests first. Organisational structure as at 31 december 2012 Achmea Direct Banking Broker Non-life Health Pension & Life Syntrus Achmea De Friesland Zorgverzekeraar Staalbankiers Large Corporates Market Strategy Achmea Bank Division International Staff departments Achmea s Executive Board sets goals and targets for the segments throughout the company. The segments formulate strategic, commercial and financial policies in compliance with the strategic and performance targets set by the Executive Board. However, operational steering within the product, distribution and staff divisions is carried out locally by senior management, with strategic decisions made in consultation with the Executive Board. Distribution division Product division Staff & other 8

9 Key Figures financial UNIT Balance sheet total million 94,817 92,313 Solvency Group (FCD) % Return on equity % Gross written premiums Non-life million 3,764 3,819 Gross written premiums Health million 13,471 12,400 Gross written premiums Pension & Life million 3,210 3,431 Total gross written premiums million 20,445 19,650 Share of responsible investments of the assessed investments for own account and risk according to Achmea s definition % Share of responsible investments of the assessed investments for third parties by Syntrus Achmea according to Achmea s definition % CUSTOMER UNIT Customer satisfaction Non-life Netherlands average score Customer satisfaction Health Netherlands average score Customer satisfaction Pension & Life Netherlands average score Received and processed complaints per 10,000 policies Received complaints with a first substantive reaction within the respons time mentioned on the label s website % Number of brands with the customer oriented insurance quality mark # 11 * 10 SOCIAL UNIT FTEs in the Netherlands # 15,170 15,393 FTEs outside the Netherlands # 3,735 4,097 Employees ** # 15,435 16,614 Participation score of employee engagement survey ** % Educational costs ** % of wage Sick leave absence ** % ENVIRONMENT UNIT CO 2 emissions Metric ton x 1, Energy consumption GJ x 1, Collected waste Kg x 1,000 2,129 3,000 Paper consumption Kg x 1,000 1,736 1,709 * DVZ and ProLife merged and, since 1 January 2013, operate under the name ProLife. Consequently, in 2013 we have 10 brands with the customer oriented insurance quality mark. ** Achmea Interne Diensten B.V. 9

10 Brands Achmea is the Netherlands largest insurer, where we own and operate some of the country s most recognisable insurance names. These include Centraal Beheer Achmea, FBTO, Interpolis, Avéro Achmea, Zilveren Kruis Achmea and Agis, as well as a range of other labels. Each brand focuses on a specific target market and specialises in particular distribution channels, which enables us to offer targeted and tailored products to our clients while benefiting from economies of scale through streamlined administration and back-office processes. Outside of the Netherlands we are active in seven European countries, where we serve our customers through a variety of different companies and channels. Our Dutch Brands Centraal Beheer Achmea has been one of the Netherlands bestknown insurance brands for more than 25 years, and is famous for its Even Apeldoorn bellen advertising slogan. The company provides non-life, pensions, life insurance and financial services to private customers, employees and businesses through a range of direct channels, including the internet, mail and phone. It also provides administrative services and support aimed at non-life and risk management, delivering directly to the client. In 2012, customers gave Centraal Beheer Achmea a 7.6 rating in satisfaction surveys *. FBTO is an accessible online insurer that targets independently minded customers. The company provides a broad range of insurance products, including for vehicles, health and accident, savings and investment, liability and legal aid, travel and recreation, home, borrowing and death. Customers can adapt their insurance package to fit their own circumstances, so that they only pay for what they need. In 2012, customers gave FBTO a 7.6 rating in satisfaction surveys *. InShared is an innovative insurer, which operates under the same principles as Achmea. Its goal is to be transparent, flexible, easy to work with and always beneficial to its customers. The company operates exclusively online, which is not only cheaper for the customer, but also enables them to access their insurance information whenever they want. Customers can check how much has been paid in premiums, how much damages have to be paid and how much is left over. Of that, the insurer uses 20% for operating costs, with the residual amount refunded to customers who haven t made any claims during the year. Interpolis provides consumers and entrepreneurs with simple, concrete and relevant insurance solutions for the risks they run. The company focuses on clarity across its product range, its communications and its dealings with customers. Interpolis products are available exclusively through the Rabobank branch network, and are designed to be as accessible and as simple as possible. We call that: crystal clear. In 2012, customers gave Interpolis a 7.5 rating in satisfaction surveys *. 10

11 Who we are Brands Avéro Achmea offers a range of insurance and financial solutions to corporate and private customers, including non-life, income protection, health insurance, mortgages and banking products. Avéro Achmea understands the value of good advice, which is why it works with a select group of independent brokers and advisors. In 2012, customers gave Avéro Achmea a 7.2 rating in satisfaction surveys *. In addition to health insurance, Zilveren Kruis Achmea provides customers with opportunities for a healthier and more vital life through its health centers and health shops, with the aim of helping customers feel as good as they can. The company works closely with a range of partners, including hospitals, and is one of the top service providers in the areas of care, health and vitality. In 2012, customers gave Zilveren Kruis Achmea a 7.4 rating in satisfaction surveys *. Agis is a health insurer that operates throughout the Netherlands, with Amsterdam, Utrecht/Amersfoort and Apeldoorn as core regions. As with all Achmea businesses, the customer is the focal point at Agis, and the company works continuously on finding ways to improve customer health and care. Quality is a key issue at Agis, and the company uses validated patient experiences to help care providers improve their services. In 2012, customers gave Agis a 7.6 rating in satisfaction surveys *. De Friesland Zorgverzekeraar (DFZ) is a health insurer with a strong brand, particularly in the northern Dutch province of Friesland. The company provides a high standard of service, and works closely with customers to guarantee quality care and a good standard of life today and in the future. Following its merger with Achmea in 2011, DFZ retained an independent position within the company as a separate division, and is responsible for the operational management of FBTO s health portfolio. DFZ s similar background and central position in society make for a perfect fit with Achmea s cooperative identity. Syntrus Achmea provides customers with a broad range of fiduciary management, asset management and pension administration services. Our customers, from pension fund directors to CFOs of large corporates, trust us to understand their own unique situation. Syntrus Achmea Real Estate is the largest property investor in the Netherlands, while Syntrus Achmea Asset Management is the number-three asset manager in the Dutch market. segment Distribution channels * All data derived from independent satisfaction surveys carried out by the Dutch Association of Insurers. non-life health pension & life direct Banking Intermediary 11

12 who we are Brands Our International Operations Interamerican is Greece s second largest insurer providing health, non-life and life insurance with an extensive infrastructure in health, medical and road assistance services. The Interamerican brand is extremely well known in Greece, with 99% awareness, and had an 81% customer satisfaction rating in 2012 surveys. In keeping with its innovative approach to business, Interamerican launched the first direct insurance brand Anytime, which now has more than 175,000 insured vehicles, a 68% awareness and a very high customer satisfaction rating of 89%. Interamerican also launched the first insurer-owned car repair shop. Eureko Sigorta is the market leader in bankassurance in partnership with its strategic partner Garanti Bank, Turkey s second-largest private bank. The company offers a full range of non-life and health products, which are also distributed through their agency and broker network. In 2012 Eureko Sigorta scored a satisfaction level of 85% among customers who made a claim. The company continues to hold a top-ten market position in the overall insurance sector. Oranta is a stable company with a network of offices in 19 key Russian cities, of which 13 have more than 1 million inhabitants. Focusing their operations in 13 cities, including Moscow and St. Petersburg, Oranta offers clients a wide range of non-life and health insurance products. In 2012 Oranta achieved a local rating increase from A to A+ from the national rating agency Expert RA. Union is the market leader in Slovakia s travel insurance segment and offers a complete product portfolio of life, non-life and health products across the country. The company is one of the most innovative players in the market (e.g. the first insurance company to use call centers, apps, online and SMS). The brand s awareness among the public is over 75%. Union is one of the most trustworthy partners in the Slovak Republic and it is the first and only Slovak insurer with activities in the Czech Republic. Friends First has a long-standing presence in Ireland and provides a comprehensive range of pensions, investments and protection products through its network of brokers. 12

13 who we are Brands Interamerican, the first foreign insurance company established in Bulgaria, is currently a small but ambitious player. The company offers non-life and life products and services through all distribution channels. Eureko Asigurari is one of the few insurers to offer a full range of life, health and pension products in Romania. segment non-life health pension & life Distribution channels direct Banking Intermediary 13

14 Strategy Over the course of 2012, we continued to work towards our bold ambition of being the most trusted insurer, which in our view involves being robust, transparent and delivering on our promises. Our focus is on ensuring customers are confident that we will be there for them when they need us, and that we are accessible to everyone by making our insurance available through a wide range of brands and distribution channels. We see it as our duty to act in a responsible and forwardlooking manner, which includes developing sustainable insurance, responsible investment practices, and always putting customers interests first. Our long-term strategy involves continuing to concentrate on the non-life and health insurance markets, where we have truly leading positions, while developing selectively in pension and life insurance and gradually building our international presence based on proven capabilities. We will achieve this by continuing to build on the strengths we draw from our customer-focused product portfolio, our distribution capabilities, our prudent risk profile and of course our employees. Although the ongoing challenging economic and social circumstances means we need to up the pace of change, and adapt to shifting market circumstances as and when required, operationally we are still very much on track. We are clear about the direction in which we are headed and we are making steady progress. Our financial results are solid, our market position is clear and we have a very strong capital position. While our bold ambition acts as a strategic compass and helps guide us towards our longer-term goals, we also need to react to changing circumstances in the short term. The non-life, health and life insurance markets are coming under pressure on number of fronts, such as shifting customer demands (including cross media interaction), changing government regulation and economic insecurity. To thrive in this environment that is constantly in motion, it is necessary to be both agile and focused. And it is essential we do this while ensuring that customers remain our main priority. The time of thinking in certainties is over: our customers and Achmea need to be able to deal with uncertainty. In the short term, our goals are to concentrate on providing customers with advice on how to deal with uncertainty, developing innovative products and distribution methods, while reducing complexity and costs. Impact of external developments The macro economic picture across Europe remains uncertain, as sluggish economic growth in the eurozone, rising unemployment, declining business investment and low consumer confidence all take their toll. Government involvement in the insurance sector is increasing, and the introduction of new regulations across the sector adds to organisations workload. The picture in our principal market, the Netherlands, is one of change. A succession of political, social and technological developments are reshaping the way insurers and their customers do business, making it increasingly difficult to predict with any accuracy what will happen in the medium- to long term. The Dutch market is mature, saturated and highly competitive across most segments, with average growth no higher than inflation. New players offering nonlife products online and the introduction of Premium Pension Institutions (PPIs) are putting pressure on many established insurers, many of whom were buffeted by the financial crisis. These new market entrants, plus customers who are increasingly focused on price, are rapidly changing the business model and earning capacity of insurers. Some of the material developments we see impacting the market are outlined below. Economic uncertainty The financial crisis that started in 2008 continues. What started initially as a liquidity crisis quickly became a debt crisis, and then developed into a serious economic downturn. Economic growth in the eurozone has slowed considerably, while unemployment is high. 14

15 executive board report Strategy Business investment and consumer confidence remain low. Governments are increasing taxes and cutting spending which, in the short term, will weaken rather than strengthen the economy, even if long-term effects may be positive. Like all players in the financial sector, Achmea has been affected. Lower interest rates will impact our investment returns, while the Dutch housing and mortgage market has seen a dramatic fall in sales, knocking the demand for life products. The housing market will be further impacted, following the introduction on 1 January 2013 of new regulations that require those taking out a mortgage particularly starters to pay off their debt over a 30 year period if they want to qualify for interest deduction benefits. Healthcare costs Reducing the pace at which healthcare costs rise is high on many political agendas. In the Netherlands, the government is looking both at ways to lower the cost of healthcare and to shift the costs to the consumer and the private sector. This has resulted in a growing trend among insurees, who are becoming increasingly sensitive to price developments in health care, to cut the cost of their healthcare policy, primarily by reducing supplementary insurance cover. At the same time, more policyholders are opting for a voluntary increase in the own risk amount. This creates a more challenging market for insurers, who need to balance costs with the provision of high quality healthcare and the ability to adapt to a fluid market environment. An upturn in life expectancy, as well as a greater focus on better quality care by consumers, is placing an additional strain on care providers and insurers. Another issue currently facing the market is the uncertainty surrounding the future of the AWBZ (Algemene Wet Bijzondere Ziektekosten, or General Act on Exceptional Medical Expenses), which currently makes up over a quarter of total healthcare costs in the Netherlands. The AWBZ covers long-term exceptional expenses that are not covered by the basic health insurance, such as care for the elderly and care for the mentally and physically handicapped. The new government has announced a reform of the AWBZ and, although final plans have not yet been presented, the changes will have profound implications for insurers. Regulatory changes There are a number of regulatory issues that have either impacted, or could impact, the insurance sector. One key issue is the increased focus on customer protection, which occurred following the mis-selling of pensions and unitlinked policies in the Netherlands by banks and insurers in the past. Aimed at ensuring the quality and transparency of insurers products and services, the commission set up to review insurers (Stichting Toetsing Verzekeraars) awards companies that meet certain standards a customer oriented insurance quality mark (Keurmerk Klantgericht Verzekeren). This industry self-regulation helps customers identify those insurers that offer trustworthy, easyto-understand products and good customer service. Currently, ten brands of Achmea have been awarded the customer oriented insurance quality mark. During the course of 2012, the government decided to raise the retirement age in the Netherlands. It will increase, in incremental steps, to 67 by The government also decided to cap fiscal facilitation of pension savings for incomes over 100,000 and to cap the annual pension build-up percentage at 1.75%. These measures will impact those funds and insurers that offer pension insurance. On 1 January 2013, insurance companies and banks were banned from paying commission to brokers who sold their mortgage, life insurance or funeral insurance policies. Brokers and intermediaries are now required to charge consumers directly for their advice, while products sold through direct channels need to have a clear separation between the cost of the product and advisory charges. This split is designed to introduce greater transparency, which is a customer demand, and a more competitive market environment. Whilst Achmea applauds this move to greater transparency, it also recognises that it causes an increase in administrative costs. On 1 January 2013, the Dutch government also increased the insurance tax from 9.7% to 21%. This increase will make most non-life insurance more expensive for consumers, and may cause some of them to reduce their insurance cover. The introduction of the Solvency II capital requirements which are designed to ensure that insurers in the European Union hold enough capital to lower their insolvency risk is expected to have a significant impact on the industry, although in 2012 it was announced that 15

16 executive board report Strategy SWOT ANALYSIS ACHMEA Strengths High customer satisfaction Cooperative identity Large market share in the Netherlands Good product diversification Strong position in distribution channels, especially in markets where expected growth is highest Very strong capitalisation Realising economies of scale Conservative investment portfolio Achmea s brands are more trusted than market average Dedicated, highly educated employees One of the most attractive employers in the Netherlands Opportunities Growth of internet as distribution channel Privatisation of certain markets Regulator clamps down on irresponsible pricing Limited trust in insurance sector Weaknesses Limited geographic diversification Legacy and number of IT systems Cost structure Position in traditional life Threats Low interest rates Increased life expectancy Limited trust in insurance sector Highly competitive Dutch market; pressure on margins Volatility of financial markets Competition from non-insurers Political decisions on health/pensions implementation, initially scheduled for 1 November 2012, would be postponed to 1 January 2014 and a further delay is expected. This is not welcome news for Achmea, for a number of reasons. In addition to the time and resources we have already invested in Solvency II, our position under this new regime will be even stronger, further reinforcing our competitive position. Furthermore, many of the smaller players could struggle to meet the increased regulatory burden or raise sufficient capital, which may lead to increased M&A activity in the industry. This could provide opportunities for larger players such as Achmea. one hand and established insurers on the other looking to install themselves as trusted online players, by providing better customer service and reducing costs through operational efficiencies. More and more customers are now choosing how and when to purchase products or contact their insurers, and the 24/7 marketplace is developing. Insurers are responding to customers requirements for clearer, more readable correspondence and product information. Across Achmea, for example, we now ensure that letters to customers are clear, jargonfree and not unnecessarily long. Customer interaction The way customers interact with insurers and other companies is changing rapidly. The use of aggregators to compare product information and pricing is becoming more prevalent, and at Achmea the sale of insurance products through our direct, banking and broker channels in a cross-media fashion where customers interact with us through a variety of different media in one channel is increasing. The market is becoming more competitive, with both internet-only start-ups and aggregators on the Achmea s strategy Where are we today? Over the last few decades, Achmea has grown substantially, and today we are market leader in the Netherlands. We have top-3 positions in almost all segments of the Dutch insurance sector, and operate many of the best-known brands in the market. Our capital position is very strong and, despite the economic 16

17 executive board report Strategy headwinds, our financial results at the end of 2012 were better than we had hoped for. Our cooperative roots make us who we are today, with empathy, innovation and the ability to deliver on our promises key company values. Our employees are focused on serving our customers to the best of their ability, and our continued, relatively high scoring in customer satisfaction surveys is an indication of how we are viewed. We are realistic about the opportunities and challenges ahead. On the one hand we are optimistic about the strength of our position, and we are confident that we will make this a successful decade for both the organisation and our stakeholders. On the other hand, we are realistic about the many challenges that lie ahead, and how long the road is. To achieve our ambition of being the most trusted insurer, it is necessary to increase the pace of change and continually adapt to shifting market circumstances. Changing customer demands, new government initiatives and volatile economic conditions create an environment that requires an agile organisation that develops innovative and sustainable solutions. Where are we going? The insurance market is changing, and we are changing with it. One of our primary ambitions is to be recognised as the most trusted insurer that thinks from the customer s perspective. We will achieve this by acting in a responsible and forward-looking manner, maintaining our focus on developing sustainable insurance and responsible investment practices. Our long-term strategy involves continuing to concentrate on the non-life and health insurance markets through the direct and banking channel, while developing selectively in pension and life insurance and gradually building our international presence based on proven capabilities. Our goal is to expand our market share in non-life, in part by driving growth within the (large) corporates market and by developing innovative distribution capabilities. For health we will focus on quality of service and business over growth, and for income protection we will focus on profitability over growth. For health this means that in some instances we will target market share growth in specific regions to give us greater negotiating power when purchasing health care services. In pensions, we will continue to work with our customers to shift from defined benefit to defined contribution solutions. In individual life, we will separate and manage our closed book and focus on simple term-life products. Internationally, we will continue our focus on Non-life and Health, mainly through the direct and bancassurance channel. As an organisation with a cooperative heritage, community involvement is part of our identity. We will engage with the public on relevant themes, and continue to give direction to public debates, such as those surrounding the health care system or aging. Our bold ambition is to be the most trusted insurer, and this involves playing a leading role in society and contributing to cooperative solidarity in the 21st century. This focus is at the core of our identity, and shapes our business philosophy that the customers interests are always put first, and we serve them according to their needs and wishes. Financially, we aim to retain our very strong capital position, with a solvency ratio above 190% compared to Solvency I requirements. At the same time, we will focus on maintaining the A+ rating for our core insurance entities from Standard & Poor s. How will we get there? Our portfolio In the challenging period that the financial services sector currently finds itself in, adaptability and flexibility are crucial. As we go forward, we will concentrate on four key areas: product composition; distribution channels; the position of Achmea in the value chain; and our geographical focus (nationally and in non-life and health internationally). Our aim is that our product composition will be made up of state-of-the-art solutions across our business lines, which we will adapt to changing customer needs and market circumstances. Customers are increasingly demanding higher levels of accountability and transparency from the products and services that we deliver, which means that our deliverables need to be innovative and reflect social and environmental changes. Technology will play an increasingly important role in the way we adjust our product propositions and develop our distribution channels, with the collection, analysis and interpretation of customer data taking on a key role. This will help us increase customer satisfaction levels and develop cross-selling opportunities, by creating tailormade combinations of products based on customers 17

18 executive board report Strategy PORTFOLIO CHOICES BUSINESS LINES DISTRIBUTION Bank distribution Direct distribution Broker distribution Coop. with social partners Property & Casualty Health Income Protection Pension - standardised Life - standardised (term-life) Core proposition: Strengthen Develop to core proposition Develop to core proposition through increased scale Strengthen partnership Health Services In function of core proposition Pension Services Bank products Pension - not standardised Life - not standardised Complementary to insurance products Seperate and manage internally or externally Providing entrance Complementary to insurance products specific needs. Technology will also impact the way we sell our products. Price comparison websites will become ever more popular, and cross-media communication will become increasingly relevant across all distribution channels. Our direct brands are already well placed in the market, and our online aggregator Independer.nl, which enables customers to compare products and services easily and objectively, helps us better understand and react to customers demands and preferences in the Netherlands. Our bancassurance model in the Netherlands is one of the world s most successful, and is built on our long-standing partnership with Rabobank. The model involves our insurance products being offered to Rabobank customers through the Interpolis brand, which is one of the country s most recognised and trusted financial brands. Our aim is to expand this bancassurance model internationally, both with Rabobank and other partners. In Australia, for example, we are already in the process of developing a greenfield start up with Rabobank, and expect to receive an insurance license during the course of Our work, our organisation, our world Achmea is an organisation driven by the goal of putting customers interests first. At the same time, we are equally committed to serving the needs of our (business) partners, employees, shareholders and society at large at all times. The changes we envisage will undoubtedly place greater pressure on our people. An increased workload, coupled with ongoing cost efficiencies, will require an increasing level of commitment from everyone in the company. At the same time, market developments are forcing us to be more restrained about compensation levels and job security. We have already reviewed and adjusted downwards the remuneration package of our top-400 managers, bringing them further in line with societal developments. We also intend to create a long term, sustainable pension plan for employees across the organisation. Consequently, it is our responsibility to be clear about the company s direction and the future prospects of each business unit. This will involve professionalising the steering of the business during the implementation of change and transition, and ensuring that we have a properly trained workforce, capable of adapting to market conditions. As the nature of the business changes we will require fewer back office functions and workers with a range of different talents, which will require greater focus, and continued investment, in our education, training and management development programmes at all levels of the company. We will also bring in specialists from outside the company where we currently don t have the right capabilities, and work on further strengthening the culture to reinforce our core values of empathy, innovation and delivering on our promises, by saying what we do and doing what we say. One way we strengthen the organisation is by listening to our employees, and ensuring that our Works Councils are involved in any major changes within the company. 18

19 executive board report Strategy Every year in the Netherlands we ask employees to rate the organisation and, based on the results, we set priorities that the company needs to meet in the upcoming year. In 2012, the response rate to the Employee Engagement Survey was again excellent, given the changes taking place both internally and externally. Sustainable employability and flexibility will remain focal points, which will give employees greater freedom in where and when they work. Vertrouwd Samen Werken is our programme to organise our work with the focus on creating more customer value. Customers will benefit through service that is both faster and available out-of-office hours, while employees will be able to take advantage of flexible hours, giving them greater control over where and when they work. As an insurer with a cooperative heritage, we feel a responsibility towards society s needs, which is why we are an active member of the United Nations Environment Programme (UNEP). The signing of the Principles for Sustainable Insurance (PSI) in 2012 and the Principles on Responsible Investment (PRI) are proof of our commitment to sustainable development. We depend on the trust people place in our industry in general, and Achmea in particular. Through risk prevention, risk reduction and the spreading of risk over the many, the insurance industry plays a vital role in developing the economy and society. As the world continues to face social and environmental challenges, including aging populations, rising healthcare costs and climate change, the PSI will help address this changing risk landscape. The integration of the PSI aims to strengthen the foundation of our business and help us provide customers across our markets with the best possible insurance solutions in the long run. For example, one of the principles involves embedding environmental, social and governance (ESG) issues relevant to the insurance industry in our decision-making process. By doing this, not only will we be better able to respond to clients quickly, fairly, sensitively and transparently, and make sure claims processes are clearly explained and understood, we will also be able to integrate ESG issues into investment decision-making and ownership practices. Last year, for example, we extended the ESG integration of our investment portfolio, and we tightened our investment policy through the exclusion of the tobacco industry and the nuclear weapons industry. As well as our individual customer contact, we have also opened a communication channel on issues that are relevant for us, our customers and society at large. Through Volgens Nederland ( Holland says ), we aim to establish a cooperative community using modern tools in the Netherlands. Volgens Nederland is a project that will use the internet and debates to collect opinions, wishes, ideas and solutions related to employment, health care, pensions, mobility and safety. Our customers One of our primary ambitions is to be the most trusted insurer that thinks from the customer s perspective. To achieve this we first need to strengthen our customers trust, which we will do by ensuring that their best interests remain central in everything we do, that they are represented in our clients council, and that we offer them socially responsible products and services at reasonable prices. By listening to customers wishes and thinking from their perspective, we will be able to respond quickly to changing behaviour and trends in the market, enabling them to reach us whenever and wherever they wish. By reducing costs and introducing greater flexibility today, we lay the foundation for the development of innovative propositions that meet customers future needs. And because risk and uncertainty remain central customer issues, entering into a risk dialogue will be a key element in the relationship we have with them. In addition to strengthening the trust of our customers, we will continue to connect with society in general. At the same time, we will continue to work extensively with partners to provide the best and most efficient customer service. In addition to sharing expertise and customer information, we will create partnerships to develop new distribution methods and to offer a new generation of services, such as locationbased services. In the Netherlands, we will focus on doing business with partners who share our values and our vision for customer development. Our prudent risk appetite will remain unchanged. While we recognise that uncertainty is a fact-of-life and that it s impossible to eliminate all risk, we invest our own capital in line with our prudent risk appetite. By becoming a leaner and more agile organisation, with reduced complexity and lower costs, we want to be better able to serve our customers. By implementing efficiencyoriented back-office and improved claims management systems, we will reduce operating costs and help develop innovative forms of customer interaction. These cost savings will also free up capital, enabling us to invest in new technologies and processes, with the goal of making the transition to being the most trusted insurer. 19

20 executive board report Strategy Achmea s strategy by business line BUSINESS LINE TREND FOCUS GROUP Retreating government role leading to transfer of risk to individuals/insurers New entrants with low cost base Customers demanding more transparency and lower costs Greater regulatory requirements Customer focus Strengthen commercial capabilities Find solutions for loss-making businesses Cost discipline Improve efficiency Complexity reduction PROPERTY & CASUALTY HEALTH INCOME PROTECTION PENSIONS INDIVIDUAL LIFE INTERNATIONAL BANKING Emerging signs of hardening market in retail lines, commercial lines still soft Changing distribution landscape Price competition Expected growth of health care costs approximately 3% per year Pressure on reducing costs More privatisation More risk shifted to insurers and consumers Growth through privatisation of social security system Increasing claims ratios Increasing pension awareness Uncertainty on new pension system Gradual shift to defined contribution PPI Most of market asset accumulation products shifting to banks Declining market except for term insurance Macro-economic situation challenging (Greece, Ireland) Increasing regulatory pressure for transparency More consumer appetite for technology (Internet, Direct) More competition in savings market as a result of changing regulation State of the art claims handling White labeling Moving forward in the value chain Maintain pricing discipline Health Procurement Prevention Profitable growth Broker channel Developing new innovative products Standardised products, resolving legacy Term insurance Accelerating competence-based growth transfer of best practice and investments, e.g. Direct Strengthening results of current positions Organic growth and improving profitability Strategic reorientation for non-core businesses Exploring international opportunities with shareholder Rabobank Less dependent on wholesale funding 20

21 Group Performance NEt profit 453 million Solvency ratio insurance entities (IGD) 209% Highlights February: Launch of the LSP Health Economics Fund February: Signing of the Principles for Sustainable Insurance (PSI) March: Sale of shares in F&C Asset Management July: Sale of Achmea Vitale closed July: Successful placement of almost 800 million of residential mortgage-backed securities Achmea Hypotheekbank October: Close of 750 million new senior unsecured multicurrency revolving credit facility Gross written premiums 20.4 billion Equity 10.4 billion capital allocation to segments October: Successful first issuance of 500 million of senior unsecured notes Achmea Hypotheekbank November: Acquisition of OVO announced November: Highest ranked financial service provider in annual Transparency Benchmark Pension & Life Netherlands 35% Non-life Netherlands 23% Health Netherlands 21% International 11% Banking Netherlands 7% Other 3% December: Acquisition of Friesland Bank Assurantiën 21

22 executive board report Group Performance results Group results Achmea delivered a robust performance in 2012, posting a net profit of 453 million (2011: million) despite continually shifting market and economic circumstances. Operating conditions remained challenging. Financial markets were volatile, especially in the first half of the year, and we continued to witness a rapidly changing market environment. Slowing the pace at which healthcare costs rise is a focal point for politicians, consumers and the industry, while the challenging economic climate has impacted the Dutch housing market, reducing mortgage sales and subsequently the demand for life products. At the same time, customer interaction is changing, with many now choosing to interact with us through a variety of different media. Amid this turbulence we continued to successfully implement our cost and complexity reduction programmes, while also investing heavily in innovation and in further strengthening our organisation, for example through investments in continuing to optimise health care procurement, developing commercial capabilities and separating our closed life book. Profit before tax was 412 million (2011: million). While we recorded continued solid results in our Dutch ( MILLION) Gross written premiums 20,445 19,650 4% Investment income 1,688 2,024-17% Fee and commission income % Other income 2,682 1, % Total income 25,257 23,198 9% Claims and movements in insurance liabilities 20,910 19,255 9% Operating expenses 3,024 3,031 0% Other expenses 911 1,159-21% Total expenses 24,845 23,445 6% Profit before tax n.m. Net profit n.m. n.m.: Not meaningful. Non-life and Health businesses, the profitability of our Pension & Life Netherlands business increased significantly, positively affected by higher investment income. Profit before tax was negatively impacted by an additional provision of 180 million (2011: 171 million) for our longterm disability product WGA. The divestments of Achmea Vitale and Eureko Romania had a negative impact of - 50 million, resulting in a profit before tax from regular activities of 462 million (2011: - 51 million). Net profit came in at 453 million (2011: million). The aggregate tax benefit is the result of the tax exemption for health insurance activities and changes in our tax position. profit before tax ( MILLION) Profit before tax Mergers and divestments Goodwill impairment on Pension & Life activities Impairment on Greek Government Bonds Profit before tax from regular activities Results per segment Profit before tax at our Non-life Netherlands business decreased by 37% to 207 million (2011: 329 million). Results were negatively impacted by investments in new IT architecture for Property & Casualty, higher claims in both Property & Casualty and Income Protection and the sale of Achmea Vitale in the first half of the year. Profit before tax was also heavily impacted by the additional provision of 180 million for our long-term disability product WGA (2011: 171 million). Operationally, our Non-life Netherlands business performed reasonably well. The combined ratio of our Dutch Non-life business is a very sound 94.0% (2011: 90.6%) if corrected for the additional provision for WGA. The unadjusted combined ratio is 99.6% (2011: 96.1%). Profit before tax at our Health Netherlands business decreased by 5% to 286 million (2011: 301 million). This result includes 53 million from the first-time consolidation of De Friesland Zorgverzekeraar (DFZ). 22

23 executive board report Group Performance The decrease was due to the one-off allocation of expenses related to holding services rendered in previous years. Our Basic Health operation in the Netherlands is a stable, lowmargin business where scale remains the key driver of our success. Operationally, our Dutch Health business also performed satisfactorily with a combined ratio of 98.0% (2011: 98.9%) at Basic Health and 95.1% (2011: 94.7%) at Supplementary Health. Profit before tax at our Pension & Life Netherlands business increased significantly to 381 million (2011: million). The 2011 results were negatively impacted by the 279 million goodwill write-down related to the life and pension business). Profit before tax was positively affected by higher investment income, mainly due to lower credit spreads. It was positively affected by a switch in the discount rate used for measuring the liabilities related to certain insurance portfolios. The application of the ultimate forward rate (UFR) in determination of the discount rate is in anticipation of the discount rate to be used for Solvency II. Profit before tax at our International business decreased by 19% to - 83 million (2011: - 70 million), mainly due to a number of one-offs, including restructuring costs, provisions and write-offs connected to our Romanian operations. Corrected for one-offs and divestments, profit before tax was - 14 million (2011: 8 million, corrected for the sale of Avéro Belgium, the impairment on Greek government bonds and extra reserve releases). market position in the Netherlands * PROPERTY & CASUALTY Achmea (19%) Delta Lloyd ASR ING Allianz other HEALTH Achmea (33%) Coöperatie VGZ (former UVIT) CZ Group incl. Delta Lloyd & OHRA Menzis other INCOME PROTECTION ASR Achmea (19%) ING Delta Lloyd Goudse other * Sources: DNB figures, Achmea analysis. INDIVIDUAL LIFE ING Achmea (14%) SNS Reaal ASR Delta Lloyd other PENSION INSURANCE Aegon Delta Lloyd ING Zwitserleven Achmea (12%) other 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Gross written premiums Gross written premiums increased by 4% to 20,445 million (2011: 19,650 million). The main reason for this increase was the addition of 1,212 million in gross written premiums following the consolidation of DFZ. Corrected for this, gross written premiums decreased by 2% to 19,233 million, mainly due to lower contributions from the risk equalisation fund at our Dutch Basic Health business. At Non-life Netherlands, premiums were almost stable, with an increase in Property & Casualty premiums compensating for a decrease in Income Protection premiums related to disability and absenteeism products. At Pension & Life Netherlands, premiums were lower, mainly due to the challenging Dutch housing and mortgage market and competition from bank savings products. Premiums at our International business decreased as a result of our aim to only write profitable contracts, local market contractions and negative currency effects. In 2012 we maintained market-leading positions in our core markets, property & casualty and health, and retained the number two position in income protection. In the competitive individual life market, any changes had little impact on our position. Expenses Over the course of 2012 we continued to successfully implement our cost and complexity reduction programmes, while continuing to invest in innovations and the further strengthening of our organisation. 23

24 executive board report Group Performance We invested heavily in continuing to optimise health care procurement, in developing dynamic pricing and commercial capabilities and in ongoing improvement of our IT infrastructure. Continuing efficiency improvements, driven by accelerated cost reduction goals, remain high on our agenda going forward. For the coming period we have set a target for a 200 million reduction of gross operating expenses to be achieved by the end of Over the reporting year, gross operating expenses decreased by 2% to 2,694 million (2011: 2,736 million) if corrected for M&A activity, restructuring programmes, provisions for vacant buildings and other non-recurring items. Total operating expenses (gross operating expenses corrected for acquisition costs and allocation to claim handling) were stable at 3,024 million (2011: 3,031 million), wit higher acquisition Costs offset by lower management costs. Corrected for M&A activity, total operating expenses decreased by 1% to 2,936 million (2011: 2,974 million). We saw a 3% reduction in the number of internal FTEs in 2012, from 19,490 at year-end 2011 to 18,905 at yearend This resulted in reduced personnel expenses. Corrected for M&A activity, the reduction in the number of internal FTEs in 2012 would have been approximately the same 3%. Capital management At the end of 2012, total equity was 10,374 million, a 599 million increase compared to year-end This was primarily due to the net profit of 453 million and the increase of the revaluation reserve of 205 million. We benefitted from lower interest rates, which had a positive impact on the valuation of the fixed income portfolio. The unrealised investments results that cover obligations towards our policyholders are set-aside in a fund for future appropriation, which is part of the insurance liabilities. In 2012, this reserve, held for the good of our policyholders, increased by 711 million to around 3.3 billion. Dividend payments on preference shares and coupon payments on hybrid capital amounted to 106 million. development of total equity ( MILLION) Total equity ,775 Net profit 453 Dividends and coupon payments to holders of equity instruments -106 Revaluation of equity and fixed income portfolio 205 FX reserves 26 Other 21 Total equity ,374 At year-end 2012, Group solvency was higher at 207% (year-end 2011: 204%). Available capital increased by 609 million 9,046 million, while required capital increased by 251 million to 4,380 million. The increase in available capital is partly explained by the change in the assumptions regarding the risk-free discount rate and changes in parameters in performing the liability adequacy test. To increase the comparability of the regulatory solvency in the market, we decided to change the discount rate at which liabilities of our Dutch business are discounted for purposes of the regulatory liability adequacy test. We switched from the Euro swap curve to the ECB AAA curve in the first half of the year. On 2 July 2012, the Dutch Central Bank (DNB) announced that, effective 30 June 2012, insurers should adjust the method for extrapolating the interest rate curve using an Ultimate Forward Rate (UFR), which is set at 4.2%, to be reached in 40 years from the point of 20 years. Available capital also increased due to the net profit over 2012, while it was negatively impacted by goodwill related to business combinations. Required capital increased primarily because of the DNB s increased solvency requirements from 9% to 11% for the Dutch basic health insurance. Our solvency position based on the Insurance Group Directive (i.e. excluding banking operations) increased to 209% at year-end 2012 (year-end 2011: 208%). Available capital increased by 650 million to 8,323 million, while required capital increased by 289 million to 3,985 million. The core Tier 1 ratios of Achmea Bank Holding and Staalbankiers improved to 14.2% (year-end 2011: 12.4%) and 14.0% (2011: 13.1%) respectively. 24

25 executive board report Group Performance Solvency ratios SOLVENCY Regulatory solvency ratio Group (FCD) 207% 204% 3%-pts Regulatory solvency ratio insurance entities (IGD) 209% 208% 1%-pts Group key performance indicators We have defined a number of key performance indicators that reflect our overall objectives. Performance in 2012 was satisfactory, with the combined ratio at our Non-life business which was impacted by a higher number of claims compared to 2011 and the additional provision for our long-term disability product WGA the only exception. Corrected for the additional provision, the combined ratio was 94.0%. Performance at our Basic Health operations in the Netherlands was satisfactory, with a combined ratio of 98.0%. Employee engagement and customer satisfaction both outperformed our targets, with a score of 72% and 7.6 out of 10 respectively. In 2012, we also managed to maintain market share in our core property & casualty and health markets, where we retained our number one position, and number two in income protection. The 209% solvency ratio of our insurance entities (IGD) was also on target. Group Key Performance Indicators INDICATOR OBJECTIVE 2012 STATUS Combined ratio Non-life < 97% 99.6% Combined ratio Basic Health < 100% 98.0% Customer satisfaction Satisfaction of at least 7.5 Average customer satisfaction for all Dutch Achmea insurance labels 7.6 Employee engagement > 71% 72% Market share Solvency Retain market share in core activities: Non-life, Health and Income Protection > 190% regulatory solvency ratio insurance entities (IGD) Leading market position maintained 209% 25

26 Non-life Netherlands Non-life insurance is one of our core businesses, and we remain focused on developing our Non-life operations in the Netherlands through direct and banking channels. Across the Group, almost a fifth of our total gross written premiums are generated from our range of non-life products, while in the Netherlands we remain market leader in Property & Casualty and number two in Income Protection. Profit before tax 207 million Solvency 280% Gross written premiums 3,151 million Combined ratio 99.6% Goals 2013 and beyond maintain strong market share reduce expense ratio achieve combined ratio <97% gross written premiums Property & Casualty Property 28% Motor other 19% Motor liability 16% General liability 7% Legal assistance 6% Transport/aviation 1% Other 0% Income protection Accident 23% 26

27 executive board report Segment Non-life Netherlands results Results ( MILLION) Gross written premiums 3,151 3,176-1% Investment income % Other income % Total income 3,370 3,424-2% Claims and movements in insurance liabilities 2,228 2,142 4% Operating expenses % Other expenses % Total expenses 3,163 3,095 2% Profit before tax % The non-life insurance market in the Netherlands is saturated and highly competitive, with price often the decisive factor in customers decision making. In 2012, our gross written premiums were 3,151 million (2011: 3,176 million). Higher premiums in Property & Casualty (P&C) due to an increase in fire and general liability insurance were offset by lower premiums in our Income Protection business. Profit before tax decreased to 207 million (2011: 329 million). This was mainly due to higher claims and lower releases of provisions in Property & Casualty compared to 2011, and an additional provision of 180 million (2011: 171 million) on our long-term disability product within Income Protection. Profit before tax was also affected by costs of 33 million related to the sale of Achmea Vitale. Operating expenses decreased by 6% to 864 million (2011: 917 million). Investments in the new IT architecture and higher marketing expenses in Property & Casualty were more than offset by ongoing cost reductions and the sale of Achmea Vitale. The claims ratio increased to 72.9% (2011: 69.7%). This was mainly due to higher regular claims and lower releases of provisions within Property & Casualty compared to The expense ratio increased slightly to 26.7% (2011: 26.4%). On balance, the combined ratio of Non-life Netherlands came in below 100% at 99.6% (2011: 96.1%). Without the additional provision in Income Protection, the claims ratio would have been 67.3% (2011: 64.2%), the expense ratio 26.7% (2011: 26.4%) and the combined ratio 94.0% (2011: 90.6%). Solvency increased to 280% (2011: 245%) due to higher investment revaluations and the profit over the year. Property & Casualty Market developments The Property & Casualty market in the Netherlands is characterised by slow growth, with increasingly fierce competition on internet-related sales. The long-term trend points to brokers losing market share to sales through direct channels, as consumers switch in growing numbers to online price comparison sites and aggregators in search of the best deal. Although internet-only start-up companies tend to concentrate on offering the lowest price point, it will become increasingly important to understand changing customer demands and behaviour, and design products accordingly. How we are responding We remained the Property & Casualty market leader in 2012, and aim to grow in a modest and responsible way. Our focus was on improving customer service, and we continued to invest in developing more efficient and effective front- and back-office operations. During the course of the year we migrated our entire suite of nonlife back-office systems into one product division, which enables us to modify products faster, and integrate systems and processes across our labels so that we can concentrate on doing what we do best: providing protection and handling claims. We expanded the promotion of our individual brands which include Interpolis, Centraal Beheer Achmea, FBTO, Avéro Achmea and InShared giving us greater overall exposure to the market. In addition to developing our online offerings through InShared, we also liaised with Rabobank on their digital strategy. Rabobank has traditionally sold insurance through their retail branches, but this tendency is increasingly moving to the internet. 27

28 executive board report Segment Non-life Netherlands SWOT ANALYSIS PROPERTY & CASUALTY Strengths Market leader Large range of trusted brands in direct writing and bank distribution Unique position and large market share in employer distribution Distribution partnership with Rabobank Size is competitive advantage, also on procurement Straight Through Processing IT system Good claims handling & management High customer satisfaction Opportunities New distribution channels Solvency II may put pressure on some single-proposition insurers Regulator clamps down on irresponsible pricing; some players obliged to raise their prices Increase in switch behaviour based on quality/service Price increasingly decisive factor but prices stabilising Weaknesses Integration of legacy IT systems still in progress Complexity not yet removed Threats Increase in switch behaviour based on prices Price increasingly decisive factor Weak underlying property market Lack of economic growth Insurance tax increase We are working closely with the bank, our largest distribution channel, to develop the best strategy for Interpolis going forward. Achmea was the first Dutch insurer to introduce a direct channel, and in 2011 we maintained our first-mover position by taking a majority stake in online aggregator Independer.nl. Aggregators enable customers to compare products and services easily and independently, and we saw in 2012 that our stake in Independer.nl helps us better understand and react to the demands of customers, thereby building a more sustainable relationship with them. Importantly, the objectivity of both the comparison process and the outcome of results is guaranteed by a Supervisory Board and a statute of independence. The partnership developed by our direct writer InShared with major retail chain HEMA which involves HEMA marketing standardised products under its own label with Achmea underwriting the risk and handling the administration and claims progressed very well. We continue to scan the market for similar opportunities, and are currently investigating a number of other options. On a product level, our focus is on the retail and SME market, which make up the majority of our Property & Casualty business. We witnessed heavy competition within the motor segment, with a corresponding dip in our market share, although we remained market leader. However, this decline was offset by growth in other areas, including the more profitable property segment. Customer satisfaction Customer loyalty is based on trust, and is developed by focusing on customer satisfaction. Brand awareness is an important factor in developing customer trust, and both Interpolis and Centraal Beheer Achmea scored highly on loyalty and brand awareness in the Dutch Property & Casualty market. Interpolis is brand leader in Dutch Property & Casualty. In an independent customer satisfaction survey carried out by the Dutch Association of Insurers in 2012, Achmea achieved a score of 7.7 on a scale of 10. This was equal to the market average of 7.7. Outlook Price pressure will continue to be an overriding issue within the Property & Casualty market, as distribution changes within existing channels increase switching behaviour. We will concentrate on developing innovative 28

29 executive board report Segment Non-life Netherlands distribution capabilities and dynamic pricing capabilities, while driving growth within the (large) corporates market. Insurers will need to look for new ways to create additional customer value and customer loyalty will become increasingly valuable. At the beginning of 2013 the insurance premium tax rate rose from 9.7% to 21%, which could cause prices to rise across the Dutch market, further impacting the consumer. We will look at strengthening strategic positions in specific segments as and when opportunities arise, while pursuing valuebased marketing through direct distribution and using information that is provided by Independer.nl. As part of our ongoing cost cutting measures, we will continue to focus on IT rationalisation where relevant. Our longterm goals are to grow our strong market share, sustain a strong combined ratio and continue to develop even better customer service through improved websites, straightthrough processing and improved claims handling service. Results Gross written premiums increased slightly to 2,522 million (2011: 2,511 million), mainly due to an increase in fire and general liability insurance, partly offset by a decrease in motor insurance. Profit before tax decreased by 12% to 401 million (2011: 455 million), due to a higher number of claims within the agricultural sector in 2012, a higher number of fire and storm claims in the first quarter of 2012 and lower releases of provisions compared to The expense ratio increased to 26.8% (2011: 26.4%), primarily due to investments in IT and higher marketing expenses. The claims ratio increased to 62.7% (2011: 59.5%) and the combined ratio was 89.5% (2011: 85.9%). Income Protection Market developments Companies and the self-employed take out income protection to cover the risk of their employees or themselves becoming incapacitated and unable to work. In the Netherlands there are three main products offered by insurers: disability coverage for the self-employed (AOV); employee absence coverage, primarily targeted at the SME market (Verzuim); and coverage of employees who are partially or temporarily incapacitated (WGA). SWOT ANALYSIS INCOME PROTECTION Strengths Overall number 2 in the market; market leader in some segments Dominant in bank distribution Extensive knowledge base of complex products Well positioned to anticipate and influence policy developments Strong labels, multi-distribution and channelling Integrated chains Integrated offering of health/income protection Opportunities Increased demand for combined services/products Ban on commissions and increased transparency Further privatisation of social security Growing switch behaviour from public to private sector Growing regulatory scrutiny of transparency/compliance Growth perspectives in broker channel Product complexity, as few insurers have capability to operate in this market Weaknesses Relatively low market share in broker channel Threats Market declining in size/profitability still under some pressure from adverse economic climate and fierce competition Little confidence in sector and customers more critical Economic cycle 29

30 executive board report Segment Non-life Netherlands In recent years, the Dutch income protection market has been marked by three key issues. Firstly, an increase in competition, which pushed down premiums and impacted profits. Secondly, the continuation of the economic downturn, which has cut growth among SMEs and the self-employed, and increased business bankruptcy levels. Together this has resulted in fewer income protection policies being taken out, with employers accepting higher risks in order to lower costs. And lastly, the number of employees partially (or permanently) incapacitated has risen faster than initially predicted by insurers and the Institute for Employee Insurance (UWV), the government agency responsible for the medical (re-) examinations of the occupationally disabled. Although we prudently made additional provisions on our long-term disability insurance this year, the impact this issue will have on the market as a whole remains uncertain. How we are responding In 2012 we followed a cautious commercial strategy, which involved developing premiums that will enable us to execute a sustainable, long-term business model. This was partly driven by the WGA trends we witnessed towards the end of 2011, where we saw a higher inflow of new disability claims and claimants remaining in the WGA for a longer period. Extrapolating these trends led us to take a 180 million additional provision on our long-term WGA insurance to cover the increased number of claims and longer claim period we expect in the future. One of the reasons this occurred was because of the relative newness of the WGA product, following the privatisation of the market in With no historical data available, predictions were based on knowledge of the market pre-privatisation. Additionally, the continuing troubled labour market conditions have pushed up both claim frequency and claim duration. In addition to increasing our premiums, we also altered our policy terms and conditions. This should provide employers and Achmea with additional tools to intervene as employees move into the disability stream. Income protection products are long tail products, so declining long-term interest rates have become even more important. As a result of low interest rates, we are offsetting declining investment returns from other sources. In addition to focusing more on our pricing model, this year we also looked closely at claims handling. We developed and implemented a claims handling management system using know-how from other parts of the business, which will reduce costs and improve customer satisfaction. Outlook One of our key aims in 2013 will be recovering profitability. We will also continue to improve our claims handling processes, and will work hard to capitalise on our market position and regain the confidence of our customers and stakeholders. We started operating in income protection to help companies maximise employees employability, so that if employees became incapacitated they can focus on reintegration and a return to partial or full employment. In addition to taking over the financial risk, we also help develop rehabilitation programs (physical or psychological), and will continue to work on helping those who step into the WGA, step back out. The broker channel has traditionally dominated the income protection market, but with the introduction of new transparency measures they will have to separate their charges from the cost of the product. We are working on introducing an execution-only product through the direct channel, which we expect to open up new opportunities for us in the market. We believe that a separation of the product price and the brokerage fee will benefit customers and Achmea. Looking ahead, we see the possibility for income protection moving towards income certainty. This will involve the employee deciding how much income protection insurance they want to take out, based on their own risk profile. Results Gross written premiums decreased by 5% to 629 million (2011: 665 million), mainly due to a decrease in premiums in disability and absenteeism, respectively impacted by lower pricing and a stricter renewal policy. The loss before tax worsened in 2012 to million (2011: million), primarily due to costs of 33 million related to the sale of Achmea Vitale and higher claims. 30

31 executive board report Segment Non-life Netherlands Profit before tax was also affected by the additional provision of 180 million (2011: 171 million) for our long-term disability insurance (WGA). This addition was made in expectation of a higher inflow and a longer duration of insured persons in the WGA, partly as a result of the continuing troubled labour market conditions, where both claim frequency and claim duration increased above our own (and market) expectations. To better position ourselves in the market and counter the increase in claim costs, we have taken various steps. These involve adjusting our proposition to customers and further improving our claims handling. We will also better align with the UWV. For 2013, we do not foresee any further major additions to the provision due to the arrears from the UWV that have been eliminated. The claims ratio increased to 113.1% (2011: 109.4%) due to higher claims, mainly in disability and WGA. The claims ratio in 2012 was, as in 2011, also affected by the additional provision of 180 million on our long-term disability product. The expense ratio decreased to 26.4% (2011: 26.5%), which was due to more effective claims handling. This resulted in a combined ratio of 139.5% (2011: 135.9%). Without the additional provisions, the claims ratio in Income Protection would have been 85.5% (2011: 82.6%), and the combined ratio 111.9% (2011: 109.1%). 31

32 Health Netherlands Health insurance is a core business and a core competence at Achmea. We are the Netherlands largest health insurer with a market share of 33%, where we offer a range of health services and provide basic and supplementary health insurance to 5.5 million people. Following our merger with De Friesland Zorgverzekeraar in 2011, we are incorporating their results into ours for the first time in Profit before tax 286 million solvency 153% Gross written premiums 13.1 BILLION Combined ratio basic health 98.0% goals 2013 and beyond gross written premiums improve customer and partner trust maintain market share and value stabilise and further improve the expense ratio reduce growth of health care costs in the Netherlands further develop and improve health procurement capacity Basic health - risk equalisation fund 49% Basic health - private individuals 39% Supplementary Health 12% 32

33 executive board report Segment Health Netherlands results ( MILLION) Gross written premiums 13,120 12,055 9% Investment income % Other income % Total income 13,173 11,978 10% Claims and movements in insurance liabilities 12,114 11,134 9% Operating expenses % Other expenses % Total expenses 12,887 11,677 10% Profit before tax % previous years. The expense ratio increased to 4.4% (2011: 4.0%) due to the one-off business and IT integration expenses and higher brokers commissions. The combined ratio of Health Netherlands improved to 97.9% (2011: 98.8%). Solvency decreased to 153% (2011: 192%), which was mainly due to the Dutch Central Bank s increased solvency requirements for Basic Health insurance from 9% to 11%. The solvency level remains relatively strong and well above the minimum legal and internal requirements. Results Healthcare in the Netherlands The Dutch Healthcare System In 2012, gross written premiums at our Dutch Health operations grew by 9% to 13,120 million (2011: 12,055 million), mainly due to the merger with De Friesland Zorgverzekeraar (DFZ). Corrected for the premiums of DFZ ( 1,212 million), gross written premiums decreased by 1% to 11,908 million (2011: 12,055 million). This decrease is mainly due to lower contributions from the risk equalisation fund. Profit before tax decreased by 5% to 286 million (2011: 301 million), which includes the contribution from DFZ. This decrease was due to the one-off allocation of expenses related to holding services rendered in previous years (these expenses are also presented as part of expenses in the Other chapter). Excluding DFZ s contribution ( 53 million), profit before tax was 233 million. Operating expenses were 639 million (2011: 516 million). Excluding DFZ, operating expenses were 578 million. The increase in operating expenses was due to an impairment of assets at Achmea Health Centers, oneoff expenses for the integration of the Achmea Health and Agis divisions into a single health division and the reduction in IT systems, and higher brokers commissions following an increase in customer numbers. The claims ratio improved to 93.5% (2011: 94.8%), mainly as a result of favourable claims development related to In 2006, the Netherlands introduced the country s most radical healthcare reform for a generation. With the introduction of the Health Insurance Act, healthcare moved from being a supply-side controlled model to a demand-driven model. This model aims to create a workable balance between a social foundation and freemarket dynamics. The government set a public framework condition that care must be affordable for all, including people on low incomes or with high care costs. Everyone is required by law to take a basic insurance package, while insurers are not allowed to reject anyone. This prevents discrimination on the basis of risk. To make this workable, and avoid competition among insurers to attract healthy customers, a risk equalisation scheme was set up. Managed by a government agency, the risk equalisation fund compensates insurers up front for higher-risk customers in their fund. The scheme is funded through employer contributions for their workforce calculated as a percentage of salary, and government contributions for those who are under 18. Insured parties younger than 18 years of age pay no premium, while those on low incomes can apply for a care allowance. Everyone pays according to their ability to pay. This safety net underlines that solidarity between income groups is a fundamental aspect of the health care cost system. The framework also gives the insured greater freedom of choice, providing access to a number of own selection elements. For example, insurees can choose to take out supplementary insurance 33

34 executive board report Segment Health Netherlands for care that is not included in the basic health insurance package, or define their own risk level. In 2013, it is obligatory for everyone to have an own risk level of 350. They can then choose to increase this in increments of 100, to a maximum level of 850. Market developments The Dutch health insurance market is the largest private insurance market in Europe, with a size of 40 billion in The market grew over the course of the year, with a decrease in the number of uninsured persons leading to an overall rise in the number of policyholders. The issue of healthcare once again played a central role in Dutch society, garnering attention partially because of its importance in the build up to the general election, which was held in September. One of the primary discussion topics is rising healthcare costs, which are increasing faster than economic growth. These rising costs are the reason why an agreement was made between the Dutch Health Ministry, hospitals and Dutch health insurers in 2011 to limit the increase of healthcare and hospital spending to a maximum of 2.5% per year. To achieve this, and to further improve the quality and efficiency of healthcare, more financial risk and responsibility has shifted to health insurers and to the insured. In addition, contract negotiations with healthcare providers increasingly include making quality more transparent, with negotiations focusing on the price/quality ratio. The concentration of complex hospital healthcare, the reshaping of the healthcare infrastructure and the shift towards the front line and self-management are also high on the agenda. We are starting to see the system changes envisaged in 2006 taking place. The earlier signs that the rise of healthcare costs seems to be slowing were re-affirmed in the second half of 2012, although it is still to early to draw any definitive conclusions. In 2012, the agreement laid out by the new Dutch coalition government re-affirmed the role of the insurer within the current framework. At the same time, the market is progressively becoming a commodity market. Price-sensitivity and consumer mobility are increasing, from 6.0% in 2012 to around 7.5% in This increased mobility is in part due to increased consumer price sensitivity and greater transparency, driven by the popularity of comparison websites. There is a growing trend among insurees towards dispensing with supplementary or dental insurance or reducing supplementary insurance cover, while more policyholders are opting for a voluntary own risk amount. Another issue currently facing the market is the uncertainty surrounding the future of the AWBZ (Algemene Wet Bijzondere Ziektekosten, or General Act on Exceptional Medical Expenses), which currently makes up over a quarter of total healthcare costs in the Netherlands. The AWBZ covers long-term exceptional expenses that are not covered by basic health insurance, such as care of the elderly and care of the mentally and physically handicapped. In early 2012 it looked as though there would be a change to this system, with individual insurers being be required to take over the administration of their AWBZ customers, which is currently carried out by the region s largest insurer through zorgkantoren. This change did not take place, however. Following the elections in September the new government proposed reforming the AWBZ system from Under the new proposals, only people who require long-term care (such as the elderly and physically handicapped) will remain covered by the AWBZ. The costs of certain types of medical care, such as of the mentally handicapped, will become the responsibility of insurance companies, while local authorities will be responsible for administering care in the community. How we are responding Our health products are developed and sold through seven main health brands Zilveren Kruis Achmea, Agis, Interpolis, Avéro Achmea, FBTO, ProLife, and DFZ using direct, bank and broker distribution channels. This broad distribution mix provides us with stability and we are very well positioned within the market. In 2012 we provided health cover to 5.5 million people across the Netherlands, with around 80% insured through group contracts. As well as providing health cover, we also contract health care, and work in close cooperation with care providers (such as hospitals) to ensure our customers are provided with the highest levels of service and quality at a reasonable price. Our main strategic ambition within healthcare is to lower costs while providing higher levels of care by focusing on quality. 34

35 executive board report Segment Health Netherlands Investing in high quality, affordable healthcare We want our customers to be able to rely on high quality care at the lowest possible cost, which is why we stimulate the development of innovative, next-generation healthcare solutions by investing in companies that are working on improving lives sustainably. One example is our recent investment through Achmea Participations in I-Cane, which provides independent mobility for the blind and visually impaired using GPS guidance and tactile communication. Another example is Medimate, a company that has developed a product that allows people to take blood measurements at home, reducing their need for hospital visits. In 2012, we partnered with Life Science Partners (LSP) to establish the international LSP Health Economic Fund. The fund has already invested in the development of a surgical technique to treat bone fractures, which uses a balloon system to fill the inside of the bone with resin. This increases healing time and significantly reduces costs. This matches with the demands of consumers, who want access to the best medication and the latest medical techniques, with minimal problems and maximum transparency. To accomplish this, we are concentrating on three key areas: maintaining volume and value; helping customers make wise health decisions; and managing the supply (quality) of healthcare providers. Maintaining volume and value With seven well-known brands on the market, our goal is to continue to differentiate each brand based on its own unique characteristics, such as distribution channel and target market. At the same time we aim to introduce new product propositions based on health and care developments, giving the customer more flexibility and freedom in selecting the services that suit them. As market leader, we will concentrate on volume maintenance rather than volume growth, although in some instances we will target market share growth in specific regions to give us greater negotiating power when purchasing health care services. Helping customers make health decisions We want to activate the customer. In other words, we want customers to be able to make their own choices when selecting healthcare providers. To realise this goal we aim to provide customers, either actively or passively, with information on the quality of care providers. We believe this has two benefits. Firstly, empowering customers will lead to a greater focus on healthcare quality, reducing wastage and therefore cutting costs. Secondly, by activating the customer we expect to stimulate a greater interest in health issues, thus activating the desire to exercise or explore other forms of preventative measures. Managing the supply We believe that focusing on quality is essential to controlling healthcare costs. High quality care administered to patients quickly and correctly leads to a decrease in the number of treatments required, benefitting the patient and reducing costs. However, customers can only make appropriate decisions on the quality of healthcare providers if we make care transparent, understandable and public. When contracting healthcare providers, Achmea makes choices based on quality norms and volumes. In this way we can accelerate the concentration and spread of care; better match care supply with demand; and improve the care infrastructure. To accomplish this, we work with care partners who have similar goals and we focus our negotiations with hospitals on signing two-year contracts. Customer satisfaction Each year the Dutch Association of Insurers surveys customers on how satisfied they are with their health insurer. In 2012, Achmea achieved a rating of 7.7 out of 10 (2011: 7.7). Customer satisfaction levels for our brands was 7.7 (2011: 7.7). Improving customer satisfaction remains a core aim across Achmea, and within our Health business we listen to customer feedback through our customer service lines, online channels and via surveys. This helps us improve services and design products according to customer demands. 35

36 executive board report Segment Health Netherlands Outlook Healthcare costs remain central to the discussion surrounding the current healthcare system in the Netherlands, and this will continue. While overall costs are expected to continue rising nationwide, we believe measures such as quality of care, cooperation within the healthcare chain and control of healthcare quality should mitigate the effect of this increase. Within Achmea, we will concentrate on reducing costs and searching for ways to improve the quality of healthcare. In 2013 we will continue with the cost reduction programme already underway, introducing process improvements and making operational management more efficient. Based on changing customer behaviour, where we see less faceto-face interaction and more contact over the internet or phone, we will close down 50 service points across the country. At the same time, we will invest in our contact centers and focus on multichannel customer interaction. Basic health Results In 2012, gross written premiums at Basic Health increased by 8% to 11,571 million (2011: 10,715 million). Of this, 1,075 million came from DFZ. Excluding DFZ s contribution, gross written premiums for Basic Health decreased by 2% year-on-year, while premiums from customers increased by 3% to 4,637 million (2011: 4,493 million). Contributions from the risk equalisation fund decreased by 6% to 5,858 million (2011: 6,222 million) due to lower claims estimates. Of DFZ s gross written premiums, 497 million were from customers and 578 million were contributions from the risk equalisation fund. Profit before tax at Basic Health increased by 63% to 260 million (2011: 159 million), mainly as a result of favourable claims development related to previous years. The DFZ integration contributed 45 million to the result. The claims ratio improved to 94.7% (2011: 96.1%), partially as a result of favourable claims development related to previous years. The expense ratio increased to 3.3% (2011: 2.8%), mainly as a result of the oneoff expenses for the integration of the Achmea Health and Agis divisions into a single health division and the reduction in IT systems. Higher brokers commissions, following an increase in customer numbers, also impacted the expense ratio. The combined ratio improved to 98.0% (2011: 98.9%). SWOT ANALYSIS BASIC & SUPPLEMENTARY HEALTH Strengths Scale Multi-label, multi-production and multi-distribution Quality of service Health care innovation Solvency Opportunities Transparency of healthcare; output, costs and especially quality Shift to quality-driven competition More demand driven, differentiated and selective procurement Integrated propositions health and occupational health Weaknesses IT legacy reduced in 2012, complex health insurance system Cross selling is not on the level we would like it to be Threats Political decisions on health insurance Not enough transparency in quality of care Price competition and entrance of new price-fighter players Better quality without cost containment caused by lack of measures concerning the infrastructure and capacity of health care Loss of solidarity Higher financial risks System change to AWBZ 36

37 executive board report Segment Health Netherlands Supplementary Health Results In 2012, gross written premiums at Supplementary Health increased by 16% to 1,534 million (2011: 1,322 million). Excluding the contribution of DFZ ( 135 million), the increase was 6%. This increase was the result of premium adjustments. Profit before tax was 82 million (2011: 79 million), which includes a 6 million contribution from DFZ. This profit decrease was caused by fewer policyholders selecting additional healthcare insurance, downgrading among existing policyholders and policyholders using their supplementary health package more efficiently. The claims ratio improved to 84.6% (2011: 85.2%), while the expense ratio increased to 10.5% (2011: 9.5%). This resulted in a higher combined ratio of 95.1% (2011: 94.7%). 37

38 Pension & Life Netherlands Achmea s Pension & Life business in the Netherlands is composed of Pension insurance and Individual life insurance. In Pension insurance, where we have a market share of 10%, our focus is on the delivery of defined-contribution products. In Individual life, where we have a market share of 14%, our focus is predominantly on term life products. Profit before tax 381 MILLION Solvency 234% Gross written premiums 2,944 MILLION VALUE NEW BUSINESS MARGIN -18.5% Goals 2013 and beyond gross written premiums maintain a top-three position in Term insurance retain and improve our Value New Business margin in the Netherlands improve customer trust in financial services products terminate all pension products that do not meet internally set returns and/or risk appetite Individual Life traditional products 26% Individual Life unit- linked products 28% Pension unit-linked products 19% Achmea Reinsurance Company 18% Pension traditional products 10% 38

39 executive board report Segment Pension & Life Netherlands results ( MILLION) Gross written premiums 2,944 3,120-6% Investment income 1,155 1,832-37% Other income 2, % Total income 6,278 5,911 6% Claims and movements in insurance liabilities 5,472 5,387 2% Operating expenses % Other expenses % Total expenses 5,897 6,092-3% Profit before tax n.m. n.m.: Not meaningful. Results In 2012, gross written premiums decreased by 6% to 2,944 million (2011: 3,120 million). The decline is the effect of the challenging Dutch life insurance market. Falling house sales and the introduction of bank savings products with fiscal advantages similar to life insurance products have put pressure on the sale of new life products. Both single especially in the second half of the year and annual premiums are lower compared to New sales are lower than 2011 due to our focus on profitability over growth. Annual premium equivalents (APE) increased to 141 million (2011: 101 million under EEV principles) following our decision to report under Market Consistent (MCEV) principles rather than European Embedded Value (EEV) principles. Under MCEV principles renewals are taken into account. Despite continued challenging market conditions, profitability developed favourably. Profit before tax increased significantly to 381 million (2011: million. The 2011 results were negatively impacted by the 279 million goodwill write-down related to the life and pension business). The 2012 result was positively affected by higher investment income, mainly due to lower credit spreads and rising equity markets, which had a positive effect on specific investments (such as convertibles). Profit before tax was also positively affected by a switch in the discount rate used for measuring the liabilities related to certain insurance contracts, which guarantee a minimum value at maturity of the contract, and a portfolio of insurance contracts whose cash flows are discounted using market based interest rates. Since 2012, Achmea has used the Euro swap curve, including an illiquidity premium, dependent on the specific features of the insurance contract, which is extrapolated by means of an ultimate forward rate (UFR). With the application of a UFR to determine the discount rate, we anticipate the discount rate that will be used for Solvency II. This became clear when the Dutch Central Bank changed its method for determining the discount rate for regulatory purposes on 30 June 2012, making use of the UFR method. Operating expenses increased by 5% to 340 million (2011: 324 million). Corrected for a one-off benefit of repayments of commissions in 2011 and for lower reinsurance commissions in 2012, operating expenses were lower compared to The solvency level improved significantly to 234% from 209% at year-end This increase is attributable to the positive result and the switch from the Euro swap curve to the ECB AAA curve with UFR methodology. Embedded value The following information offers a high-level overview of how Embedded Value developed in We also publish a separate Embedded Value report which can also be found on our website, The Embedded Value of Achmea s Dutch Life business at year-end 2012 was 3,715 million, consisting of a net asset value of 3,513 million and value of in-force business of 201 million. The required capital is the part of the net asset value that isn t freely available for shareholders. It s the capital needed to protect the insurance liabilities in case of unexpected losses. The value of in-force business is the present value of the projected stream of future profits available to shareholders from the in-force business after deduction of taxes, expenses, costs of risks and costs of holding required capital. Embedded Value decreased by 3%, which was mainly caused by the revaluation of market value liabilities due to a drop in the valuation rate (the main driver of the 39

40 executive board report Segment Pension & Life Netherlands Embedded Value and MCEV principles What is embedded value? Embedded value is the economic value of a life insurance business at a certain moment, such as year-end. It is calculated by adding together the company s net asset value (which is its assets minus its liabilities) and the value of all future profits that a company expects to make from current life policies. It does not take into account the value of any business that may be generated in the future. Why is it important? Embedded value supports shareholders understanding of the value of their interests in the company. It enables them to assess the company s financial performance over time. Why are we reporting under MCEV principles in 2012? In accordance with our decision in 2011, we moved from reporting the value of our company based on European Embedded Value (EEV) principles to Market Consistent (MCEV) principles in MCEV principles can be seen as the natural development of EEV principles. They increase companies ability to take into account risks and to improve the consistency and transparency of calculating and reporting embedded value. Due to this change in methodology, at the end of 2011, Embedded Value decreased by 457 million from 4,296 million to 3,839 million. EMBEDDED VALUE (MCEV) SUMMARY VALUE OF NEW BUSINESS (MCVNB) ( MILLION) 31 DECEMBER 2012 Free surplus 1,332 Required capital 2,181 Net asset value 3,513 Value of In-force business 202 Embedded Value 3,715 renewal of group contracts. New business margins are calculated as the ratio of VNB to the present value of new business premiums. In 2012, the VNB decreased to - 19 million (2011: - 7 million). The volume of new business remained at the same level. Consequently, the new business margin decreased to -1.8% (2011: minus 0.7%). The negative value is primarily a result of sales being too low to cover expenses. EMBEDDED VALUE (MCEV) ANALYSIS OF CHANGE ( MILLION) 2012 Embedded Value at start of year 3,839 Operating MCEV earnings 398 Non-operating MCEV earnings -522 Embedded Value at end of year 3,715 ( MILLION) 2012 Value of new business pension insurance -28 Value of new business individual life 9 Value of new business -19 non-operating earnings). The profit from operating the life business was 398 million. Cost reduction programs are reflected in the expected future earnings, with an effect of 344 million. Part of the operating earnings is the Value of New Business (VNB), which was - 19 million in New business APE (Annual premiums + 10% of Single Premiums) 141 Value added by new business as a % of APE -13.1% Present value of new business premiums 1,025 New business margin -1.8% The VNB is the value of current and future profits from new business that was written in the relevant year. New business arises from the sale of new contracts and the 40

41 executive board report Segment Pension & Life Netherlands Pension insurance Market developments The pension insurance market in the Netherlands is large, worth around 8.8 billion annually. It is currently in a transitionary phase, with employers and insurers facing a number of issues driven by regulatory changes, the economic crisis and pricing pressure. The country s pension system is made up of three pillars: the state pension; company-based collective pensions; and private pensions taken out by individuals. Achmea is active in the second pillar, providing services to around 8,000 companies, giving us a market share of 10%. Within this pillar, two distinct types of pension have traditionally been available. The first is defined benefit (DB), which provides employees with a guaranteed final pension based on the number of years worked and the employee s salary. The second is called defined contribution (DC). Pensions provided by DC schemes are dependent on the amount of contributions paid during the pension s lifespan and the investment returns. Since the onset of the economic crisis, increasing numbers of employers and insurers have chosen to switch from DB schemes to DC schemes, as low interest rates and longevity risks make traditional DB plans unaffordable for employers and unsustainable for insurers. At the same time, some parties including labour unions and works councils continue to support DB schemes. On the regulation front, the introduction of a revised IAS19 accounting rule at the beginning of 2013 will add to the unsustainability of DB plans for employers, and is likely to further encourage the shift towards DC. The premium shift from DB to DC schemes is a market development. In 2006, 53% of the total second pillar insurance market was made up of DC pensions. By 2011, this had grown to 61% of the market. We expect this trend to continue, with employers increasingly looking to shift risks to employees. The entrance of Premium Pension Institutions (PPIs) from non-insurers has led to competitive pressure, although they also provide opportunities for insurers such as Achmea. For some clients we provide the risk insurance part of the PPI. Additionally, we can also act as experts on the product s insurance component. SWOT ANALYSIS ANALYSIS PENSION INSURANCE Strengths Relatively high customer satisfaction and retention Cooperative background distinguishes Achmea, as we are focused on more than only profit We can use our customer boards for customer research on our new product range, integrating them into the product development process from the beginning Innovative defined-contribution pension products Our uniform platform for defined contribution Wide offering, from insurance with services package to asset management and pension-fund services Opportunities Ongoing shift in customer needs towards more definedcontribution products with specific guaranteed components Increasing demand for transparency in cost and risk Growing pension awareness among customers Government/employers retreating from pension market Pension system adjustments Weaknesses Legacy IT systems, resulting in relatively high cost base Relatively low market share in broker distribution Threats Increased life expectancy Low interest rates Uncertain economic situation slows premium growth Increased competition from PPIs and non-insurers Lack of customer trust in the industry Structurally lower profitability in the industry because of (temporary) low coverage level Temporary pause in the pension fund switch market to insurance solutions 41

42 executive board report Segment Pension & Life Netherlands How we are responding Our focus in 2012 was on developing and rolling out our DC product range, including a new mutual fund range with a transparent and low cost structure, while continuing to cut costs and look for efficiencies across our operations. We remain cautious of DB products, which we view as unsustainable for both employers and insurers, and continued to withdraw from guaranteed products where customers were not prepared to pay the increased market consistent costs of guarantees. For those customers currently in DB schemes, we worked with them to change to DC and limited our renewals from five years to one year. Customers are increasingly demanding transparent products with clear final outcomes, as well as online access to policy information. In 2012, 85% of existing customers affected received compensation for too high cost-loading in the past. During the course of the year we rolled out a portal for employers and a portal for employees, developed in cooperation with our customers, which provide access to investment information and pension performance. Both were very well received by the supervisory authorities. We also launched our new marktrente product, which provides customers with a guaranteed return linked to the market interest rate, rather than a fixed percentage guarantee. We completed a 5-year transformation program to migrate our Centraal Beheer Achmea and Avéro brands to a single platform for DB administration. This resulted in improved efficiency and cost reductions across our traditional product operations. We have started a similar transformation program for our DB products at Interpolis. Customer satisfaction Customer satisfaction is a priority at Achmea, and we work hard to implement customer feedback to improve the organisation. In 2012, our Centraal Beheer Achmea label came in first and our Interpolis brand came in second in a pension advisors satisfaction survey. A survey carried out by consulting bureau IG&H ranked us third nationally in terms of how well our customers are serviced. We also retained our customer oriented insurance quality mark (Keurmerk Klantgericht Verzekeren), which recognises our focus on customer service and satisfaction. Outlook Our goal in 2013 is to continue to concentrate on carrying out commercial conversions from DB to DC, as and when our customers are ready. We will invest in our lifecycle funds and work on completing our DC product range, while looking at innovative ways to offer guarantees and communication tooling as a digital insurer (such as through apps). This will help us actively sell and dealmake using the Achmea model, which involves splitting the product and distribution divisions. At the same time, we aim to develop best-in-class solutions to deal with existing DB obligations. We will continue to reduce costs, by concentrating on simplicity and innovation, as well as streamlining and simplifying processes. This will include the rationalisation of IT systems and products. Results Gross written premiums of our Pension insurance business decreased by 4% to 1,177 million (2011: 1,224 million). Annual gross written premiums remained stable, but single premiums were lower compared to The negative economic environment resulted in less indexation of single premiums. Individual life Market developments The individual life market in the Netherlands has faced challenging circumstances in recent years, and this is likely to continue going forward. Declining house sales have pressured term life insurance, while the introduction of savings products with similar fiscal advantages has shifted the market towards the major banking players. Sales of asset accumulation products are almost exclusively through banks, although risk insurance remains the domain of insurers. Although forecasts suggest that the housing market will remain troubled, the introduction of new legislation at the beginning of 2013 will make bank savings a less interesting option for lenders. In line with other sectors, consumers are demanding simpler, more transparent products and services and greater cost visibility. There is also growing competition among life insurers, leading to cost reductions and business rationalisation. 42

43 executive board report Segment Pension & Life Netherlands How we are responding Our strategic focus continued to be on providing innovative, low-cost and simple term life products, where we see growth potential. The majority of our sales were through the distribution partnership we operate with Rabobank, which offers a Best Buy guarantee via Interpolis. We are also focusing on increasing sales through direct channels. We saw a sharp decrease in VNB in 2012, due primarily to reduced volumes and margins as competition pressure grew. After a further decline, we expect VNB to increase steadily from 2013 onwards. During the course of the year we decided to separate our closed life book business and create a dedicated organisational entity. This has been in place since the start of 2013, with the aim of maintaining value at the lowest possible cost, while ensuring customers are well served. This enables us to look at alternative, efficient ways of using capital. We view this as a no regret move. We ensured that during the year, 100% of affected customers were informed as to how much compensation they will receive for too high cost-loading in the past. While we have chosen to add any compensation directly and fully to the policy, both for the past and the future, we have always believed that financial compensation alone is not enough. As a result, we have also launched alternative bank products and new lifecycle-based investment funds that have no initial costs, with customers offered the possibility to adjust their current product or switch to an alternative product. Customer satisfaction The annual survey of customers by the Dutch Association of Insurers showed that customer satisfaction remained stable at 7.1 out of 10. On average, our customers scored Achmea at 7.2, as they did in Our Centraal Beheer Achmea brand scored 7.4, which is markedly up from 7.2 in Customer satisfaction with Interpolis also increased to 7.4 from 7.3 in Results In 2012, gross written premiums decreased by 10% to 1,256 million (2011: 1,389 million). The decrease is attributable to annual premiums as well as single premiums, mainly due lo lower immediate annuities. The decrease of annual premiums is caused by lower premiums from asset accumulation products due to competition from bank savings and lower term insurance due to the depressed housing market. SWOT ANALYSIS INDIVIDUAL LIFE Strengths Relatively high customer satisfaction and retention Cooperative background distinguishes Achmea, as we are focused on more than simply profit Strong solvency, especially when compared to market competitors Our distribution power Innovative, low-cost and simple term life product Opportunities Increasing demand for transparency in cost and risk Shifting customer needs Growth in term life market Banking sales decreasing, benefitting direct and broker channels Legislation in 2013 requiring mandatory redemption of the mortgage means bank savings will no longer be more interesting than life insurance Weaknesses Legacy IT systems, resulting in relatively high cost base Relatively low market share in broker distribution Dependence of mortgage market Threats Increased life expectancy Low interest rates Fierce price competition and competition from non-insurers Individual life market is shrinking Uncertain economic situation slows premium growth 43

44 executive board report Segment Pension & Life Netherlands Outlook We except the housing market and connected life insurance products to remain under pressure, with fewer transactions and smaller mortgages. In addition to mortgage-related term life products, we will introduce stand-alone term life coupled with other products through bank and direct distribution, with the aim of achieving a 30% market share by We will also concentrate on reducing costs within our closed book operation, while continuing to operate an efficient term life business. 44

45 International Achmea s international operations are made up of all activities outside the Netherlands. We currently operate in seven countries: Greece, Turkey, Russia, Slovakia, Ireland, Bulgaria and Romania. We are in the process of developing a greenfield start up with Rabobank in Australia, and aim to take this further in Profit before tax -83 MILLION Solvency 259% Gross written premiums 1,230 MILLION employees 3,735 fte goals 2013 and beyond gwp per country continue with focus on operational efficiency continue with building competitive advantage in Non-life and Health growth business further develop partnership-based distribution models Greece 32% Turkey 24% Russia 5% Other 39% 45

46 executive board report Segment International results results ( MIILION) Gross written premiums 1,230 1,299-5% Investment income ,035% Other income n.m. Total income 1,495 1,020 47% Net claims and movements in insurance and investment liabilities 1, % Operating expenses % Other expenses % Total expenses 1,578 1,090 45% Profit before tax % n.m.: Not meaningful. Over the last few years, our International strategy has been to concentrate on growth in the Non-life and Health businesses, with a particular focus on the bancassurance and direct channels, while targeting efficiencies throughout the business. We have witnessed a global trend among customers to source information and purchase insurance products online. Although each country is developing at a different pace, we expect this trend to accelerate, with direct channels becoming more popular and the chosen method of accessing personal insurance products. Our goal is to further develop partnership-based distribution models based on changing market trends in those areas where we identify potential. In 2012, gross written premiums decreased by 5% to 1,230 million (2011: 1,299 million). This was caused by a number of issues, including our focus on writing only profitable contracts, currency effects and local market contractions. Profit before tax was - 83 million (2011: - 70 million), mainly due to an addition to the loan loss provision of our Irish Finance company (which is in run-off) and a number of one-offs, including restructuring costs and write-offs connected to our Romanian operations. Corrected for one-offs and divestments, profit before tax was - 14 million (2011: 8 million, corrected for the sale of Avéro Belgium, the impairment on Greek government bonds and extra reserve releases). This loss was driven by higher lapses and higher claims in Turkey (including lower recoveries) and Ireland, and was impacted by the negative effects of the development of discount curve evolution. All other operating companies performed ahead of 2011, due to a continued focus on profitability, cost savings and improved operational performance. Eurapco Eurapco is an alliance of independent European financial services companies, composed of seven partner companies with operations in 17 European countries. These partners are Caser (Spain), Covéa (France), Gothaer (Germany), Länsförsäkringar (Sweden), Swiss Mobiliar (Switzerland), Tapiola (Finland) and Achmea. Each partner is a leading player in its domestic market, and together they form one of the strongest insurance groups in Europe. Collectively, they have a premium volume of more than 30 billion and serve approximately 30 million clients. Eurapco activities support the partners main insurance lines life and non-life and their support functions. Its resources are dedicated to developing the alliance, specifically by creating and exploiting opportunities for synergy. Eurapco facilitates around 60 partnerdriven activities, including knowledge exchange through networking with other business groups, forums, workshops, peer seminars, symposiums and benchmarking exercises. Eurapco also develops new projects to help promote common commercial activities, and contributes to training and management development programmes for partners senior and high-potential managers. Through unity and cooperation, the partners aim to strengthen their positions in their respective local markets. They also benefit from their involvement on the international stage. Our shareholders LF Liv Forsakringsab, LF SAK Forsakringsab, Gothaer Allgemeine Versicherung, Gothaer Finanz Holding and Swiss Mobiliar all are members of the Eurapco Alliance. For more information, visit: 46

47 executive board report Segment International Operating expenses decreased by 5% to 395 million (2011: 416 million), due to the effectiveness of the overall profitability plan, a 10% reduction in FTEs and lower commissions. Solvency improved to 259% at year-end 2012, from 247% at year-end Countries Greece Interamerican Greece (IAG) operates in the non-life, health and life markets. The country faced an extremely challenging economic situation in 2012, which impacted growth and continued to make it difficult to predict market developments. We chose to further de-risk our exposure to the country where possible, and will continue to monitor the situation carefully. As one of the strongest and best-managed insurers in the country, IAG is also acknowledged as the most trusted, accessible and recognisable insurance company operating in the Greek market. We trust we will continue to play this role going forward. In 2012, gross written premiums decreased to 396 million, from 430 million in Due to the ongoing economic crisis, we saw an increasing number of lapses and surrenders in the Greek market. In this worsening market, IAG performed better than other insurers, aided by our direct channel Anytime. In the nonlife market, for example, our sales dropped by only 4%, compared to a 12% market contraction in November. We closed a large number of new motor insurance policies in what were difficult market circumstances. Gross written premiums decreased by 4% to 224 million (2011: 233 million), which was significantly better than market average. Going forward, our focus will remain on growing the business through Anytime, while retaining our network portfolio. We will continue to work on growing our market share, while standardising our product range, implementing a dynamic pricing model and adopting claims management best practices. In the health market, our goal in 2012 was to continue to strengthen our market position, while providing clients with sustainable, affordable and easy access to high quality health care. We achieved this in difficult circumstances. The private health insurance market was negatively affected by lapses as a consequence of the crisis, and our gross written premiums decreased to 97 million from 108 million in Despite the loss of business we have managed to secure our profit in this business line through improved claims management and healthcare procurement. Our focus remains on further developing the multi distribution strategy (such as Anytime), simplifying and de-risking the product portfolio, capitalising on existing managed care infrastructure, enhancing claims management and continuing operational improvements. IAG remains a significant player in the Greek life and pensions market. In 2012, our gross written premiums for life decreased by 16% to 75 million (2011: 89 million), as the economic crisis caused the number of cancellations and surrenders to increase. Group New Business Annual Premiums equivalent dropped by 54% to 4 million (2011: 8 million) as a result of the market stagnation (lower demand for pension products). Going forward, we will focus on a number of objectives, including optimising and gradually de-risking the portfolio and concentrating on retention. Turkey Eureko Sigorta operates in Turkey s non-life and health markets, which are core competences for Achmea. Eureko Sigorta is faced with a challenging insurance market. Customer awareness of, and trust in, the insurance sector is low. Bancassurance sales remain a vital part of the business, which are carried out in close cooperation with our strategic partner Garanti Bank. In 2012 we continued to focus our efforts on driving sales through this channel. Gross written premiums in 2012 dereased by 2% to 297 million (2011: 304 million), due to lower sales in some product lines in non-life, partly offset by the positive influence of foreign exchange differences ( 3 million). It was decided in the first half of the year not to exercise our call option on Garanti Emeklilik, the Life business of Garanti Bank. Russia Oranta operates in the non-life and health markets in Russia. Our focus in 2012 was on introducing greater efficiency to the organisation, and streamlining our portfolio. This was embedded into a detailed action plan, which we executed in We made good progress on increasing profitability and introducing better business 47

48 executive board report Segment International practices. We streamlined our staff operations, centralised part of our back-office activities (mainly claims handling) into a shared service centre in Ryazan and migrated part of our processes to one IT system. Legacy systems will be closed down in Moreover, we restructured our agency network, both in Moscow and the regions. Portfolio changes involved cutting a number of lossmaking contracts, which had an obvious impact on topline sales. Although sales dropped slightly, we improved our profitability by 10% and even outperformed our initial targets. Costs were reduced by 12%. Overall the efficiency drive has improved bottom line performance. Gross written premiums in 2012 were 13% lower at 65 million (2011: 75 million). The outlook for the Russian market is positive and it remains one of our most important markets. Our target in the coming period is to accelerate profitable growth. This will involve developing new channels and value propositions for clients and intermediaries, which will support the core values of Achmea. A second growth area will be online distribution channels, for which we will develop a more detailed strategy in the coming years. At the same time, we will focus on retention and customer centricity to ensure sustainable portfolio growth. Slovakia Union operates in the health, non-life and life markets in Slovakia. The business performed strongly in 2012, both commercially and operationally, and Union is currently the market s fifth-largest player. Union is making solid progress in premium volume growth, with 85% of gross written premiums in 2012 coming from health, 4% from life, 3% from non-life motor and 8% from other non-life areas. Union has shifted to being a multi-distribution company, with the direct channel becoming increasingly important. This channel will be further explored and developed. We expect to see the motor market continue to grow, in both the retail and the SME environment, which will lead to a more balanced non-life portfolio. Our Life business is complementary and provides cost and distribution synergies for both our Non-life and Health businesses. Health grew strongly in 2012, making Union the only market participant to return net customer growth. We took steps to further stabilise our Life business through a cost reduction programme. This process will continue in Non-life results, which were influenced by a good claims ratio, were also very positive. The ongoing uncertainty surrounding the Slovakian government s decision to return to a single, state-run health insurance system continued throughout the year, with the government indicating that it intends to nationalise the country s two private insurers, one of which is Union. The issue remains a top priority for Achmea, and we monitor proposed legislative changes in health insurance very closely. In addition to actively commenting on the regulatory environment through participation in public debates and various forums, in 2012 we ran an ad campaign entitled I am not a sheep, which was aimed at attracting new customers. In December 2012, Achmea won an arbitration case against the Slovakian government, in which we claimed the country breached investment treaties when it forbade health insurers from making a profit. An international arbitration tribunal awarded us approximately 25 million in compensation for damages incurred by Union because of the profit ban. Given the Slovak government s public announcement that it disagrees with the decision of the tribunal, we don t yet consider the receivable amount to be sufficiently certain to recognise it as an asset. Ireland (life company) Friends First Life in Ireland is active in the life market. The life market in Ireland has seen new sales volumes fall dramatically since 2007 and we don t expect any improvements in the short term. Our focus in 2012 was on retaining the in-force portfolio, preserving customers and managing the lapse risks. Although this approach may reduce sales, it will result in better persistency rates and provide greater customer value for money. We continued to distribute our products through the broker channel, although we aim to expand our broker base and focus on product-based selling, which will remove our exposure to high lapse brokers and non-standard deals. This will also enable us to develop and promote clear long-term product propositions, creating more transparency for customers and brokers. In 2012, gross written premiums decreased 11% to 172 million compared with 194 million in

49 executive board report Segment International The contribution of investment contracts decreased by 16% to 258 million compared to 307 million in Bulgaria Interamerican Bulgaria (IAB) is active in the non-life and life markets. In 2012, IAB s market share in the nonlife market was 2%, slightly down on 2011 due to the removal of unprofitable areas of the motor business and shrinkage across the insurance market. Our Life business increased its share of the market to 0.7%, from 0.6% in In Non-life, the long-term goal is to move towards profitability through more cost-effective distribution. Our sales efforts will concentrate on agent restructuring alongside the development of group-direct business, while continuing the shift to higher sales in profitable lines of business. Gross written premiums decreased to 14 million compared with 18 million in 2011, driven mainly by motor, in line with our plan to decrease unprofitable sales. Going forward, we will target growth in quantity and quality of our life agents network, banks and risk products. Romania Eureko Romania operates in the health insurance market. At the beginning of 2013, we sold our Romanian life insurance and pension operations. We booked 17 million in additional costs in 2012, resulting from asset write-offs, redundancies and goodwill impairment. The other parts of the company will go into run off. Australia We aim to offer non-life insurance to Rabobank s customers in the agricultural sector (for example, for livestock and crops) as an integrated part of Rabobank s retail proposition in Australia, based on the model we operate in the Netherlands. We are in the process of applying for a license to start a greenfield operation and hope to be active in the market, in partnership with Rabobank, during the course of Discontinued activities Ireland (finance company) Our Irish finance company went into run-off in 2009, following the implosion of the Irish economy. The company is successfully bringing down its outstanding loan portfolio and lowered the exposure of its finance portfolio significantly in Despite this, additional loan loss provisions of 39 million (2011: 18 million) were required. 49

50 Banking Netherlands Achmea offers three distinct banking services in the Dutch consumer market, which complement our full range of insurance products. Achmea Bank provides mortgages through Achmea Hypotheekbank and retail savings options through Achmea Retail Bank. Staalbankiers delivers private banking services to individuals and institutions. Profit before tax 8 million Core tier 1 ratio achmea bank 14.2% Credit portfolio 13.8 billion Net interest margin 65 million goals 2013 and beyond credit portfolio further streamline organisation at Achmea Hypotheekbank and Achmea Retailbank increase savings/wholesale funding ratio to 40% at Achmea Bank to finance mortgage activities by 2014 achieve assets under management of at least 1.9 billion at Staalbankiers in 2013 Achmea Hypotheekbank 87% Staalbankiers 12% Achmea Retail Bank 1% 50

51 executive board report Segment Banking Netherlands results Results In 2012, our banking activities realised a profit before tax of 8 million (2011: - 30 million). The year-on-year increase was due to the higher fair value results of 56 million (2011: - 24 million), which increased mainly because of a significant improvement in the EUR/USD basis spread. Operating expenses increased to 109 million against 94 million in 2011, due to higher front office costs and project expenses. Additions to the loan loss provisions increased by 5 million, if corrected for the one-off 8 million release in Consequently, the efficiency ratio improved from 138% to 81%. Achmea Bank ( MILLION) Net interest margin % Net commission income % Realised and unrealised gains and losses n.m. Total income % Operating expenses % Other expenses 1 1 0% Additions to loan loss provisions 16 3 n.m. Total expenses % Profit before tax 8-30 n.m. n.m.: Not meaningful. Achmea Bank is a strategically important and complementary activity to our core insurance business. Customers are our most important consideration and our products and services are structured to reflect their needs and demands. In 2012, profit before tax at Achmea Bank, which consists of Achmea Hypotheekbank and Achmea Retail Bank, was 29 million compared to a loss of 1 million in This increase was largely attributable to an accounting fair value profit. The fair value results were higher mainly as a result of the improved EUR/USD basis spread. The net interest margin came under pressure due to the negative cost of carry of additional liquidity balances, one-off restructuring charges and incidental expenses. Despite the depressed housing market, the bank stabilised the mortgage portfolio at 11.9 billion (2011: 12.2 billion). Additions to the loan loss provision were slightly higher than in 2011, reflecting a conservative approach to valuing the impact of the current state of the Dutch mortgage and housing market, and a decrease in collateral value because of lower house prices. In basis points of the total portfolio, the additions to the loan loss provision amounted to 10 basis points, reflecting the high quality of our mortgage portfolio. Part of our strategy is to reduce reliance on the capital markets and increase the relative percentage in savings. Savings at Achmea Retail Bank increased to 3.7 billion (2011: 3.0 billion), a rise of almost 0.7 billion compared to year-end The core Tier 1 ratio improved to 14.2% from 12.4% at year-end Achmea Hypotheekbank Achmea Hypotheekbank provides residential mortgages to customers in the Netherlands through Achmea s direct writers and the broker channel. Our direct writers are Centraal Beheer Achmea and FBTO. We service the broker channel through Woonfonds, a trusted brand that we revitalised in Our goal is not to further increase the size of our mortgage book but rather focus on customer retention. The mortgage market continued to stagnate last year, with potential buyers concerns about employment, mortgage interest relief and the economic decline in general impacting sales. The trend in the market is towards more transparency and stronger client services and interaction. As a niche player, we concentrate on offering good quality products at a fair price and can rely on the trust consumers have in our direct writers. In 2012 we re-launched the annuity mortgage through Woonfonds, in line with GHF (Code of conduct mortgage financing) rules and in anticipation of the new tax requirements. We also introduced a free service for Centraal Beheer Achmea customers who were struggling to meet their mortgage repayments, called the Budget Coach. This service provides customers with advice on how to solve their financial issues, thereby lowering the risk of default and helping customers to obtain a more stable financial position. The current mortgage portfolio at Achmea Hypotheekbank stands at 11.9 billion (year-end 2011: 12.2 billion) and we aim to maintain it at roughly this level going forward. 51

52 executive board report Segment Banking Netherlands The funding market remains volatile, with high liquidity spreads. Our strategy is to reduce our reliance on capital market funding, reflected through an increase in retail funding as savings deposits at Achmea Retail Bank grew to 3.7 billion (2011: 3.0 billion). In 2012, we continued our DMPL programme, with a 784 million securitisation issue in July, while in October we completed our first issuance of 500 million in senior unsecured notes. We are on track to achieve our goal of securing approximately 40% of our funding by 2014 through consumer savings. During the year we redeemed $900 million of our state-guaranteed loan, which we took out in the wake of the 2008 financial crisis. So far we have redeemed $1.8 billion of this loan ahead of schedule. Achmea Retail Bank Achmea Retail Bank develops and offers consumer savings products through two direct channels Centraal Beheer Achmea and FBTO. The Dutch savings market continued to grow during 2012, driven by consumer uncertainty linked to the economic crisis. In response to the market s demand for secure, longer term and more transparent savings solutions, we launched a fixed-period savings account through Centraal Beheer Achmea, called RenteVast Rekening. We expect the account to be a stable source of funding due to the longer deposit period. Although we continued to offer competitive interest rates on our saving products in 2012, we believe that the rates offered in the current economic climate are unsustainable. In 2013 we will focus on attracting money to our longerterm offerings, such as banking annuities and term-deposits. We will continue to develop product offerings that help consumers build up savings, based on their own economic situation and needs. We will also take advantage of changes in the distribution landscape that offer new opportunities in advisory services. Outlook Customers remain our priority, and we will work with them to develop the right products and solutions. We aim to maintain our margin and profitability through operational cost control, follow a diversified funding strategy and keep our mortgage book at a stable level. With consumers continuing to look for the most attractive savings options, our goal is to match mortgage lending with savings products in what remains a volatile market environment. SWOT ANALYSIS ACHMEA BANK Strengths Strong capitalisation and strong liquidity Very strong asset base and diversified geographic portfolio spread across the Netherlands Achmea brands provide a strong base for strategic product development and growth in bank savings products Untapped opportunities for cross sell between bank and insurance products Opportunities Demand for (fiscally) facilitated bank savings products benefits retail banks Growth in internet-based retail banking savings/investment products Changes in the distribution landscape offer new opportunities in advisory services Customers like transparent and simple mortgage products Weaknesses Relatively high reliance on external wholesale funding but the funding mix is improving Mono-product character of the bank and limited cross subsidisation across the various bank products Threats Slow economic recovery and euro uncertainties, resulting in lower volumes in the mortgage market Rising cost of funding House prices and volume of new mortgages remain low and will continue to decline in the coming period Large share of Dutch savings locked into pension plans, resulting in a potential funding gap for banks Due to Basel III requirements, competition to access retail savings is intense, resulting in higher interest rates Achmea 52 Annual Report

53 executive board report Segment Banking Netherlands Staalbankiers Staalbankiers is a private bank that provides private banking customers and institutional investors with a range of products and services, including savings solutions, investment funds, discretionary management and advice. The bank s commercial structure is based on client intimacy, high-quality advice and offering the right product mix. The market situation deteriorated further in 2012, with interest rates paid on savings accounts remaining relatively high given the interest income on the loan portfolio. Ongoing uncertainty in the broader economy has created a challenging market environment for private banking, so in 2012 we embarked on a programme to make the organisation more efficient. By bringing in a new management team, centralising a number of work streams and streamlining the workforce, we concentrated on reducing costs and making the investment strategy available to all customers in a cost-efficient manner. These changes will reduce annual costs by around 10 million. At the beginning of 2013 an agreement was reached with GE Artesia Bank whereby their private banking customers will be introduced to us. We look forward to welcoming many new GE Artesia Bank customers to Staalbankiers. In 2012, we saw a net inflow of Assets under Management (AuM) of 200 million to 1.9 billion, driven by new customers and the inflow of additional funds from existing customers. Operational expenses were 45 million (2011: 46 million) due to the restructuring programme, including investments in IT infrastructure. Our core Tier 1 ratio was 14,0% (2011: 13,1%), with a sound liquidity position and a modest risk profile. Outlook In the medium to long term our focus is on AuM growth. By focusing on our three pillars client intimacy, good advice and products we will be able to build on the high degree of trust our customers already have in Staalbankiers. Although the private banking market will remain challenging as long as there are no clear signs of economic recovery, our focus on efficiency, top-down investing and making our investment strategy available to all customers, places us in a strong position to seize opportunities as and when they arise. SWOT ANALYSIS STAALBANKIERS Strengths Client proposal (client intimacy, good advice and good products) and a high degree of client satisfaction Distinctive and well-performing asset under management policy Strategy is based on trust of our clients We are a solid private bank, with sound capitalisation and ratios Highly dedicated personnel, focused on client satisfaction Transparent organisation Apart from private banking customers, strong position in market for non-profits/institutions Opportunities Distinctive and well-performing asset under management policy Growing demand for independent (investment) advice Client dissatisfaction with private-banking competitors Provide financial security to customers in turbulent times Weaknesses A private bank has no direct access to capital and wholesale markets IT & Operations Lack of economies of scale Threats Continuously changing regulatory environment Slow economic recovery and euro uncertainties Low interest rates 53

54 Other This segment covers our Pension Services (which was included under the Life chapter in 2011), Shared Service Centers, Strategic Shareholdings and Holding activities. Our pension services company, Syntrus Achmea, provides customers with a range of fiduciary management, asset management and pension administration services, through Syntrus Achmea Asset Management, the number-three asset manager in the Dutch market and Syntrus Achmea Real Estate, the largest property investor in the Netherlands. results Results ( MILLION) Investment income % Other income % Total income % Operating expenses % Interest and similar expenses % Other expenses n.m. Total expenses % Profit before tax % n.m.: Not meaningful. In 2012, profit before tax was million (2011: million), an improvement of 209 million on Income increased by 14% to 275 million (2011: 242 million), where 2011 was negatively impacted by impairments on our position in MilleniumBCP and F&C Asset Management. In addition, operating expenses decreased by 9% to 679 million (2011: 746 million). This decrease was primarily due to the decision to charge investments in certain projects directly to our business units. Furthermore, a decrease in project expenses has contributed to lower operating expenses. In 2012, oneoff expenses related to holding services rendered in previous years were charged to our Health Netherlands business. In 2012 we began to consolidate the results of Independer. nl in our figures. During the year we saw the first effects of the resulting insight in consumer preferences and behaviour. The knowledge will be used to make our insurance products even more client focused. Pension Services Market developments Pensions funds and administrators are dealing with a fast-changing environment, with falling coverage ratio s and the introduction of additional regulations creating ongoing challenges. Pension providers are focusing on greater transparency for consumers, more stringent risk requirements and demands for more cost efficiency. In the Netherlands, a fundamental shift is the move from defined benefit (DB) to defined contribution (DC) pension plans, as traditional DB plans become unsustainable for insurers and unaffordable for employers, due to economic developments such as low interest rates and longevity risks. At the same time, increased risk aversion and the need for greater transparency is causing many pension funds to either outsource their fund s administration to third parties such as Syntrus Achmea or search for partnerships with other funds. Both situations offer strong opportunities for Achmea. In 2012, we sold our entire interest of 9.6% in F&C Asset Management. This sale fits with our policy of focusing on core competences and activities, and contributes to our de-risking policy, in particular of concentration risk. The transaction and settlement led to a small profit of 1 million. How are we responding We continued to make good progress with our cost reduction and efficiency programme, which we began in While investing in more robust systems and 54

55 executive board report Segment Other responding to regulatory changes, we achieved savings through higher levels of automation, straight through processing within our administrative units and reducing our staff requirements. During the course of the year we took on a larger role in managing the assets of Achmea, when compared to We agreed on two mandates, the first of which involves Syntrus Achmea selecting and monitoring the asset managers for almost 1 billion of alternative investments. In the second mandate, Syntrus Achmea will take over the part of Achmea s derivatives portfolio used to hedge its balance sheet risk. The underlying value of this portfolio is 20 billion. Our fiduciary management services are strongly positioned in the market. In 2012 we strengthened our operations through the introduction of a more robust risk management system, invested in our IT operations and hired additional specialist staff. By focusing on risk management and transparency, we enable our customers to study our processes and understand what goes on within the organisation. Results In 2012, Syntrus Achmea strengthened its position in the pension funds market. Although fee and commission income decreased by 9% to 249 million (2011: 273 million), due to earlier contract terminations, client retention in 2012 was close to 100% and customer satisfaction improved considerably. Additionally, fixed operating expenses were reduced significantly, despite the fact that substantial investments were made to support and execute future pension solutions. Assets under Management (AuM) increased by 12% to 63.7 billion (2011: 57.1 billion). This was due to both the inflow of funds and overall market developments. The real-estate component of Syntrus Achmea s AuM decreased by 4% to 13.8 billion (2011: 14.4 billion), caused primarily by portfolio adjustments by customers and impairments on property. Although the real estate sector in the Netherlands doesn t currently fully represent the opportunities available in the market, we see a great deal of potential in the private housing market. In 2012 we invested strongly in this market, constructing around 2,000 houses, and we will continue to invest in this market in the coming years. Syntrus Achmea takes it role as one of the market leaders seriously, and is active in the redevelopment of real estate, such as healthcare property. 55

56 Investments Achmea is a major institutional investor, with a total investment portfolio of 68.1 billion. As an insurer, it is our task to invest the premiums paid by customers in the most effective way possible. To achieve this, we have to continuously find a balance between risk and return. Our investment policy reflects this awareness. We strive for optimal and stable investment returns, without losing sight of the risks involved and within a matching framework. At year-end 2012, total investments at Achmea amounted to 68.1 billion. Achmea bears the investment risk of 43.2 billion, or 63%, of the total portfolio (on some products we guarantee a specific return), while customers bear the risk on a separate g part of the investment portfolio. The related investments backing linked liabilities the risk held by policyholders amounts to 25.0 billion, or 37%, of our total investments. In addition, we have a negligible amount invested in associates ( 92 million). Management of the investment portfolio is largely outsourced to asset managers F&C Asset Management, Robeco and Syntrus Achmea, and a range of managers for alternative investments based on a clearly defined investment philosophy and policy. This chapter relates primarily to those investments on which Achmea bears the risk. Market developments and social unrest. The crisis was also reflected in a large number of downgrades by rating agencies. Although the downgrade of France from the AAA core group to AA level was expected, it was still significant. The adverse developments in Spain, the fourth largest economy in the European Union (EU), led to new concerns in Europe. The collapse in the country s property prices seems to have taken Spain s public finances into a negative spiral, with bailouts of insolvent banks and falling tax income acting as key drivers. The IMF and the EU continued to discuss and work on political measures and bailout programmes in an effort to fight the European sovereign debt crisis. Despite a number of controversies between countries, it seems that Europe is slowly building a more solid eurozone foundation. Central European bank supervision is seen as key to creating a stable foundation. Euro crisis The European banking and sovereign debt crisis continued in In particular, peripheral eurozone countries continued to struggle with high public and private debt, slowing economic growth, resistance towards austerity Greece Financial and political instability fed discussions about Greece leaving the monetary union, a so-called Grexit. Efforts to reduce the country s debt burden resulted in two debt-restructuring operations in sovereign exposure GIIPS countries (MILLION) in % of fixed income portfolio Nominal value in % of fixed income portfolio Nominal value Greece % % 145 Ireland % % 480 Italy % % 60 Portugal % % 47 Spain % % 48 Total % %

57 executive board report Investments In February 2012 a debt-restructuring agreement with the private holders of Greek government bonds was struck to voluntarily accept a bond swap partly in short-term European Financial Stability Facility (EFSF) notes and partly in new Greek bonds and in a GDP-linked security involving a 53.5% nominal and effective (approximately) 75% debt write-off. Achmea participated with all eligible bonds with a nominal value of 145 million, which were entirely held by our Greek operation Interamerican Greece. In December 2012, a buy back operation was organised in which, in a so called reverse Dutch auction, holders of new Greek bonds were invited to exchange their bonds for short term EFSF notes. Our Greek operation Interamerican Greece participated in this process with 40% of its eligible Greek bonds. Effectively this means that Achmea s holding of Greek government bonds decreased to 27 million at year-end Monetary stimulus and search for yield Central banks continue to support financial markets with their low interest rate policy and asset financing programs such as long-term refinancing operations (LTRO) and quantitative easing (QE). The record-low risk-free interest rates force investors to move gradually out along the risk curve to achieve reasonable returns. This search for yield resulted in credits and stocks performing strongly over 2012, relative to assumed risk-free government bonds. This strong performance is also related to the improvement in the financial health of the underlying issuers, as seen in the rising earnings and strengthening balance sheets of corporations. Another effect of the increasingly aggressive central bank support is the reduction in the systemic risks from euro area dissolution, to a China hard landing and a financial system collapse that have dominated markets over the past few years. Our investment policy Our investment policy Achmea has a clear investment policy and, following the financial crisis, this policy has been sharpened further. To ensure continuity to customers, we aim to maximise return on the investment portfolio based on a welldefined risk budget and matching policy. In setting the market risk budget, we take into account risk appetite principles, including rating, liquidity and earnings risk. The investment team works closely with both Capital & Value Management and Risk & Compliance. The focus of our policy is mainly long term and we employ a high level of prudence, in line with our cooperative background. This has resulted in a relatively conservative investment portfolio, which is more crisis-resistant. Additionally, the financial crisis has highlighted the importance of managing counterparty risk. Hence, we have a strict counterparty risk policy that is a key part of our risk policy and risk monitoring. We maintain a stringent approach to risk whereby we distinguish between government and other parties, also taking rating and credit default swap (CDS) spreads into account. Our investment portfolios Achmea differentiates between two types of investment portfolios the so-called replicating portfolio and the return portfolio. A key component in our investment policy is, when possible, to match or hedge (with overlay management) market risk (mostly interest rate risk) related to liabilities. We do this with our replicating (matching) portfolio. This portfolio consists of bonds, loans, derivatives (for hedging purposes) and cash. In principle, the return portfolio does not match liabilities. Investments in this portfolio also include equity, property, private equity, commodities, allocated through periodic asset allocation. Targeted return on investment for both the return and replicating portfolios is set through clear mandates, including outperformance of targets for the various asset managers. Responsible investment Achmea supports the Principles for Responsible Investment (PRI) of the United Nations. The PRI promotes the integration of environmental, social and governance criteria (ESG) in the investment process and the exercise of responsible ownership through the equity portfolio. Achmea tests its responsible investment policy against the Global Compact of the United Nations and uses its principles to guide the conduct of engagement. 57

58 executive board report Investments In 2012, our Health business made no investments in the tobacco industry, while we decided to implement a company-wide ban on all investments in the nuclear weapons industry. In short, our Responsible Investment Policy consists of five important steps. 1. Working with engagement manager Robeco, we pursue so-called (enhanced) engagement on investments as part of our Corporate Social Responsibility. Subsequently, we enter into dialogue with the companies we invest in and (in the case of enhanced engagement) exclude those where the dialogue is not successful after a three-year period. In 2012, we reviewed two corporate investees. All had met our criteria. 2. In addition to enhanced engagement, we also exercise our shareholder voting rights. 3. Almost all of our external asset managers have implemented environmental, sustainability and governance (ESG) criteria in their mainstream investment process. 4. Controversial countries and manufacturers of controversial products (cluster bombs, landmines, nuclear weapons and tobacco) are excluded from our investment universe, as are serious violators of the ten United Nations Global Compact Principles. 5. Impact investments are included in our responsible investment policy. We invest in funds aimed at clean technology, sustainable energy, micro-credit providers and health innovation. Performance and composition in 2012 The relative position of fixed-income securities, including loans and mortgages, decreased to 78% (2011: 76%) of our own investment portfolio. Our deposits with credit institutions and reinsurers decreased by 0.7 billion to 2.8 billion, which is around 7% (2011: 8%) of our own investment portfolio. Only 5% of our investment portfolio is invested in equities and alternative investments, reflecting our prudent investment policy. Total impairments on our own-risk investment portfolio amounted to 37 million in 2012, compared to 243 million in Financial markets were positive in 2012, despite negative economic developments and the ongoing sovereign debt crisis in Southern Europe. Equity markets rose more than 15% in Europe, America and Asia, countering a bad equity year in Bond markets also rose in 2012, in conjunction with lower government yields in Northern Europe and lower credit spreads and swap spreads. Achmea is dominated by its Dutch activities (91% of our risk-bearing portfolio). Total (asset-only) performance of these Dutch activities was 2.2 billion, or 8%, in TOTAL INVESTMENT PORTFOLIO, YEAR-END 2012 ( 43.2 BILLION) Fixed income 78% Deposits 7% Derivatives 6% Equities 3% Alternatives 2% Real estate 4% Other 0% Total investment portfolio Our own-risk investment portfolio increased by 2% to 43.2 billion (2011: 42.4 billion). This is excluding investments in strategic shareholdings but including investment property. The increase is due mainly to our fixed-income positions (78% of the total portfolio) as a result of lower interest rates and narrowing spreads. Our derivative position, which makes up 6% of our portfolio decreased by 247 million to 2.7 billion, also as a result of lower interest rates. This exposure is fully collateralised, so the risk attached to this position is negligible. Fixed income portfolio In 2012, our fixed-income portfolio increased by 5% to 33.9 billion (year-end 2011: 32.2 billion). The majority of the investments (64% or 21.8 billion at year-end 2012 against 72% or 23.1 billion at year-end 2011) were invested in government bonds, government related bonds or government guaranteed bonds. These government bonds are predominantly Dutch, German and French. In 2012 we shifted around 10% or 2.0 billion of our Dutch, German and French government bonds to low-risk 58

59 executive board report Investments corporate bonds. These low-risk corporate bonds are issued by investment-grade companies with low levels of leverage and low probability of default. By selecting bonds with relatively short maturities and relatively high seniorities, we aim to limit mark-to-market volatility (volatility resulting from fair value accounting) substantially. The position in loans and mortgages (9%) consists mainly of savings accounts related to mortgages and pension products with Rabobank. A modest part of our fixed-income portfolio consists of corporate bonds without guarantees (27% or 9 billion against 18% or 5.7 billion at year-end 2011). Fixed income portfolio by rating AAA 62% 73% AA 16% 11% A 11% 7% BBB 9% 7% < BBB 1% 1% Not rated 2% 1% Total 100% 100% Of our corporate bonds, approximately 25% is invested in covered bonds and asset backed securities and only a very small amount is invested in high-yield bonds. Our fixedincome portfolio is fairly conservative. Of the fixed income portfolio, 61% has a AAA rating. This is a decrease compared to 2011 (73%), and is almost entirely due to the ratings downgrade of France. Only 1% of our portfolio is non-investment grade, while 2% is not rated. For our Dutch activities, (asset-only) performance on fixed income, including derivatives, was 7.8%, or about 2.2 billion. Interest rates fell in 2012 due to both lower government bond yields and lower credit and swap spreads. The match between matching portfolio and liabilities was reasonably effective, moving within a very narrow policy range. At the end of 2012, our sovereign exposure to GIIPS countries (Greece, Ireland, Italy, Portugal and Spain) amounted to 668 million (year-end 2011: 580 million) or only 2.0% (year-end 2011: 1.8%) of our fixed income portfolio. Move to conservative credits As part of our pursuit of yield, in 2012 we replaced around 2 billion of our Dutch, German and French government bonds with credits that have a lower risk profile. These low-risk credits are issued by investment-grade companies with low levels of leverage and probability of default. By selecting bonds with relatively short maturities and relatively high seniorities, we aim to limit mark-to-market volatility (volatility resulting from fair value accounting) substantially. For 2013, we expect to further expand our investment grade credit exposure at the expense of our government bond exposure to diversify exposure and to enhance our risk/return profile. This is because we believe interest rates in most developed markets will stay low because of structural demand for safe assets, low economic growth, fiscal austerity and central bank support. Despite the tightening credit spreads we saw last year; credits added relatively good returns to our investment results against reasonable risks. RELATIVE POSITION Of FIXED-INCOME INVESTMENTS BY NATURE, YEAR-END 2012 ( 33.6 BILLION) Goverment bonds 53% Goverment related/ guaranteed 11% Loans and morgages 9% Asset backed securities 2% Covered bonds 6% Corporate bonds 19% Convertible bonds 1% 59

60 executive board report Investments Top 5 sovereign exposure ( MILLION) RATING Netherlands 10,592 10,512 AAA Germany 4,398 4,936 AAA France 1,792 2,561 AA Finland AAA Ireland BBB Our exposure to Greece ( 11 million) and Ireland ( 511 million) relates exclusively to our business activities there. The increase in our position was the result of positive market developments. Equities and alternative investments portfolio At year-end, our equity portfolio was higher at 948 million (year-end 2011: 763 million) or 2.2% of our own investment portfolio. The increase is attributable to higher equity markets and investments in conservative equity and emerging markets. Of our equity portfolio, 92% is invested in developed markets. This includes an 8% position in participations (>5%), which benefit favourably from Dutch (fiscal) participation exemption. At year-end 2012, 8% was invested in emerging markets. In addition to the equity portfolio, we also manage a portfolio of alternative products such as private equity, hedge funds, infrastructure and commodities. This portfolio was higher at 1.0 billion (year-end 2011: 0.9 billion) or 2.0% of the total investment portfolio. The equities and alternative investments portfolio is, in addition to foreign exchange risk, not hedged. Real estate portfolio At year-end, our real estate portfolio amounted to 1.6 billion (year-end 2011: 1.7 billion) or 4% of our investment portfolio. The portfolio consists of 0.4 billion of indirect real estate and 1.2 billion of direct real estate. The direct real estate portfolio consists of 36% residential, 30% offices, 28% retail and 6% other real estate. The real estate market in the Netherlands is sluggish, and this is especially the case for the office market. We have a prudent approach to valuing our real estate portfolio. On a quarterly basis we perform a full valuation of 25% of our portfolio and a review of the remaining 75%. This means that over the course of a year we value our entire real estate portfolio. This is a market-leading approach. In 2012, we took revaluations of 76 million (2011: 77 million) mainly on the office market. We have a prudent approach to valuing our real estate portfolio, which offers us a very clear indication of the current value of our portfolio in these adverse market conditions. For our Dutch activities, (asset-only) performance on equities, including foreign-exchange hedges, was +17% as a result of rising stock markets. The (asset-only) performance of alternative investments was +5%, mainly thanks to commodities (+5%) and infrastructure (+6%). (Asset-only) performance of private equity and hedge funds was almost zero in

61 Capital and Liquidity Management Continuing and reinforced strong capital and liquidity management remain prerequisites to ensure continuity for our customers, our stakeholders and the organisation. At the end of 2012, we maintained our insurance entities solvency position (IGD) at 209% (2011: 208%). We highly value our solid capital position, which is one of the cornerstones of our organisation. CAPITAL MANAGEMENT Capital adequacy policy and solvency targets Since the beginning of 2012, a new capital adequacy policy has been applied for capital management at Achmea. This is to ensure adequate capital levels, even under severe stress scenarios, and to ensure the consistent operation of capital management policy and practice, in accordance with our risk appetite. A number of metrics have been defined for the legal entities and Achmea Group. Requirements are still based on the current Solvency I regime, although these have been recalibrated, taking into account the outcomes of Solvency II and S&P calculations. We have defined measures that will be taken if capital levels go below pre-defined levels. Risk appetite statements on capital Available capital is at least equal to the economic capital calculated at a 99.95% confidence level at Group level. Minimum capital levels should at least be sufficient for an S&P A rating. Achmea monitors capital based on the S&P requirements in accordance with a AA rating of capital. Minimum capital levels should be sufficient to meet capital requirements of the regulator. Minimum capital levels should at least be 100% of the solvency capital requirement (SCR) according to Solvency II plus a buffer per legal entity. Capital and solvency position as at 31 December 2012 Throughout 2012, Achmea s capital position remained well above S&P requirements in accordance with a AA rating of capital. Total equity increased to 10,374 million (2011: 9,775 million). This was primarily due to the net result of 453 million and the increase of the revaluation reserve of 205 million. Dividend payments on preference shares and coupon payments on hybrid capital amounted to 106 million. Hybrid capital (included in total equity) remained stable at 1,325 million. At year-end 2012, Group solvency (FCD) was higher at 207% (2011: 204%). Available capital increased by 609 million, while required capital increased by 251 million. The surplus in the liability adequacy test is part of available capital. The increase in available capital is partly explained by the change in the assumptions regarding the risk free discount rate and changes in parameters in performing the liability adequacy test. To increase the comparability of the regulatory solvency in the market, we decided to change the discount rate at which liabilities of our Dutch business are discounted for purposes of the regulatory liability adequacy test. We switched from the Euro swap curve to the ECB AAA curve in the first half of On 2 July 2012, the Dutch Central Bank (DNB) announced that, effective 30 June 2012, insurers should adjust the method for extrapolating the interest rate curve using an Ultimate Forward Rate (UFR) which is set at 4.2%, anticipating requirements under Solvency II. Available capital also increased due to the net profit over 2012, while it was negatively impacted by goodwill related to business combinations. Required capital increased primarily because of the DNB s increased solvency requirements from 9% to 11% for the Dutch basic health insurance. Achmea s insurance entities solvency position (IGD) increased to 209% at year-end 2012 (year-end 2011: 208%). Available capital increased by 650 million to 8,323 million, while required capital increased by 289 million to 3,985 million. The core Tier 1 ratios of Achmea Bank Holding and Staalbankiers improved to 14.2% (year-end 2011: 12.4%) and 14.0% (2011: 13.1%) respectively. 61

62 executive board report Capital and Liquidity Management INTERNAL SOLVENCY I TARGETS ENTITY TARGET LEVEL ACTUAL GROUP LEVEL Achmea Group (FCD) n/a 207% Achmea insurance entities (IGD) 190% 209% SUB LEVEL Non-life 185% 254% Basic Health insurance 135% 182% Supplementary Health insurance 160% 489% Life insurance 175% 233% Achmea Reinsurance Company 200% 365% Friends First 165% 161% Other operating companies 130% 205% Solvency II capital position as at 31 December 2011 In 2012, Achmea performed the parallel run on Solvency II, an exercise mandated by the DNB that was obligatory for all Dutch insurers. This involved the calculation of capital requirements using the standard formula and figures as at 31 December We also calculated the capital requirements for our non-dutch legal entities and Achmea Group. The results show that Achmea is very well capitalised, including under Solvency II rules. Solvency levels are 221% as calculated using the consolidation method. SOLVENCY II POSITION as at 31 december 2011, consolidated approach, standard formula OWN FUNDS SII 10.6 Ladder of intervention AVAILABLE CAPITAL 10.6 Tier Free surplus 3.4 Scr level 4.8 Mcr level 2.4 ( billion) For more information on developments relating to the implementation of Solvency II, please refer to the Risk Management chapter in this annual report. FUNDING Funding strategy Our strategy on funding is based on safeguarding access to international capital and credit markets at low cost, underpinned by credit ratings in line with our peers. This is especially important at times when developments on financial markets make access more difficult. Actual funding activities are centralised and are coordinated at Holding level, even though, in principle, each operating subsidiary is responsible for financing its own business. Achmea can participate in financing the operations of certain subsidiaries, usually through subordinated debt funding and other forms of capital and loans. As a holding company, Achmea relies for its funding needs principally on distributions of internal dividends and short-term excess liquidity from operating subsidiaries and associated companies. Such distributions and internal funding are usually subject to regulatory restrictions and, in the case of associated companies, by the dividend policies as determined by those companies. Financial flexibility In combination with sound access to capital markets, the Group s financial flexibility is considered strong. The table on the next page gives a comprehensive, high-level overview of the Group s sources of capital and capital allocation as a complement to the cash flow statement in the financial statements. The Group s capital is made up of common equity, preference shares ( 311 million), perpetual hybrid instruments ( 1,325 million) and senior debt ( 750 million). External borrowings not allocated to the banking and finance operations remained stable at 821 million at year-end 2012 (year-end 2011: 822 million). At year-end 2012, Achmea had three outstanding hybrid instruments totalling 1,325 million, two for the retail market and 62

63 executive board report Capital and Liquidity Management CAPITAL ALLOCATION AND STRUCTURE ( BILLION) RATINGS ALLOCATION FUNDING Netherlands 9.6 Shareholders Equity % Non-life 1.9 Preference shares 0.3 3% Health 2.2 Hybrid capital % Pension & Life 3.9 Long-term debt 0.8 7% Banking 0.7 Achmea reinsurance 0.4 Other 0.4 International 1.2 Holding investments 0.1 Net internal cash 0.2 Total investments 11.1 Total funding % one for the institutional market. As a consequence, debt leverage (measured as non-banking debt and perpetuals as a percentage of the sum of total equity, non-banking debt, perpetuals and minus goodwill) decreased slightly to 21.4% (year-end 2011: 22.5%). The double leverage ratio amounted to 104.4% at year-end 2012 (year-end 2011: 107.3%). Achmea has not made use of the first optional redemption date of its 6.0% hybrid instruments as at 1 November Dividend policy In the context of the capital increase, executed in April 2009, it was agreed with shareholders that dividend payments will be 45% of net profit attributable to ordinary shareholders. All proposed dividends are subject to approval by the Annual General Meeting of Shareholders. Ratings S&P ratings of Achmea Group and Achmea insurance entities remained unchanged in Current Group rating is A- with a stable outlook, while the current rating on our core insurance entities is A+ with a stable outlook. The S&P rating of Achmea Hypotheekbank has been revised from stable to negative. This is linked to S&P s view that Dutch banks are exposed to increased risks as a result of a (potentially) more protracted economic downturn in the Netherlands and across the eurozone. ENTITY TYPE S&P FITCH MOODY S Achmea B.V. CCR A- INSURANCE ENTITIES Achmea Pensioen & Levensverzekeringen N.V. Achmea Schadeverzekeringen N.V. Achmea Zorgverzekeringen N.V. BANK ENTITIES Achmea Hypotheekbank N.V. Achmea Hypotheekbank N.V. LIQUIDITY MANAGEMENT CCR/IFSR A+ CCR/IFSR A+ CCR/IFSR A+ CCR long term CCR short term Secured debt programme Covered bond programme CCR: Counterparty Credit Rating IFSR: Insurer Financial Strength rating A A-1 Liquidity policy According to our risk appetite, the Group liquidity position must be adequate and allow for financial flexibility. The liquidity policy describes how Achmea and its Non-life, Health, Life and Bank businesses manage liquidity risk. Metrics have been developed that provide a forward-looking view of our liquidity position and liquidity exposure for various time horizons under normal conditions, and for a range of moderate and extreme stress events. Combined with limits, they help us satisfy our risk appetite as defined by the Finance & Risk Committee and provide early warning signals when we run the risk of insufficient liquidity to meet our liabilities. Furthermore, they enable us to provide quantitative information on our liquidity position at different levels to supervisors and market participants. For extreme scenarios, various contingency actions are defined to generate liquidity. Risk appetite statements on liquidity Achmea maintains sufficient liquidity in moderate stress scenarios at both Holding and business unit level to always meet its liquidity requirement. Maintaining sufficient liquidity/flexibility in our risk A A- F2 AAA Aa2 63

64 executive board report Capital and Liquidity Management profile to be able to reduce our market/counterparty risk by being able to make 1 billion liquid within three months. Maintaining sufficient liquidity/flexibility in our risk to be able to reduce the economic capital requirement at 99.95% confidence level by at least 350 million within three months. Liquidity Holding For liquidity purposes, at Holding level Achmea maintains committed and uncommitted credit facilities with a variety of international banks for Achmea B.V. At year-end 2012, the committed credit lines ( 750 million) were undrawn. The facilities do not contain financial ratio covenants or banking covenants with the obligation to redeem in case of a rating downgrade. They were renewed in 2012 and will expire in Lower rating levels could result in slightly higher interest rates. Liquidity insurance entities The liquidity position of our insurance entities is more than sound, as we maintain a high level of liquid investments in the investment portfolio, including short-term deposits, liquid government bonds and listed equities. Liquid assets those assets that can be made readily available represent 69% of the investment portfolio (2011: 65%). Liquidity banking The liquidity position of our banking entities is sound and they were able to maintain their liquidity position well above regulatory requirements. Achmea Hypotheekbank went to the market twice in 2012, with a Residential Mortgage- Backed Security issue, generating 0.8 billion in additional funding, and with the first issuance of 0.5 billion of senior unsecured notes. This first issuance of its Medium Term Note programme enables the bank to further diversify its funding profile. In addition, we aim to utilise more unsecured funding through savings, and a successful campaign in 2012 generated 0.8 billion. In 2012, we also bought back state-guaranteed bonds via a tender process. Of the original USD 3.25 billion in bonds at the end of 2010, we successfully purchased USD 0.9 billion in 2011 and USD 0.9 billion in overview of cashflow and reallocation of capital ( Million) 2012 CASH REMITTED BY BUSINESS Non-life Netherlands 70 Health Netherlands 400 Pension & Life Netherlands 0 Other 4 Proceeds from divestments 45 FINANCING/CORPORATE ACTIVITIES Net interest paid -48 Dividend and coupons on capital securities paid -106 Net change in borrowings 140 Tax settlements 38 Corporate activities -412 INVESTMENTS IN BUSINESS AND ASSOCIATES Non-life Netherlands -57 Health Netherlands -2 International -46 Other -166 Net change in cash -140 OVERVIEW OUTSTANDING DEBT TYPE AMOUNT (MILLION) PERCENT CALL DATE RETAIL/INSTITUTIONAL OTHER INFORMATION May 2013 Retail Tier November 2012 Retail Not called, next call date November June 2015 Institutional Step up 100 bps Senior debt June 2014 Institutional Preference shares January 2014 Institutional Reset coupons per 1 January

65 Risk Management As an insurer, risk management is an integral part of our business. We are responsible for maintaining the continuity of our customers, our stakeholders and the organisation. To achieve this, we focus on identifying, assessing, mitigating and controlling risks, while ensuring that we create value by identifying the right balance between risk and return. By following a sound risk management strategy, we can secure our continuity and our solvency. Main developments Risk management is about identifying and dealing with risk, especially when that risk changes rapidly. Our risk management processes are designed to identify and respond to shifting risk patterns, ensuring that we can maintain our business and strategic goals. During 2012, the financial crisis that started in 2008 progressed and in a general point of view had a negative effect on the creditworthiness of sovereign states and financial institutions. We continuously monitored developments in a number of countries, including France and GIIPS (Greece, Ireland, Italy, Portugal and Spain) countries. Based on risk of losses, over the past few years we have gradually lowered our exposure to GIIPS countries, and only a limited exposure remained in In Greece and Ireland our exposure relates exclusively to our activities there. The developments in GIIPS countries are an important and recurring point of attention in Finance and Risk Committee (FRC) meetings. Starting in the first quarter of 2012, we shifted a part of our Dutch, German and French government bonds to low-risk credits issued by investment grade companies with low leverage and a low probability of default. This shift originated from the notion that government bond investments cannot be considered risk free, either from the perspective of a potential default or from the perspective of mark-tomarket risk (in other words, the value of the investments does not always precisely follow the value of the insurance liabilities). The low-risk credit portfolio provides an additional return potential which is needed to match the liabilities and sustain a strong solvency position. Consequently, we have managed our overall exposure profile to acceptable levels, to compensate for these increased risks. However, forthcoming risk reductions from regulations could lead to higher capital and liquidity requirements, leading to more capital and liquidity being held in the financial system. The further negative effect on availability of capital and liquidity could potentially result in further increased counterparty risks for financial institutions from households, corporations and sovereign states. We remained alert for counterparty risk throughout 2012, and will continue to do so in At the end of 2011 it became clear that the Werkhervatting Gedeeltelijk Arbeidsgeschikten (WGA) insurance an income protection product for long-term disability for companies that exited public insurance coverage was developing unfavourably, and measures were taken to mitigate any losses. Liabilities were increased and premium rates were adjusted. In 2012, the portfolio was closely monitored as new public information became available. This led to additional measures being taken during the year. For more information, please refer to the Non-life chapter. Further developments include the uncertainty surrounding the future of the AWBZ (Algemene Wet Bijzondere Ziektekosten, or General Act on Exceptional Medical Expenses), which the new government may reform, our Solvency II application, which is on track, and our ongoing focus on the impact low interest rates will have on our investment portfolio. In 2012, ongoing low interest rates led to higher premiums and increasing insurance liabilities for interest guarantees. A great deal of attention was paid to managing this risk by matching instruments. Our interest-rate risk management continues to prove effective. 65

66 executive board report Risk Management Risk Governance Framework Three Lines of Defence Achmea operates a governance structure that is based on the Three Lines of Defence model, which utilises three distinct defence lines for controlling risks. These are: 1. The first line of defence is our line organisation, which is primarily responsible for risk management across the company. This defence line includes the Executive Board, line management of the business units, Group Finance, and the executive risk committees at Group and business unit level. 2. Our second line of defence involves risk management, actuarial, and compliance functions that challenge our line management in a proactive manner, to help them achieve their business objectives and enable them to make a thorough and objective analysis of the risks, costs and benefits of measures to manage risk. This is done by providing guidance, facilitating risk management processes and by acting as a sparring partner on effective risk management. 3. Our third line of defence is the internal audit function. This is an independent function that provides extra security to the Executive Board and the Supervisory Board/Audit & Risk Committee on the quality of the internal management and the establishment and operation of the risk management system. This role is performed by Achmea s Internal Audit department. We have two specific risk committees at Group level: the Audit & Risk Committee of the Supervisory Board and the Finance & Risk Committee (FRC). The Supervisory Board supervises the Executive Board on the effectuated policy and associated risks. Therefore, the Supervisory Board discusses the risk profile of Achmea and assesses at a strategic level whether the allocation of capital and liquidity requirements are in line with the approved risk appetite. The Audit & Risk Committee advises the Supervisory Board on financial, administrative and organisational compliance matters, as well as the risk profile and risk management. The FRC is the platform for the Executive Board and management of the (financial and risk) staff departments and financial directors of several business units to discuss and decide on the issues related to finance and risk management at Group level. Each meeting begins with a review of the market environment so that risk can be evaluated internally and externally. The Committee prepares advice on risk appetite and the Group risk budget for evaluation by the Executive Board. Periodically, risk policies, including limit setting on specific risk areas, risk models and the Group s risk profile are monitored, evaluated and approved. Integrated Approach Our Integrated Risk Management Framework (IRMF) describes our risk management system. The risk management system is designed and maintained on the basis of this structure. The IRMF ensures consistency with respect to the risk management function, the compliance function, the actuarial function and internal control, thereby ensuring an efficient and unambiguous risk approach. The IRMF consists of seven components: organisational structure, risk classification, risk appetite, policies and procedures, tools and techniques, systems and data, and people, culture and awareness. The IRMF encompasses Group-wide policies that ensure that for each risk type, risk management throughout the organisation is consistently implemented. In addition, they provide consistency and completeness in the analysis and management of all risk types, enabling an aggregated risk profile to be reported for the company. Risk appetite Risk appetite is an important component in the IRMF. Within Achmea, risk appetite is defined as the maximum risk that we are willing to accept while performing our business strategy. Our risk appetite has been defined in a series of risk appetite statements, which are translated through Key Risk Indicators (KRIs), risk tolerances and risk limits. Risk tolerances are parameters that give a clear direction to the management of the risk levels Achmea is willing to be exposed to. Risk limits are used in daily 66

67 executive board report Risk Management business practices to indicate how much risk we are willing to take. Periodic risk monitoring and reporting, which for example is discussed in the Finance & Risk Committee, ensures that Achmea s risk profile is within our predefined risk appetite and action is taken when necessary. Our risk appetite statements ensure: Continuity through a robust and stable balance sheet: statements are made on capital position, risk management, liquidity and capital allocation. Above average performance adjusted for risk: statements are made on responsible profit and earnings volatility. Customer-centric product proposition: statements are made on product quality. In reference to our market: statements are made on compliance. With regard to our capital position, the risk appetite statements specify that: Available capital is at least equal to the economic capital calculated at a 99.95% confidence level at Group level. Minimum capital levels should at least be sufficient for an S&P A rating. Achmea monitors capital based on the S&P requirements in accordance with a AA rating. Minimum capital levels should be sufficient to meet capital requirements of the regulator. Minimum capital levels should be at least 100% of the solvency capital requirement (SCR) according to Solvency II, plus a buffer per legal entity. The amount of capital is calculated based on models, and we have identified risk mitigation measures to avoid model risks. With regard to our liquidity position, the risk appetite statements specify that: We maintain sufficient liquidity in moderate stress scenarios at both holding and business unit level to always meet our liquidity requirement. Maintaining sufficient liquidity/flexibility in our risk profile to be able to reduce our market/counterparty risk by being able to make 1 billion liquid within three months. Maintaining sufficient liquidity/flexibility in our risk to be able to reduce the economic capital requirement at 99.95% confidence level by at least 350 million within three months. Our risk management framework ensures that a prudent risk policy is developed, implemented and monitored. With regard to responsible profit, our risk appetite statements specify that: We will not accept risk that does not generate structural profit. Profit is not the only goal. Profit is necessary to ensure the continuity of our cooperative goals. We strive for a structural targeted return that matches our risk profile, our cooperative background and the dividend requirements of shareholders. Compared to the market and due to high volume and efficiency, our products and services have a low cost structure and an adequate quality level. In terms of operational return (Value New Business, combined ratio), we aim to outperform the market. From a capital requirements perspective, we maintain two internal guidelines for solvency one for minimal legal (regulatory) capital requirements and one for target solvency levels (both including foreign operating companies). More information on the minimal requirements we aim to achieve can be found in the Capital and Liquidity Management chapter. The Group risk appetite statements provide clear guidance to every part of the business. They have been used directly in the business planning for investment plans and for setting reinsurance cover. Given the risk appetite statements, our Asset & Liability Management department determines the risk budget for our investments. An optimal asset allocation is determined, which takes into account the impact on all risk areas we are exposed to. Subsequently, an optimisation of this risk budget results in the final investment plan. Compliance Compliance focuses on overseeing the management of the compliance risk and contributes to our mission of becoming the most trusted insurer which places the customer centrally. From 1 January 2012, the Compliance department became part of the central Risk & Compliance 67

68 executive board report Risk Management department. This changes the organisational embedding of the compliance departments, which are now part of the finance and risk column in the division. They retain a direct reporting line to the division chairman. Integration with Operational Risk has also been shaped through the integration of Operational Risk and Compliance Monitoring Reports. Dutch and European regulations are increasingly influencing our processes and products. In order to better monitor the developments in legislation and regulations within Achmea, and to influence legislation in development in a timely fashion, a Group-wide Act and Regulations commission was established. In 2012, the self-assessments for the standard framework for propositions, where existing and new products were tested by focusing on customers interests, were completed for the main products, and any existing gaps were identified. In the same year the project standard framework for propositions was brought back into the line organisation, which integrates the principles of the standard framework for propositions in the business plans and daily operational and product improvements. We see the customer oriented insurance quality mark (Keurmerk Klantgericht Verzekeren) as an important tool in our efforts to become the most trusted insurer. During 2012, different labels within Achmea were in possession of the quality standard as issued by the Dutch Association of Insurers. These were: Agis, Avéro Achmea, Centraal Beheer Achmea, DVZ, FBTO, InShared, Interpolis, OZF, ProLife, TakeCareNow! and Zilveren Kruis Achmea. In 2012, a major effort was made to comply with the standard s requirements, both to demonstrate compliance and to show that the requirements are embedded in our processes. In 2012, our Compliance department took the initiative to start two pilot projects on culture, attitude and conduct. These pilot projects will be analysed to see how much the actual behaviour of employees and our business units is in line with the desired culture. Compliance will discuss their findings with the business units. Solvency II Solvency II preparations As the successor to the European Union s existing solvency regime for insurers, Solvency II (SII) is a fundamental review of capital adequacy requirements. It applies to all European insurers and has wide reaching implications for the industry. The implementation of SII is on track. The governance framework is becoming increasingly consistent. Policies are (re)written according to a commonly applied cycle of phases. Achmea has joined a pilot scheme of the Dutch Central Bank (DNB) regarding ORSA reporting, in which emphasis was put on the process of development of the report and the cooperation of our management. A great deal of effort has been given to the development of a partial internal model. We participate in the pre-application process on internal models with the DNB, and the aim is to use these (partial) internal models when SII becomes applicable. However, in 2012 it was announced that SII implementation, initially scheduled for 1 November 2012, would be postponed to 1 January 2014 and a further delay is expected. This is not welcome news for Achmea, for a number of reasons. In addition to the time and resources already invested in SII, our position under this new regime will be even stronger, further reinforcing our competitive position. In the business planning process we introduced stress tests on foreseen SII ratios, which once again proved that we are very well capitalised. Therefore, given how far we are in implementing SII across the organisation, and because the implementation of the new regime opens up a number of opportunities for us, we have chosen to follow our original implementation planning. We are convinced that SII will drive consolidation in the market, and will provide a much clearer reflection of the real risks involved. Pre-application models As mentioned, we are already participating in the preapplication of internal models, and our goal is to have a fully operational internal model for our Dutch activities. Our primary focus will be on the internal models for insurance risk within our Non-Life and Health divisions, market risk for the Netherlands and insurance risk for our Non-life operations in Greece. The economic capital models we currently use will be made Solvency II compliant, while 68

69 executive board report Risk Management internal models will be developed gradually. The Dutch supervisory authority has offered us the opportunity to participate in a trial application phase for internal models, in which the models will be reviewed by the Dutch Central Bank according to the foreseen criteria and timelines for Solvency II. We aim to start this trial application in ECONOMIC CAPITAL by segment (at 99.5%) ( BIILION) 2012 Non-life Netherlands 0.9 Health Netherlands 1.8 Pension & Life Netherlands 1.9 International 0.6 Banking Netherlands 0.4 Economic Capital Other 0.6 Total segments before diversification 6.2 Our internal economic capital model allows us to quantify our risks per risk category, product group, division, legal entity, and for the Group as a whole using comparable measures of risk. The results are used as input for business decisions, for example on our investment and reinsurance strategies and pricing, and also as input for Market Consistent Embedded Value and Economic Result analyses. In 2012, we switched our economic capital models towards a partial internal model in anticipation of future requirements under Solvency II. Non-life insurance risk, disability risk, health risk and market risk are calculated according to internal models. For the calculation of the capital requirements for the other risks, the Solvency II standard formula is used. Total economic capital after diversification at Group level amounted to 4.3 billion. All calculations were performed using year-end 2012 data. Comparative figures for 2011 are not available, due to the switch in the economic capital model used. Diversification between segments -1.9 Achmea Group 4.3 Economic capital by risk type Market risk and life risk dominate economic capital. Market risk reflects the net exposure to the capital markets, and includes equity risk, property risk, spread risk and interest-rate risk. Life insurance risk relates mainly to longevity risk. Non-life insurance risk appears to be relatively small, because we have arranged reinsurance for most natural disasters. ECONOMIC CAPITAL BY RISK TYPE (AT 99.5%) ( BIILION) 2012 % of total Market Risk % Life Risk % Health Risk % Economic capital by segment Economic capital is highest in the Pension & Life Netherlands and Health Netherlands segments. Most of the life and market risks are concentrated In the Pension & Life Netherlands segment. In the Health Netherlands segment we see an increase in health risk, due to a shift of risk from ex-post to ex-ante mitigation, which results in more risk for the insurer and a large counterparty default risk due to the high premium volume and the exposures to hospitals. Counterparty Risk % Non-life Risk 0.7 9% Operational Risk 0.7 8% Disability Risk 0.3 4% Total risks before diversification and other effects Diversification between risks and other effects % -3.9 Achmea Group

70 executive board report Risk Management Insurance risk Insurance risk is defined as the risk of a change in value of portfolio due to a deviation of the actual claims payments from the expected claims payments and encompasses life risk, Non-life risk, disability risk and health risk. Catastrophe risk and concentration risk, if present, are included separately in the risk types mentioned. MAIN DRIVERS Longevity risk: the risk of a change in value of portfolio caused by the actual mortality rate being lower than expected. Mortality risk: the risk of a change in value of portfolio caused by the actual mortality rate being higher than expected. Lapse risk: the risk of a change in value of portfolio caused by deviations in the actual rate of policy lapses from their expected rates. Premium risk: the risk of a change in portfolio caused by ultimate costs to fulfil contractual obligations from unexpired contracts (claims without administration costs) varying from those assumed when these obligations were estimated. Reserve risk: the risk of a change in value of portfolio caused by ultimate costs to fulfil contractual obligations from contracts (claims without administration costs) varying from those assumed when these obligations were estimated. Incidence risk: the risk of a change in value of portfolio caused by incidence rates for disability insurance deviating from the ones expected. Recovery risk: the risk of a change in value of portfolio caused by recovery rates for disability insurance deviating from the ones expected. Catastrophe risk: the risk that a single event, or series of events, of major magnitude, usually over a short period (often 72 hours),leads to a significant deviation in actual claims from the total expected claims. Expense risk: the risk of a change in value of portfolio caused by the fact that the timing and/or the amount of expense incurred differs from those expected, e.g. assumed for pricing basis. RISK CONTROL AND MITIGATION A new product approval policy for insurance products has been implemented with specific/explicit attention for customer/policyholder interest. Underwriting procedures are in place which are reviewed regularly based on statistical analyses. Insurance risks are balanced across the portfolio because of the range of different products we offer. To diversify the mortality risk, part of the life portfolio is reinsured through quota share contracts on a reciprocal basis. Catastrophe risks and large individual risks are covered in reinsurance treaties. The insurance liabilities are tested for adequacy at least quarterly (and more often if considered necessary). For life (individual and group) the liability adequacy test (LAT) is monitored on a monthly basis based on the actual yield curve. 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. MAIN DRIVERS Internal fraud: the risk of deliberate action by one or more persons from management, the governance bodies and/or staff (including temporary staff and external hires), whether or not in collaboration with a third party, with the intention to benefit and/or enrich him/herself or other(s). External fraud: the risk of fraud or threat by (potential) customers and fraud or threat by other third parties, such as suppliers and service providers with no involvement of employees. Execution, delivery and process management: risk of losses from failed transaction processing or process management, from relations with trade counter parties and vendors. These risk events are not intentional and are generally related to back-office activities. Clients, products and business practices: risk of losses arising from an unintentional or negligent failure to meet a business practice professional obligation to specific clients (including fiduciary and suitability requirements), or resulting from the nature or design of a product. Business disruption and system failure: risk of losses arising from disruption of business or system failures. Damage to physical assets: risk of losses arising from loss of (or damage to) physical assets from natural disaster or other events. Employment practices and workplace safety: risk of losses arising from acts inconsistent with employment, health or safety laws or agreements, from payment of personal claims, or from diversity / discrimination events. RISK CONTROL AND MITIGATION Risk assessment takes place structurally, using Operational Risk Appetite, Risk Self Assessments and Operational Risk Scenarios. An internal control statement (ICS) is compiled providing a fair view of Achmea s risk exposure and level of control. Risk sensitive capital steering is being developed based on internal and external loss data, operational risk scenarios and key risk indicators. Special policies are in place for specific risks, such as for business disruption and system failure, which are evaluatedand tested during the year. 70

71 executive board report Risk Management Market risk Market risk is the risk of loss, in other words the decrease in the market value of the net assets (assets minus liabilities), due to unexpected changes in the financial markets. It encompasses interest rate risk, equity risk, property risk, spread risk and currency risk. MAIN DRIVERS Changes in investments, intangible assets and embedded options in insurance products due to unexpected changes in the financial markets. Unexpected changes can be caused by changes in among others equity prices, interest rate levels, credit spreads, real estate prices and exchange rates. RISK CONTROL AND MITIGATION Assets and Liability Management Framework which consists of setting the strategic investment mix and policy setting and periodic monitoring. Interest rate risk of the insurance entities is managed on an economic basis using different scenarios for shifts in the interest rate curves. Interest rate risk of banking products is measured and controlled by Value at Risk and income and risk measures. The currency risk of the investment portfolio in general is fully hedged, with a few exceptions in specific investment mandates. In general, Achmea does not hedge the net investment in, or the income streams from, its non-euro operations. 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. MAIN DRIVERS Market liquidity: the risk that the organisation cannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption. Funding liquidity: the risk that the organisation 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 the organisation. RISK CONTROL AND MITIGATION Liquidity planning at both subsidiary and Holding level is part of our business planning. Liquidity risk metrics are calculated for each of the legal entities as well as for Holding, providing a forward-looking view of 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. The liquidity contingency plan, part of the liquidity risk policy, describes possible actions and sources of funds to use when these extreme scenarios become reality. The funding strategy is based on assuring access to international capital and credit markets at low cost levels. Each division, operating company or service entity is responsible for funding its own activities. Access to capital and credit markets is arranged at Holding level. Counterparty risk Counterparty risk is the risk of economic loss due to unexpected default, or deterioration in the credit standing of the counterparties and debtors of Achmea entities. Achmea is exposed to counterparty risk in the area of investments, treasury, banking, reinsurance, healthcare providers, intermediaries, and policyholders. MAIN DRIVERS Counterparty default risk: the risk a counterparty will fail on a contractual obligation, which results in an economic loss. Typical credit events are more than 90 days overdue, judicial settlement, restructuring or bankruptcy. Rating migration: the risk that the credit quality of a counterparty will decrease with consequent decrease in value of corresponding assets. Systemic risk: the risk of systemic events that increase the likelihood of simultaneous adverse events for counterparties. Settlement risk: the risk of principle exchange failure. This settlement failure can be caused by default, liquidity constraints or operational problems. RISK CONTROL AND MITIGATION Group level counterparty policy consisting of a rating-based system of exposure limits per counterparty. Diversification of portfolios and collateralisation is used for mitigating the risk. Recovery process and capital surplus in case of negative credit-events. 71

72 Human Resources Employees are our most valuable resource, and we know that only by placing our trust in our workforce can we ask our customers to place their trust in us. At Achmea we offer customers a good product at a fair price. Our employees believe in our philosophy, and we work hard to attract and retain the best people, which means excelling as an employer. By creating a strong, stimulating, and innovative working environment in which employees can fully develop their potential and skills, we strengthen our company and provide our customers with the best possible service. Innovative employer We make commitments to our customers, and we recognise that we can only be credible if we make those same commitments to our employees. Addressing the many social developments such as increasing individualisation, issues surrounding work-life balance and mobility challenges enables us to implement a contemporary and innovative approach to our role as an employer. An example of innovative employership is the development of the Achmea Work Concept, which facilitates flexible working. Vertrouwd Samen Werken (VSW) is the program within Achmea that aims to increase customer value. VSW focuses on serving customers in a flexible way. One example is providing help to customers outside regular office hours. VSW also gives employees greater control over their working hours, providing a better work-life balance, resulting in greater employee value. This also benefits the company financially, as the cost of office space and travel decline, and is more sustainable. In 2012 the number of employees using teleworking grew, and we introduced a number of pilot schemes that experimented with self-scheduling, enabling employees to organise together the staffing requirements in their department. Another example is that each year employees can opt to work more or less hours and to take more or less holidays, giving them greater flexibility in the way they structure their professional and personal lives. In 2012, 4,144 staff chose to change the number of hours they work, while 2,659 chose to change the amount of annual leave they take. And to help employees refocus on their work-life balance, we set up the Energy Challenge program. This enables staff to set up teams to work on personal health goals. In , 114 teams with a total over 1,510 (of which 485 in 2012) employees participated. Sustainable Employability Over the last few years we have been working on improving our operational processes and reducing complexity. This improvement involves a major shift in the way we work, which places the customer firmly in the centre of our activities. Our employees worked together to continuously streamline processes, so that there are noticeable improvements from our customers perspective. This delivered annual cost savings and reduced our headcount. Where possible, the reduction in staff involved not renewing external or temporary contracts and not filling vacancies. For redeployment candidates we operate the Achmea Transfer Centre (ATC). This helps employees look for a fresh challenge, such as new positions inside and outside the company, or provides additional training. In 2012, 375 employees made use of the ATC, while 60% of employees who attended were successfully relocated (74% in 2011). The percentage of external placements in 2012 was 16.7% (2011: 20.5%). During the implementation of the complexity reduction programme, we established an innovative project called Silver Pool, which helps retain the knowledge and experience of employees aged 57.5 years and older, who had been impacted by redundancy. As Achmea s workforce shrinks, the ATC increasingly places employees outside the company. Experienced employees Silver Pool identifies experienced professionals who no longer have a fixed contract within the company, and employs them as flexible workers on temporary projects. When employed, staff in this project receive 100% of their salary, and when there is no work they make use of a safety net that provides them with 75% of their salary. Silver Pool employees have priority for temporary, third 72

73 executive board report Human Resources party or contractor positions. By retaining people with knowledge and experience, we save out-of-pocket costs for external consultants and temporary workers. On average, 64% of employees from the Silver Pool were in work in 2012 (2011: 66%). At year-end 2012, 73 employees were registered with the Silver Pool project, with 53 working within Achmea and six outside Achmea. Silver Pool looks for individual solutions on an individual basis. Employee consultation Achmea has Works Councils at all levels of the organisation, including at business line, operating company and brand level. There is also a Central Works Council (COR), which is made up of representatives from across the organisation. The COR plays a key role in safeguarding the continuity of Achmea. It has nomination powers for the Group s Supervisory Board and provides advice on important topics that affect the Group and its employees. Achmea is proud of how well the COR functions. Informal meetings between COR, the chairman of the Executive Board and the director of HR take place weekly. In 2012, the COR received 23 requests for advice and six requests for approval. The number of requests for advice decreased compared to 2011, due to the restructuring of the organisation in An agreement between the COR and the HR director ensures that the COR is involved in any major changes within the company at the planning stage, and are able to secure the rights of employees. This is achieved through general requests for advice ( kopadviesaanvragen ) at a stage when staffing implications are not yet clear. More detailed requests follow this general request once staffing implications become clear. All requests for advice and approval are published on the Group s intranet so that employees can follow developments, and the intranet also has a forum option that allows employees to discuss issues. Education and training One of the central themes in Achmea s employment practices is the professional and personal growth and development of employees. We encourage and facilitate staff in their individual development process, adding value to both themselves and the company, and helping them remain agile and resilient. We believe this is a crucial part of our role as an employer. In 2012, 3.3% of the payroll was spent on training costs (3.3% in 2011). The target for 2013 remains at least 2.0% of the payroll. Achmea has a number of resources to facilitate employee development, including a Management Development program, Specialist Development program and the Achmea Academy, which develops in-house programs for the company s specific business lines. The Academy also works with academic partners from around the world and with Eurapco partners. It arranges workshops, meetings and seminars. In 2012, the Academy Achmea ran 40,000 courses. More information and a list of the courses can be found at: Employee engagement Every year in the Netherlands we test how well we re doing as an employer by asking employees to rate the organisation. Based on the outcome, priorities are set that need to be met by the organisation in the upcoming year. One of the key indicators is the size of the response. In 2012, the response rate to the Employee Engagement Survey (EES) was again excellent, especially at a time of ongoing change and reorganisation. It increased to 87% compared to 82% in The majority of ratings on the key performance indicators were up or equal to 2011, while overall employee satisfaction increased by 2%-points to 85%. In December, Achmea in the Netherlands was rated the number two employer in a survey carried out by SatisAction and NRC, one of the countries leading daily newspapers (in 2011 we were ranked 4th). The NRC Best Employers Survey is a scientifically based survey that studies good employment among 33 companies. A diverse workplace Our company is a large, diverse and rich community of people working under the Achmea umbrella. We celebrate and nurture this variety through our Life Stage Diversity Policy, which focuses on identifying, recognising and developing the individual talents of all employees. This includes respecting each culture, faith, life choice, background or sexual orientation that is represented within the company. For Achmea diversity is also a business case. 73

74 executive board report Human Resources There are different internal networks within the company for woman, for young people and for lesbians, gay men, bi-sexuals and transgender employees (LGBT). At the beginning of 2012, we signed the Declaration of Amsterdam, which focuses on workplace improvements for LGBT employees. Because people with disabilities were under-represented within Achmea, in 2012 we focused on them. Each year, in addition to regularly hiring people with disabilities, Achmea makes an additional number of positions available to employees who may find it difficult to gain access to the labour market. We offered 15 educated people with a physical disability or a chronic illness a oneyear contract to gain work experience. The programme participants are then in a position to look for employment either inside or outside Achmea. 74

75 Corporate Social Responsibility Corporate Social Responsibility (CSR) is in our genes. We view social responsibility as being the key to realising our ambition of being the most trusted insurer. As an insurer with a cooperative heritage, we feel a responsibility towards the needs of our (business) partners, employees, shareholders and society at large. Our CSR Policy encompasses the three roles Achmea has in society: Our work: Through our insurance and investment products and activities, we can demonstrate how we are putting CSR into practice. Our organisation: We facilitate flexible working, so employees can better manage their work-life balance, which helps us reduce CO 2 emissions. Our world: We use our knowledge and experience in providing financial security to develop solutions to social and economic problems. Our goal is for our CSR policy to be recognised by key stakeholders in the fields of finance, insurance, investment and sustainability. We are therefore proud to share the external assessments of our sustainability performance, which can be found at: In addition to our CSR policies and practices, we also publish a comprehensive CSR report. This is issued at the same time as our annual report. The CSR report follows the guidelines of the Global Reporting Initiative (GRI), guideline 3.1, and is compliant with level A+, the highest level of transparency possible. This means that Achmea reports on all core indicators of the GRI, the indicators as stated in the sector supplement Financial Services, and that the report is externally verified. The CSR Report and GRI table can be found at: Our Work Our core activities involve providing customers with products and services in the non-life, health, income protection and life insurance markets, and investing the premiums in a responsible manner. Our customers are central to everything we do, and we aim to keep their costs as low as International principles for sustainable insurance On the eve of the 20th UN Conference on Sustainable Development (Rio +20) on 19 June 2012, the Principles for Sustainable Insurance (PSI) were launched in Rio de Janeiro. The PSI are an initiative of a large number of leading insurers and the United Nations (UNEP FI). In recent years, Achmea has contributed to the formulation of these principles, and almost thirty insurers including five from the Netherlands have now signed the principles. The financial institutions promised to exert their influence when it comes to environmental, social and governance issues. More information on the PSI can be found at: possible while working continually to help them implement preventative measures. We view our insurance and investment products and activities as the best demonstration of how we put CSR into practice, and believe we make our greatest social impact through our day-to-day work. Sustainable insurance Our CSR policy aims to ensure all products and services meet a social need and are based on solidarity principles. In principle we accept all customers, and actively resist situations that threaten to exclude specific social groups. However, in some cases customers are excluded if they take risks that we view as unacceptable. The primary aim in developing products is to ensure customers receive sustainable value. We believe that profit, although necessary for continuity, is not the only driver. 75

76 executive board report Corporate Social Responsibility Responsible investment As an insurance and pension fund manager, Achmea is a large investor. We bear the investment risk on the funds we receive from our insurance activities, including premium funds. Additionally, we invest the assets that customers entrust to us. These include pension funds for which we carry out the management or assets of the investment accounts of our customers. As an institutional investor, we can influence the behaviour of companies in which we invest through our responsible investment policy. This can be seen as responsible supply chain management. More details on our responsible investment activities can be found in the Investments chapter. Putting customers interests first The financial crisis has had a major impact on society s confidence in banks and insurers. As a consequence, the government, the financial sector and individual institutions have introduced a large number of initiatives in an attempt to re-connect with customers needs and wishes, with a central focus on safeguarding customers long-term interests. The process we started in 2010 to further embed our clients interests into our culture, and the products and services we offer, continued in Clients interests are integrated into our personnel and organisation policy, ensuring current and prospective employees are informed about the way we expect them to behave towards customers through job descriptions, during recruitment and selection procedures, and in training and evaluations, when the focus on clients interests acts as a criterion for variable remuneration. At the same time, the implementation of the normative framework for propositions within the organisation continues, and in 2012 there was ongoing participation by a number of Achmea brands in the customer-oriented quality mark. The acquisition of comparison website Independer.nl fits into this strategy, with the large amount of relevant data it produces providing valuable insights into customers needs and wishes. This information is vital for us to continue putting customers interests first. Our Organisation By enabling our employees to work flexible hours and at different locations, we help them better manage their work-life balance and contribute to the reduction of CO 2 emissions, by reducing peak-time traffic. Achmea has been one of the most attractive employers for many years. This is partly because we pursue a proactive policy on diversity, reintegration of employees who have been ill, and we provide informal care and a sustainable working environment. In this respect, we focus on energy management, sustainable construction, responsible procurement, waste management and mobility. Since 2011 we have been climate neutral, when we began offsetting our CO 2 emissions. Achmea as an innovative employer Achmea is only trustworthy if it treats its employees in the way its customers would expect to be treated. There are various developments in society that impact Achmea: increasing individualisation, issues surrounding the work-life balance, and bottlenecks in mobility. Achmea s solution is to be a contemporary, innovative employer. This helps us attract, retain and develop talented and ambitious employees. For more on this, please refer to the Human Resources chapter. CO 2 neutral operations Achmea has been CO 2 neutral since Any uncompensated emissions are offset through VCS certified credits. In 2012, we implemented an energy management system that will enable us to calculate our energy use and savings with more accuracy. This also allows us to calculate and report on our CO 2 footprint more rapidly. Sustainable procurement For Achmea, taking responsibility in the chain means dealing responsibly with insurance and the assets entrusted to us. However, we also operate a number of large offices, and purchase a wide range of products and services. In addition to looking at the price, quality and functionality of these products and services, we are 76

77 executive board report Corporate Social Responsibility increasingly looking at their sustainability criteria. We do this in two ways: firstly, by only working with suppliers that endorse our sustainability ambitions and who sign the Sustainability Statement for Suppliers. Secondly, by procuring products and services that comply with additional (sustainability) criteria. The Sustainability Statement for Suppliers can be found at: com/csr/our-organisation. Our World The knowledge and experience we have in organising financial security can be used to find solutions to social and economic problems. We see this as part of our commitment to society in both the Netherlands and abroad. It allows us to put greater emphasis on the solidarity principle that our traditions as an insurer are based. Achmea s employees carry out this policy by offering their knowhow and services as volunteers. For example, they support micro-insurance projects in developing countries, as well as taking on countless initiatives in the Netherlands and other countries where we are active. We also fund two foundations: the Achmea Foundation and the Achmea Foundation for Victims and Society. Cooperative-based micro insurance Achmea is an insurance group whose origins lie in solidarity and social involvement. More than 200 years after we were established, we still cherish our cooperative roots. Solidarity is a very important concept for us. This is demonstrated in a number of ways, one of which is the establishment and support of micro insurance projects in developing countries. In the Netherlands, it is normal to take out insurance in case of disaster or financial problems. In many developing countries that is not the case. The micro insurance projects we support are focussed on improving the economic and physical resilience of the people living in developing countries. By establishing and supporting different micro insurance projects, self-reliance becomes accessible to millions of people. Our employees are the bearers of these projects by voluntarily offering their knowledge of financial security. Achmea Reinsurance also supports various micro insurance cooperatives as a reinsurer. This support means that the insurance risks of the various micro insurance projects are largely assigned to Achmea. This provides the cooperatives with greater insurance capacity, and protects them from bankruptcy as a result of a catastrophe or high incidence of claims. Finally, some projects are supported through donations from the Achmea Foundation. This financial support is aimed at professionalising the cooperatives that offer micro insurance. Participants pay their own contributions. More on the various microinsurance projects can be found at: our-world/micro-insurance-projects. Funded foundations Within Achmea, there are a number of foundations that carry out philanthropic work independently of our business activities. The Achmea Foundation and the Achmea Foundation for Victims and Society both focus on improving the resilience of vulnerable groups and members of society. The Achmea Foundation donates to projects worldwide to improve the economic and/or social situations of the poor and needy. The Achmea Foundation for Victims and Society primarily supports academic research projects aimed at improving the position of victims. In addition, there are three other independent foundations that concentrate on the effectiveness and efficiency of Dutch healthcare: the Spaarneland Healthcare Fund Foundation, the Theia Foundation and the Achmea Healthcare Foundation. 77

78 Supervisory Board Report The current strategy, the progress on further positioning the customer at the heart of the business, cost and complexity reduction and the continuing troubled economic circumstances were important topics on the agenda of the Supervisory Board in The committees of the Supervisory Board also discussed a wide range of subjects including quarterly results, risk management, corporate governance, succession planning, the remuneration policy and the composition of the Executive Board and Supervisory Board. Report of the Supervisory Board Main developments in 2012 Eight Supervisory Board meetings were held during 2012, made up of six regular meetings and two extraordinary meetings. All meetings were attended by almost all members, with negligible absence. The venue for four of the meetings was Achmea s head office in Zeist. The two other meetings were hosted by the Health division / Zilveren Kruis Achmea in Leiden and Banking Distribution division / Interpolis in Tilburg respectively. The relationship with the Executive Board remained very strong in The Supervisory Board compliments the Executive Board on its vision, its transparency and open approach towards the Supervisory Board members individually and as a corporate body as a whole. The reports and other information provided to the Supervisory Board were of a good standard, and when applicable and necessary were well balanced with respect to the interests of all four stakeholders of the company. The Supervisory Board, however, has requested the Executive Board to pay attention to the readability of (especially) highly technical financial and actuarial reports. The chairman of the Supervisory Board also visited all Dutch divisions and foreign subsidiaries to further familiarise himself with the business in addition to all other information provided to the Supervisory Board. SUPERVISORY BOARD MEMBERS SELECTION & NAME SUPERVISORY BOARD AUDIT & RISK COMMITTEE REMUNERATION COMMITTEE APPOINTMENT COMMITTEE E.A.J. van de Merwe Chair, present 8/8 present 14/16 present 7/7 Chair, present 6/6 M. Minderhoud present 7/8 present 15/16 present 7/7 present 6/6 S.T. van Lonkhuijzen present 8/8 present 15/16 M. Lückerath present 8/8 present 7/7 present 6/6 P.F.M. Overmars present 8/8 H.J. Slijkhuis present 8/8 Chair, present 7/7 present 6/6 A.C.W. Sneller * A.W. Veenman present 8/8 Chair, present 16/16 A.J.A.M. Vermeer present 7/8 present 7/7 present 6/6 B.J. van der Weg present 8/8 present 14/16 * Appointed 1 January

79 Corporate Governance Supervisory Board Report SUPERVISORY BOARD TOPICS REGULAR TOPICS OTHER TOPICS STRATEGY / BUSINESS PLANNING Corporate social responsibility Putting customers interests first Strategy, business planning and budgeting Closed book life business (Potential) acquisitions/divestments Review of long-term strategy Achmea Developments in the insurance industry Governance of regulated entities FINANCIAL / REPORTING Financial and commercial performance Financial reporting, including (semi) annual results, annual reports, financial statements, dividend Income protection (WGA) developments Discussion on yield curve Dividend proposals, press releases Setting health premiums 2013 Financial peer analysis Achmea valuation Internal sale Agis Zorgverzekeringen N.V. to Achmea Zorgverzekeringen N.V. Renewal of revolving credit facility Funding and liquidity plan Tax position and tax planning RISK MANAGEMENT Risk management, including risk appetite and risk policies Euro break-up scenario Solvency II Risk Analysis DNB Internal Control Statement AUDIT & COMPLIANCE Reports of external auditor, including management letter Implementation and compliance Remuneration Policy Reports of internal auditor, including audit memorandum Pension fund governance Compliance, a.o. Insurers Code and Banking Code Regulatory reviews DNB/AFM, a.o. Board Room effectiveness GOVERNANCE AND OTHER Evaluation Supervisory Board Search and selection Supervisory Board member Results employee satisfaction surveys Search and selection Executive Board members Selection of new chairman of the Supervisory Board Amendment Articles of Association Achmea Succession planning 79

80 Corporate Governance Supervisory Board Report Significant time was spent by the Supervisory Board on succession planning for both the Executive Board and the Supervisory Board. In 2012, Mr. Thomas van Rijckevorsel stepped down from the Executive Board. Early in 2013, Mr. Gerard van Olphen also stepped down from the Executive Board to become CEO of SNS Reaal. In 2012, the chairman of the Supervisory Board Mr. Arnold Walravens and Mr. Flip Buurmeijer stepped down from the Supervisory Board in accordance with the board s retirement rota. On 1 January 2013, Mrs. Lineke Sneller took up her position as a new Supervisory Board member. The Supervisory Board extends her a warm welcome. More detailed information on changes in the composition of the Executive Board and Supervisory Board during 2012 can be found in the report of the Selection & Appointment Committee in this chapter. In 2012, all Supervisory Board members were subject to the suitability test conducted by the Dutch Central Bank (DNB) and Dutch Financial Markets Authority (AFM) on all major banks and insurers. The DNB and AFM came to a positive judgment on the Supervisory Board of Achmea as a group. A point of attention is to strengthen the technical knowledge of some of the Supervisory Board members at the level of the regulated entities. This attention point will be addressed through the permanent education sessions in 2013, through individual training and through some amendments in the composition of the Supervisory Boards of the regulated entities. Strategy Monitoring the implementation of Achmea s strategy is an ongoing activity for the Supervisory Board. During the course of 2012, Achmea continued to make good progress with the continuing drive for efficiency and improving business processes such as reducing organisational complexity and complexity in IT systems and ensuring the customer-oriented approach to managing the business remains on track. Despite this progress, the continuing troubled economic circumstances means Achmea needs to remain especially vigilant to changing market circumstances. During the course of the year the Supervisory Board and the Executive Board had comprehensive discussions on Achmea s long-term strategy, of which corporate social responsibility forms an integral part. In June the Supervisory Board reviewed the current strategy in detail and tested its viability, concluding that it remains relevant to the business and customers in today s changing economic circumstances, whereas the Supervisory Board suggested to further intensify the profile of Achmea as a socially involved insurer in all business lines, and especially in health insurance. In December, specific choices were made directly deriving from this review of the corporate strategy. With the Executive Board we concluded that Achmea needs to sharpen and accelerate the transformation programme, while ensuring that our cooperative identity remains an integral part of future plans. In addition, the Supervisory Board urged the Executive Board to keep going on the path of transforming the back office and investing in front office capabilities. The Supervisory Board fully supports the strategic choices in non-life and health, as well as the separation of the closed life book. As of 1 January 2012, Achmea changed its organisational structure. Three expertise-based product divisions became operational. With concentrated product development capabilities, and covering the health, non-life and life segments, these product divisions are part of the drive to position the customer firmly at the heart of everything Achmea does. Four distribution divisions are operational that are committed to a specific channel or customer group and empower the various brands. A solid, efficient organisational platform supports the front office capabilities, ensuring that we continue to put our customers interests first. The Supervisory Board has been kept up-to-date in both the preparatory phase in 2011 and the implementation phase in 2012 and has noted that the first positive results are visible. At the same time the Supervisory Board has emphasised that management information, such as the quarterly reports, also has to be adjusted to the new organisational structure and that increasing bureaucracy be avoided; focus has to lie with customers interests. On putting customers interests first, the Supervisory Board has noticed that Achmea has done a lot to position the customer further at the heart of its business. However, there is more required on putting the customers interest first to become the most trusted insurer and to meet the standards as set out by the AFM. The Supervisory Board has therefore 80

81 Corporate Governance Supervisory Board Report challenged the Executive Board to make more progress on this important topic in order to be able to realise our bold ambition to become the most trusted insurer. Finance and risk The Supervisory Board had extensive discussions on the financial status of Achmea in 2012 on the basis of the firsthalf and quarterly figures, in addition to the discussion and approval of the 2011 annual report and financial statements. The Supervisory Board, as well as the Audit & Risk Committee, had discussions with the Executive Board on the slight slowdown in the cost reduction programme. The Supervisory Board has emphasised that the right balance has to be sought between further cost reduction and financial ambitions versus investments for the direct benefit of our customers, manageability of the Group and compliance with continuously changing laws, regulations and market demands. Where the decrease in costs slowed down in 2012, the Executive Board committed to a stronger descent in Risks and their impact on Achmea remained a key topic for the Supervisory Board in As the banking and sovereign debt crisis continued, and the market environment remained turbulent and unpredictable, the Supervisory Board and the Audit & Risk Committee remained deeply involved in discussions on the appropriate risk appetite for the company. The Supervisory Board takes the view that a clear risk appetite is essential to effectively manage risk and enable the company to make the required (socially responsible) investment returns. While the proposal by the Executive Board to maintain risk appetite at the current prudent levels was fully endorsed by the Supervisory Board, Achmea chose to further embed risk appetite in the organisation and the business planning, for example through the introduction of specific risk dashboards. This is supported by the Supervisory Board. While this strategy will have consequences for future profitability, in the current market circumstances a prudent approach prevails over higher profitability, whereby this strategy still offers enough flexibility to enable the company to make changes if required in shifting market circumstances. Portfolio management A number of investments/divestments were reviewed by the Supervisory Board in The Supervisory Board provided feedback and input, in addition to approval where appropriate, to the Executive Board. In 2012, the finalisation of the merger between Vereniging De Friesland, the shareholder of the De Friesland Group (DFZ), and Vereniging Achmea and the successive transfer of the activities of DFZ to Achmea, and the divestment of Achmea Vitale, were monitored closely. Both transactions were fully supported by the Supervisory Board, as they were logical extensions of Achmea s strategy. In addition, the Supervisory Board was kept informed of the acquisitions of Friesland Bank Assurantiën (FBA), with effect from 31 December 2012, and of Onderlinge Verzekeringen Overheid (OVO), with effect from 1 January Given their materiality, the Supervisory Board was not involved in the decision making. However, they fully support the transactions. In addition, in light of the consolidation in the Dutch insurance market, other potential acquisitions were reviewed, but these potential acquisitions did not meet our financial and strategic criteria. Past acquisitions and potential divestments were also reviewed. Regulatory compliance and audit The Supervisory Board noted that compliance requirements of national, international and industry bodies are continually increasing. The Supervisory Board s role in monitoring adherence to these changes, and the Executive Board s role in carrying them out, are clearly also increasing. While the Supervisory Board welcomes clarity and transparency on regulatory requirements, the amount of time they require for both the Executive Board and the organisation is very high. In addition to the Executive Board s frequent contact, the Supervisory Board, especially the chairman and the chairman of the Audit & Risk Committee, maintain regular contact and a good relationship with the Dutch regulators. The Supervisory Board and its committees discussed, amongst other things, the impact of new regulations on sound remuneration, the suitability screening of Supervisory Board members and the Act on simpler and more flexible laws of private companies with limited 81

82 Corporate Governance Supervisory Board Report liability. The Supervisory Board further monitored the compliance of Achmea with the Insurers Code. The Supervisory Board is pleased to note that Achmea is largely in compliance with the Insurers Code. After thorough preparatory work in the Audit & Risk Committee, the Supervisory Board had in-depth discussions with the external auditor and Internal Audit on the findings as reported in the Management Letter and the Audit Memorandum. Specifically, the topics IT transformation, putting customers interests first and the new organisational structure were addressed. Based on the remarks in the Audit Memorandum, the Management Letter and further information from the Executive Board, the Supervisory Board discussed the IT transformation programme. The Supervisory Board concluded that progress has been made, but also that several challenges, including reducing costs and operational risk in relation to IT, still lie ahead. Governance of regulated entities As set out in the Corporate Governance chapter, in 2010 and 2011 the DNB carried out governance reviews of all Dutch financial institutions, including Achmea. The DNB made a number of recommendations, including on the governance of Dutch legal insurance entities. As a final step in the implementation of these recommendations, and following the new organisational structure, on 1 July 2012, Supervisory Boards were installed at Achmea Schadeverzekeringen N.V. and Achmea Pensioen- & Levensverzekeringen N.V. A Supervisory Board had already been installed at Achmea Zorgverzekeringen N.V. from 25 May These Supervisory Boards consist of members of the Supervisory Board of Achmea B.V. The Supervisory Boards of these entities have only been active for a short while and it is therefore too early to draw conclusions. The Supervisory Board recognises that further improvement is possible, for example in further standardisation of reporting to the several supervisory boards and the sector-specific skills of the members of the boards. In 2013, attention will be paid to the further education of the Supervisory Board members on the respective sectors the entities are active in. Remuneration Achmea operates a responsible remuneration policy, which adheres to the majority of the remuneration policy principles of the DNB, the AFM and the Insurers and Banking Codes (see also the Corporate Governance chapter for details on the exceptions). In early 2010, a number of adjustments were made to Achmea s variable remuneration policies for board members and senior management. For example, stock options were abolished. In late 2010, it was announced by the regulatory authorities that a Responsible Remuneration Policy would become effective in 2011 based on the European CEBS-guidelines, which also encapsulate the Insurers Code principles. Achmea and the regulators agreed on the establishment of a variable remuneration scheme that meets the tightened regulatory requirements. In 2012, Achmea agreed with the Executive Board on adjusting the remuneration package of the Executive Board downward. This decision was taken in light of the challenging market conditions in the financial sector and the social environment. All these developments and measures have been extensively discussed with and approved by the Supervisory Board. For more information on Achmea s remuneration, see the report of the Remuneration Committee in this chapter and the Remuneration Report, which can be found on the website from April Permanent education During 2012, four permanent education sessions were arranged for the Supervisory Board and Executive Board members. The meetings were fully attended. In one of the sessions the Supervisory Board discussed the AFM s requirements on putting customers interests first and Achmea s performance both individually and relative to the market and it observed that the focus must not only be on individual customer s interests but also on the collective interests of customers. The Supervisory Board also discussed the monitoring by the AFM and the requirement to meet the standards of the sector, as well as the importance of putting customers interests first based on our own cooperative identity. In another session on IT the Supervisory Board was informed of developments in the area of big data and the consequences such developments will have for insurers. One of the findings was that IT developments bring both opportunities and 82

83 Corporate Governance Supervisory Board Report new risks on information security. The Supervisory Board therefore concluded that they need to place more attention on IT issues in their meetings. In yet another meeting, hosted by the Banking Distribution division / Interpolis in Tilburg, the Supervisory Board discussed market strategy and stressed the need to improve the central marketing and sales coordination, including market analytics, and confirmed the progress made by the Executive Board. During regular meetings of the Supervisory Board, attention was also paid to relevant developments in the insurance and financial sector, corporate governance, compliance, risk management, financial reporting and audit. For Mrs. Lineke Sneller, who joined the Supervisory Board on 1 January 2013, a customised introductory programme has been prepared, which will familiarise her with the most important aspects of the Group and bring her up to speed on the topics discussed as part of the permanent education programme. Permanent education is well embedded in the organisation, and the Supervisory Board is of the opinion that permanent education adds real value to the functioning of the Supervisory Board and the Executive Board. Permanent education will be continued and intensified in Evaluation Supervisory Board The Supervisory Board conducts an annual comprehensive evaluation of its own performance using feedback forms, the outcome of which is discussed in a specially convened meeting. In 2012, the preparation and analysis of the input on the feedback forms took place under independent, external guidance. A large number of subjects were evaluated, including the functioning of the Supervisory Board in general, the functioning of the various committees, the ability to function at the corresponding responsibility level, and the independence of the Supervisory Board. The relationship of the Supervisory Board with the Executive Board, the Central Works Council (in Dutch: COR) and other relevant relationships within the company, the level of disclosure, the relationship with shareholders, and other aspects of the functioning of the Supervisory Board, such as education, remuneration of the Supervisory Board, time spent, and informal contacts were also discussed. Conclusions from the latest evaluation are that the Supervisory Board generally functions well, that cooperation within and between committees is very good, that the Board functions independently and is well prepared for its work. The good preparatory work of the committees increases the efficiency of Supervisory Board meetings. Increased diversity due to the appointment of female and younger members is seen as very positive. Increased pressure from regulators makes the playing field for the Supervisory Board smaller. Some suggestions for improvement were made. These include making more time available for discussion in the Supervisory Board, to meet at more diverse locations (not always in Zeist, but outside Zeist at least twice a year), to increase the frequency of meetings between December and March, and to involve the second echelon in meetings more often (more contact with top management outside the Executive Board). Rotation between the various committees is seen as a point of attention. Relation with shareholders With the exception of the General Meetings of Shareholders, the Supervisory Board as corporate body has limited contact with shareholders, as the chairman of the Executive Board is the primary contact for shareholders. The chairman of the Supervisory Board, however, has regular discussions with shareholders on topics such as the appointments of members of both the Supervisory Board and Executive Board. Relation with external auditor PricewaterhouseCoopers Accountants N.V. (PwC) is the Group s external auditor. The Supervisory Board and the Audit & Risk Committee are clear that cooperation with PwC is resoundingly positive. PwC add value to the improvement of financial reporting processes, and constructively and positively challenge the company. The Supervisory Board, together with the external auditor, concluded that the control level of the financial reporting risks and the managerial control within Achmea are adequate. The chairman of the Supervisory Board has an annual meeting with the leading partner of the external auditor, and additional meetings or calls when necessary. The Supervisory Board discusses the functioning of the external auditor on an annual basis, outside the presence of the external auditor. 83

84 Corporate Governance Supervisory Board Report Relation with Internal Audit The Supervisory Board has a positive view on the Internal Audit department. The quality of reports they produce is high, and the department highlights important issues quickly and diligently. Where appropriate, Internal Audit takes a proactive approach in dealing with the business to monitor processes, without losing its third line responsibility. The Supervisory Board is satisfied with the good relationship between the Audit & Risk Committee and the Internal Audit director, who now also attends discussions on internal audit reports in Supervisory Board meetings. The chairman of the Supervisory Board and the chairman of the Audit & Risk Committee have regular meetings with the director of Internal Audit. The Supervisory Board discusses the functioning of Internal Audit on an annual basis, without the internal auditor present. Relation with Central Works Council In 2012, all members of the Supervisory Board individually attended a meeting of the COR. The Supervisory Board appreciates the good working relationship and the ongoing constructive, transparent and open dialogue between the Executive Board and the COR. In general, the relationship between the Supervisory Board and the COR is good. Conflicts of interest In accordance with the Dutch Corporate Governance Code, transactions with members of the Supervisory Board in which there are significant conflicts of interest are to be disclosed in the annual report. During 2012, there were no such conflicts of interest. Conflicts of interest are considered to be absent and are not reported if a member of the Supervisory Board obtains insurance or other products and/or services which are provided by Achmea Group subsidiaries in the course of their business as an ordinary, private individual. Report of the Supervisory Board committees The Supervisory Board s three dedicated committees carry out extensive preparatory and detailed work before making recommendations and giving advice to the full Supervisory Board. Report of the audit & risk committee Regular meetings of the Audit & Risk Committee were often dedicated specifically to monitoring results during the reporting period, reviewing quarterly figures for delivery to shareholders for consolidation purposes and discussing related audit reports. Meetings are always attended by the chairman of the Executive Board, Chief Financial & Risk Officer, directors of Finance, Internal Audit, Risk & Compliance and the external auditor. Experts on specific topics are also invited to participate when necessary. During the meetings regarding the 2011 annual figures, a great deal of attention was given to goodwill impairment testing and the resulting impairment of the goodwill related to the Life & Pension business. During the year special attention was also given to the switch in the discount rate (yield curve), for measuring liabilities related to certain life insurance contracts in anticipation of the discount rate that will be used for Solvency II. The Committee challenged the Executive Board in its decision taking on this matter. The Executive Board put forward viable arguments, so after carefully considering the pros and cons, the Committee approved the switch in the discount rate. The Committee also discussed the ongoing financial turmoil in Europe, the possible euro break-up scenarios and the situation in Greece where Achmea has an operating company. Over the year, the Committee was kept fully briefed on possible impairments on Achmea s exposure, in line with European proposals to write off some of Greece s debt. The committee further followed developments in the income protection market, where an additional provision on our long-term disability insurance (WGA) was made in expectation of a higher inflow and a longer duration of insured persons in the WGA, partly as a result of the continuing troubled labour market conditions, where both claim frequency and claim duration increased above our own and market expectations. 84

85 Corporate Governance Supervisory Board Report AUDIT AND RISK COMMITTEE topics REGULAR TOPICS OTHER TOPICS STRATEGY / BUSINESS PLANNING Strategy, business planning and budgeting Closed book life business (Potential) acquisitions/divestments FINANCIAL / REPORTING Financial and commercial performance Financial reporting, including (semi) annual results, annual reports, financial statements, dividend proposals, press releases Funding and liquidity plan Income protection (WGA) developments Internal sale Agis Zorgverzekeringen N.V. to Achmea Zorgverzekeringen N.V. Renewal of revolving credit facility Financial peer analysis Goodwill impairment Pension & Life business Tax position and tax planning Discussion on yield curve Achmea valuation Normative result target (normrendement) Investment Plan Impact IAS 19R RISK MANAGEMENT Risk management, including risk appetite and risk policies Euro break-up scenario Solvency II Value of New Business Risk Dashboard Internal Control Statement AUDIT & COMPLIANCE Reports of internal auditor, including audit memorandum AFM report on Putting customers interests first Reports of external auditor, including management letter Audit on Income Protection (WGA) developments Risk Analysis DNB and supervisory reviews Charter Internal Audit Pension fund governance Reports on Audit Committees foreign subsidiaries Compliance, a.o. Insurers Code and Banking Code 85

86 Corporate Governance Supervisory Board Report The Committee discussed the necessary measures extensively with the Executive Board and was kept fully informed of the developments that occurred during the year. The Committee, in consultation with the Executive Board, also decided to start an independent investigation of the developments in the income protection market over the past few years and the reasons for Achmea s current financial position in that market. The Committee had multiple discussions with the Executive Board on the various options that were investigated as possibilities for the closed life books in our Life business. The Committee and PwC discussed the Management Letter, which clearly describes the quality and effectiveness of the governance, risk management and processes at Achmea, specifically to the extent required by PwC for its judgement on the financial statements of Achmea. Topics addressed and discussed were the good quality of the Audit Memorandum of Internal Audit, which clearly describes existing audit issues and points of attention, turbulent market circumstances, and customers interest first. Achmea s improvements in risk management and the three lines of defense, the existing IT controls, and the fact that the envisaged IT transformation is necessary to be fully in control were also discussed. PwC made some suggestions regarding the financial reporting process. The Committee challenged both PwC and the Executive Board on the findings set out in the Management Letter and concluded to its satisfaction that all topics addressed therein are in scope with the Executive Board and that the suggestions made are being taken seriously by the Executive Board. Risk management and the company s risk appetite are key topics for the Supervisory Board, especially in light of the current financial environment. The Committee advised the Supervisory Board on discussions relating to risk appetite and Achmea s policy on socially responsible returns. These were again established with some minor changes compared to The Internal Control Statement was discussed with the Executive Board. Following a thorough assessment of risks and how Achmea manages them, the Executive Board identified key risk topics for specific planning and monitoring. The Committee discussed these measures thoroughly with the Executive Board and Risk & Compliance, and shares the analysis of the Executive Board on these respective matters. Additionally, the Committee was involved in preparatory work for 2013 and beyond. The committee also discussed a number of issues extensively with the Executive Board, including the Management Letter from PwC, the annual audit plan 2013, the capital, liquidity and funding plan, the investment plan and related steering/monitoring. Other financial topics that were discussed during meetings held in 2012 included the internal sale of Agis Zorgverzekeringen N.V. to Achmea Zorgverzekeringen N.V., the dividend policy, regular discussions of Achmea s tax position and semi-annual discussions of Achmea s competitive position versus the financial performance of peers. Report of the Remuneration Committee Performance evaluation During the year, the Remuneration Committee evaluated Executive Board performance against pre-set targets, which at Achmea must also represent a four-stakeholder customers, employees, shareholders and distribution partners approach. The pre-set targets include profit; customer interest and customer satisfaction; cooperation with distribution partners, such as Rabobank and brokers; measures relating to compliance and risk management; employee satisfaction; and measures relating to corporate social responsibility. The Committee subsequently makes proposals for long-term variable income components. The COR receives a report on the remuneration of the Group, the Executive Board and the Supervisory Board annually. The Remuneration Committee thoroughly evaluated the realisation by the Executive Board of Achmea s 2011 business targets. Given the negative results in 2011, no variable remuneration was paid to the Executive Board. More information can be found in the Remuneration Report. Responsible remuneration As mentioned earlier in the chapter, responsible remuneration is an important topic for Achmea 86

87 Corporate Governance Supervisory Board Report (see the Remuneration section for more information). Following the introduction in 2011 of a Responsible Remuneration Policy, which encapsulates the Insurers Code principles, we agreed with regulators on the establishment of a variable remuneration scheme that meets the tightened regulatory requirements. Adherence to and compliance with this new policy became a regular topic for the Remuneration Committee throughout the year. In 2012, Achmea agreed with the Executive Board on adjusting the remuneration package of the Executive Board downward with direct effect. Achmea also adjusted the remuneration package of top management, directors and senior managers downward as per 1 January The Remuneration Committee discussed the changes extensively before they were approved by the Supervisory Board. The adjustment includes a reduction in the variable income, of which a limited portion is offset in fixed income, and a downward adjustment of the pension scheme and the car-leasing scheme. Although Achmea s remuneration system already met current regulatory requirements, the decision to alter the remuneration package was taken in light of the challenging market conditions in the financial sector and the social environment. In light of the explanation under the Insurers Code on the severance pay for members of the Executive Board, as set out in the Corporate Governance chapter, the Remuneration Committee agreed with the respective Executive Board members to freeze their entitlements as per The Remuneration Committee is pleased that the Executive Board members accepted these adjustments in their remuneration package. Remuneration report 2012 In the table below the average remuneration of members of the Executive Board is presented. The average remuneration is calculated based on regular remunerations, excluding other short-term and non-current employee benefits. In 2012, average remuneration for members of the Executive Board decreased to 1 million (2011: 1.42 million). The granting of awards of variable remuneration, part of short- and long-term employee benefits, are subject to a recommendation of the Remuneration Committee in the year after the performance. Awards of variable remuneration in any specific year therefore apply to performance in the previous year. No short-term employee benefits were awarded related to the performance in 2012 and The short-term employee benefits relate to the performance in Part of the variable remuneration is subject to claw back and is payable more than 12 month after the bonus is granted. These bonuses are included as part of the long-term employee benefits. The long-term employee benefits relate to 2010 and a portion of these benefits, 1.2 million, is reserved and will be paid out in later years with a claw-back clause and 3% interest. For more information on remuneration, see the Remuneration Report, which can be found on the website from April AVERAGE REGULAR REMUNERATION OF AN ACTIVE EXECUTIVE BOARD MEMBER (EXCLUDING other short-term and non-current employee benefits) (million) Fixed remuneration * Short-term employee benefits paid in 2011 related to 2010 rewards 0.24 Long-term employee benefits (provided for with claw-back) related to 2010 rewards 0.24 Post-employment benefits Total * Adjusted for comparison reasons. 87

88 Corporate Governance Supervisory Board Report REMUNERATION COMMITTEE topics REGULAR TOPICS Achmea remuneration policy Reviewing performance targets 2011 and variable remuneration 2011 Setting performance targets 2012 OTHER TOPICS Recalibrations / adjustments in Executive Board remuneration Recalibrations / adjustments in top management remuneration DNB research on remuneration policies AFM requirements on remuneration policies Report of the Selection & Appointment Committee The Selection & Appointment Committee s task is to monitor the composition and profile of both the Supervisory Board and Executive Board. It searches for and makes recommendations on potential candidates, in some cases in consultation with shareholders or the COR. Mutations and vacancies The selection and appointment of a new Supervisory Board chairman to succeed Mr. Arnold Walravens on his retirement in 2012 was a priority. Following advice from the Committee, the then chairman of the Audit & Risk Committee and Supervisory Board member, Mr. Erik van de Merwe, was appointed as of 5 April Mr. van de Merwe was succeeded as chairman of Achmea s Audit & Risk Committee by Mr. Aad Veenman. Mr. Erik van de Merwe was also a member of the board of Vereniging Achmea and he stepped down from that position. Mr. Erik van de Merwe was appointed through the legal framework of the specific rights attributed to the A share. Following the retirement of the chairman of the Supervisory Board, Mr. Arnold Walravens, and Supervisory Board member Mr. Flip Buurmeijer in accordance with the retirement rota, two vacancies were created within the Supervisory Board. As Mr. Arnold Walravens was a joint nomination from Vereniging Achmea and the COR, the COR nominated Mrs. Lineke Sneller as a new Supervisory Board member based upon both the general profile for members of the Supervisory Board and the specific profile for this vacancy requiring amongst others ICT-knowledge and experience, as well as a greater diversity in gender and age. The Selection & Appointment Committee and the Supervisory Board were positive about this nomination. The appointment of Mrs. Lineke Sneller was made during the General Meeting of Shareholders in June 2012, subject to approval by the DNB. This approval was obtained in December 2012, with Mrs. Lineke Sneller taking up her position on the Supervisory Board on 1 January The vacancy resulting from Mr. Flip Buurmeijers retirement will be filled as soon as possible in 2013, based on a nomination by Vereniging Achmea and both the general and a specific profile requiring experience in the insurance industry, commerce, and marketing and/or retail experience. Succession planning The Selection & Appointment Committee regularly discussed succession planning for the Executive Board and the first management echelon below the Executive Board. This is done to ensure that the Supervisory Board has an overview of management capacities within the Group. In filling the vacancies following the resignation of Mr. Gerard van Olphen and Mr. Thomas van Rijckevorsel, the profile of new members is determined. In filling these vacancies, the aim is to preserve the balance of skills on the Executive Board while ensuring that new appointees have the requisite insurance and finance & risk experience. While increasing gender diversity is an objective of the selection process, and ensuring quality clearly remains a key driver, more emphasis will be placed on the preservation and strengthening of the right mix of skills. 88

89 Corporate Governance Supervisory Board Report SELECTION AND APPOINTMENT COMMITTEE topics REGULAR TOPICS Composition of the Executive Board Evaluation of the Executive Board Composition of the Supervisory Board Evaluation of the Supervisory Board OTHER TOPICS Search and selection of new Executive Board member Search and selection of new Supervisory Board members Selection of new chairman of the Supervisory Board Composition of Supervisory Board committees Composition of Supervisory Boards regulated entities Succession planning top management Achmea Financial Statements 2012 and dividend Closing remarks Our 2012 financial statements were audited by PwC. They have issued an unqualified opinion. In accordance with the proposal of the Executive Board and the recommendation of the Audit & Risk Committee, the Supervisory Board endorses the adoption by shareholders of the 2012 Financial Statements. Based on the current dividend policy, the Executive Board proposes to the Annual General Meeting that upon adoption of the Financial Statements, a final dividend of 0.42 (2011: no dividend on ordinary shares was paid) per ordinary shares will be paid. With respect to the preference shares, the Executive Board proposes to the Annual General Meeting that the full dividend equal to 7.15% of the paid-in capital on the preference shares will be paid. As well as adopting the Financial Statements, the General Meeting of Shareholders is requested to discharge the members of the Executive Board from all liability in respect of their management and to discharge the members of the Supervisory Board from all liability in respect of their supervision for the year under review, We would like to take this opportunity to thank the Executive Board, the COR, with whom the highly valued mutual relationship was reinforced even further in 2012, and all Achmea employees across Europe for all their hard work and commitment during the reporting year. We especially thank Mr. Arnold Walravens, Mr. Flip Buurmeijer, Mr. Gerard van Olphen and Mr. Thomas van Rijckevorsel for the contributions they have made to our Group. 5 March 2013 The Supervisory Board E.A.J. (Erik) van de Merwe, Chairman M. (Marinus) Minderhoud, Vice-Chairman S.T. (Joke) van Lonkhuijzen - Hoekstra M. (Mijntje) Lückerath - Rovers P.F.M. (Paul) Overmars H.J. (Henk) Slijkhuis A.C.W. (Lineke) Sneller A.W. (Aad) Veenman A.J.A.M. (Antoon) Vermeer B.J. (Bé) van der Weg 89

90 Corporate Governance Achmea B.V. is a private company with limited liability. Its statutory seat and head office are in Zeist, the Netherlands. Although in real terms Achmea is governed, organised and managed in the same way as many listed organisations, its cooperative origins contribute to the way governance is structured at Supervisory Board and shareholder level. Achmea adheres to a number of relevant governance codes: the Dutch Insurers Code, the Dutch Banking Code and the Dutch Corporate Governance Code. Main developments in 2012 Corporate Governance Codes Effective January 2012, we changed our organisational structure. The new structure aims to ensure that we translate market demands more quickly and effectively into accessible, understandable and affordable products, whereby customers interests are put first. The organisation change aims to contribute to our ambition to become the most trusted insurer. The Profile chapter explains that by reinforcing and sharpening the commercial focus of our operating units, we will do everything we can to give our customers the right products, at the right price, delivered through the right channels. We now have product divisions with strong product capabilities that can more easily translate customer demands into accessible, understandable and affordable products. Distribution divisions are committed to a specific channel or customer group and empower the various brands. We think and work from one unified Achmea, between product and distribution divisions on the one hand, and brands on the other. This is how we create unity in diversity. In 2010 and 2011, the Dutch Central Bank carried out governance reviews of all Dutch financial institutions, including Achmea. The Dutch Central Bank made a number of recommendations, including on the governance of Dutch legal insurance entities. As a final step in the implementation of these recommendations, and following the new organisational structure, on 1 July 2012 Supervisory Boards were installed at Achmea Schadeverzekeringen N.V. and Achmea Pensioen- & Levensverzekeringen N.V. A Supervisory Board had already been installed at Achmea Zorgverzekeringen N.V. from 25 May 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 We have 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. The Supervisory Board monitors the whole Group in order to safeguard that management and policy are synchronised across the organisation. With the current governance of the insurance entities and current policies that apply across the Achmea Group, the Executive Board feels that the principles of the Insurers Code are also implemented sufficiently at insurance entity level. N.V. Interpolis Kredietverzekeringen and De Friesland Zorgverzekeraar N.V., together with the other insurance entities that are part of the De Friesland Group (DFZ), form exceptions to the consolidated reporting of the Insurers Code. N.V. Interpolis Kredietverzekeringen is a joint enterprise with Euler Hermes Kredietverzekering N.V. The DFZ insurance entities have only been part of the Achmea Group since 31 December 2011 and have a contractually agreed independent position in relation to the Group until 31 December In light of their independent position towards the Achmea Group, these entities are responsible for their own application, adherence to and reporting on the application of the Code and are not covered in this publication. The report of DFZ is published on the website 90

91 corporate governance Corporate Governance Furthermore, our banking activities (Achmea Bank and Staalbankiers) report separately on their adherence to the Dutch Banking Code. These reports are published on their respective websites and and also on We are largely in compliance with the Insurers Code. Although the Executive Board and Supervisory Board are pleased to note that two exceptions from 2011 the translation of the Executive Board s moral and ethical conduct declaration into principles that form guidelines for personnel (principle ) and measuring performance corrected for risk (principle 6.4.4) have been solved, in 2012 we had not yet fully applied the following three principles from the Code. 1. Putting customers interests first (Klantbelang Centraal) (principle 3.2.2) 2. Assuring the product approval process (principle 4.5) 3. Executive Board severance pay (principle 6.3.2) On putting customers interests first, we have already taken numerous measures to comply with the Insurers Code. Putting customers interests first was introduced into our identity in Our identity is the starting point to further embed customers first into the culture, products and services of the company. We have incorporated the principle of putting customers interests first into our personnel and organisation policy by outlining the desired behaviour in job descriptions, recruitment material and during in-house training. In 2012, we also continued to implement our Normative Framework for Propositions, which contains the quality requirements for both current and future products and services, and the requirements our brands need to fulfil to live up to our ambition to be the most trusted insurer. In 2012, several Achmea labels continued their participation in the customer oriented insurance quality mark (Keurmerk Klantgericht Verzekeren). Although important steps have been taken to ensure full compliance with the principle of putting customers interests first, the Executive Board finds that more is required to be able to become the most trusted insurer. The product approval process was defined in the 1 January 2012 update of the Dutch Insurance Product Approval Policy. In January 2012, we began implementing this updated policy, which includes the Normative Framework for Propositions. Although an audit carried out in mid-2012 showed that progress within the Normative Framework for Propositions has been made, it also indicated that in some areas better assurance is possible. The deviation on severance pay of three Executive Board members, including the two members that stepped down in 2012 and 2013, is related to commitments made before the Insurers Code became effective and will disappear with future appointments. Currently, the deviation on severance applies to one Executive Board member, and this member agreed an transitional agreement with the Supervisory Board to freeze his entitlements as of yearend The agreements with the two Executive Board members that were appointed to the Executive Board after 1 June 2008 are in line with the Insurers Code. This is explained in the Remuneration Report 2012, which can be found on our website from April The Dutch Insurers Code and an itemised review of our compliance can be found on our website, Banking Code As part of our service to customers, we also operate banking activities through Achmea Bank and Staalbankiers. Both banks are largely compliant with the Banking Code. In 2012, Achmea Bank and Staalbankiers had not yet fully applied the principle from the Banking Code on putting customers interests first (Klantbelang Centraal) (principle ). In line with the Group s insurance activities, both Achmea Bank and Staalbankiers took important steps in putting customers interests first in Although important steps to ensure full compliance with the principle of putting customers interests first have been taken at Achmea Bank and Staalbankiers, their boards believe that more is required to be able to state that customers interests are always put first. The Dutch Banking Code and a review of the compliance of Achmea Bank and Staalbankiers can be found at and 91

92 corporate governance Corporate Governance Corporate Governance Code From 2004, the Dutch Corporate Governance Code became applicable for all listed companies in the Netherlands. The Code sets out clear governance principles on a comply or explain basis. Although we are not a listed company, we have voluntarily adopted and embedded the majority of the Code s principles in our governance structure. Where applicable, we are largely in compliance with the principles and best practices. In 2012, we were not yet fully in compliance with three principles of the Corporate Governance Code: 1. The duration of the appointment of members of the Executive Board (principle II.1.1.) 2. Executive Board severance pay (principle II.2.8) 3. Independence of members of the Supervisory Board (principle III.2.2.) On the duration of the appointment of members of the Executive Board the Code advises four-year periods. Given that Achmea Executive Board members are recruited primarily from within the organisation and given the Group s long-term horizon, a formal four-year appointment is not considered appropriate. Furthermore, we take the view that the appointment of an Executive Board member for a period of four years could stimulate short-term behaviour whereas a long-term view prevails within the company. For deviation of Executive Board severance pay, please see the Insurers Code section earlier in this chapter. Although all members of Achmea s Supervisory Board are independent in mind and appearance, in state four members of Achmea s Supervisory Board do not comply with sub f of principle II.2.13 as being board members or Supervisory Board members of a holder of more than 10% of the shares in Achmea. Members of Achmea s Supervisory Board are nominated by our shareholders (i) Vereniging Achmea; (ii) Rabobank; (iii) Länsförsäkringar Liv Försäkringsaktiebolag, Länsförsäkringar Sak Försäkringsaktiebolag, Gothaer Allgemeine Versicherung, Gothaer Finanz Holding and Schweizerische Mobiliar Holding jointly; and by the Central Works Council (in Dutch: COR). Mr. Paul Overmars and Mr. Bé van der Weg are also members of the Board of Directors of Vereniging Achmea, which is composed of customers representatives. Mr. Erik van de Merwe, Mr. Marinus Minderhoud and Mr. Antoon Vermeer are also Supervisory Board members of Rabobank. This is considered highly appropriate for Achmea due to its cooperative identity and the relationship with shareholders whose focus is more on client interest and the continuity of Achmea. In addition, no single group of Supervisory Board members nominated by the same shareholder or COR has the majority in the Supervisory Board. Although Supervisory Board members are nominated by individual shareholders and/ or the COR, they are appointed by the General Meeting of Shareholders based on their expertise and independence and participate in meetings with no reference to or consultation with the parties that nominated them. The way in which we have adopted and embedded the Corporate Governance Code has been discussed with and approved by the Supervisory Board. The General Meeting of Shareholders concurs with our current corporate governance structure. Executive Board Accountabilities and governance role The Executive Board is responsible for managing Achmea B.V. s business. It is responsible and has decision-making power for managing the day-to-day business of Achmea in accordance with the principles set out in the Articles of Association. The Executive Board has a comprehensive charter that covers the duties, activities and allocation of tasks to individual members, as well as the decision-making process within the Executive Board. The Executive Board is obliged to notify the Supervisory Board in case of any fundamental differences of opinion between the Executive Board and boards of Achmea companies or entities. In 2012, there were no fundamental differences. The Executive Board reports directly to the Supervisory Board. Each member has direct responsibility for specific Achmea activities (see Executive Board biographies ), with clear reporting lines from divisional and staff directors. The full Executive 92

93 corporate governance Corporate Governance Board is involved in risk management risk is Achmea s business. This involvement is shown by the commitment from two Executive Board members in the Finance & Risk Committee and regular extensive discussions on risk in the Executive Board meetings. The Executive Board, its members acting independently therein, ensures a balanced consideration of all interests of the involved parties, such as customers, shareholders and employees. It takes into account the continuity of Achmea, the social environment in which we operate and the applicable regulations and codes. Achmea has long since adopted the four-stakeholder model, whereby overall management and decisions are in line with the interests of customers, employees, shareholders and distribution partners. This is all anchored in the strategy map and the identity of the Group as set out in the Profile chapter and successively in the leadership program, the Business Plans and the remuneration policy and it is also part of the considerations in every decision taken by the Executive Board. The target setting for the Executive Board and senior management is based on the Stakeholder Value Management model. From 2012 on, annual targets are arranged along the six perspectives: customer, employee, partner, society, financial, and process. All members of the Executive Board were present at most board meetings. Composition and diversity Members of the Executive Board are appointed by the Supervisory Board at the non-binding nomination of the A-shareholder. Executive Board members are selected based on their proven experience and competence in the financial services industry. The members of the Executive Board provide a good mix of specific insurance experience (health, non-life, life & pensions) and experience with the public/private market (care, pensions) and the various distribution channels (direct, broker, bancassurance) and disciplines, such as Finance, IT and HR. All current Achmea Executive Board members match the general profile for members of the Executive Board and have been assessed positively by the Dutch supervisory authorities. The Executive Board currently has three members. Due to the resignation of Mr. Gerard van Olphen as of 1 February 2013 to become CEO of SNS Reaal, and the resignation in 2012 of Mr. Thomas van Rijckevorsel, there are currently two vacancies in the Executive Board. Currently, the Executive Board consists of only men, which is not yet in line with the legal requirement for gender diversity in the Executive Board. Achmea, however, is well aware of this legal requirement but, also because of the strict requirements by the Dutch Regulator on suitability of board members, has not yet been able to comply with this requirement. In filling the current vacancies in the Executive Board, besides the aim to preserve the balance of skills on the Executive Board while ensuring that new COMPOSITION of the EXECUTIVE BOARD per 31 december 2012 NAME NATIONALITY GENDER EDUCATION FUNCTION APPOINTED W.A.J. van Duin Dutch Male Law Since February 2009 April 2004 (1960) Chairman of the Board G. van Olphen * (1962) J.A.S. van Breda Vriesman (1967) D. van der Eijk (1958) Dutch Male Economics Since October 2008 Vice-Chairman of the Board and Chief Financial & Risk Officer September 2002 Dutch Male Law Board member October 2008 Dutch Male Insurance Board member October 2008 * Stepped down 1 February

94 corporate governance Corporate Governance appointees have the requisite insurance and finance & risk experience also increasing gender diversity is an objective of the selection process. In succession planning for the Executive Board and the first echelon below the Executive Board for both the current vacancies and future vacancies attention is paid to promoting women at the top. However, while Achmea acknowledges that increasing gender diversity and ensuring quality are important, the preservation and strengthening of the right mix of skills remain key drivers in this selection process. Permanent education At the beginning of each year, the themes for the continuing education program for the Executive Board are established in consultation with the chairman of the Executive Board and the chairman of the Supervisory Board. This program is aimed at maintaining and broadening the expertise of the members of the Executive Board. In addition to these dedicated sessions, often held together with the Supervisory Board, during regular meetings attention is also paid to relevant developments through presentations from internal and/or external specialists. Supervisory Board Accountabilities and governance role The Supervisory Board plays an important role in Achmea s governance. The Supervisory Board is responsible for supervising, advising and approving the Executive Board s conduct and general management of the business. Supervisory Board approval is required primarily for important business-related decisions, such as appointment and dismissal of members of the Executive Board, strategic decisions, transfer of a significant part of the business, entering into or terminating a long-term cooperation, large participations and investments, and termination of the employment of a considerable number of employees or significant changes in the employment conditions of a significant number of employees. This applies irrespective of the fact that fundamental and large-scale strategic changes or investments must have the approval of 80% of the votes in the General Meeting of Shareholders. The Supervisory Board and its individual members have a responsibility to obtain all relevant information needed to perform their duties. These needs are made known to the chairman of the Supervisory Board. Information sources are usually the Executive Board, the Company Secretary and the external auditor. However, if deemed appropriate by the Supervisory Board, information can be obtained from corporate officers and external advisors who can be invited to attend Supervisory Board meetings. The Supervisory Board consists of members who, although they are nominated by shareholders or the COR, in the performance of their duties act in the interests of the company as a whole. All members of the Supervisory Board participate in meetings with no reference to or consultation with the parties that nominated them. All members of the Supervisory Board were present at most Supervisory Board meetings, and the respective committees of which they are a member. Composition and diversity The composition of the Supervisory Board and nominations for vacancies reflect the cooperative shareholder structure and employee participation through Achmea s COR. Vereniging Achmea has nominated candidates for five seats in the Supervisory Board, of which one member has been appointed on the basis of a nomination by DFZ and one member has been appointed in joint consultation between Vereniging Achmea and the COR. With the merger between the shareholder of DFZ, Vereniging De Friesland Zorgverzekeraar, and Vereniging Achmea and the successive transfer of the activities of DFZ to Achmea, the nomination right of DFZ has ceased to exist. Vereniging Achmea as the indirect holder of the A-share is also entitled to appoint the chairman of the Supervisory Board. Rabobank may nominate candidates for three seats and Länsförsäkringar Liv Försäkringsaktiebolag, Länsförsäkringar Sak Försäkringsaktiebolag, Gothaer Allgemeine Versicherung, Gothaer Finanz Holding and Swiss Mobiliar jointly are entitled to nominate one candidate. At present, two members of the Supervisory Board are a direct nomination by the COR, further to the appointment in joint consultation between Vereniging Achmea and the COR. This is within the legal framework of the COR s 94

95 corporate governance Corporate Governance COMPOSITION of the SUPERVISORY BOARD per 31 december 2012 NAME NATIONALITY GENDER FUNCTION E.A.J. van de Merwe Dutch Male Chairman (1950) 1 of the Board M. Minderhoud Dutch Male Vice-chairman (1946) 2 of the Board TERM (MAX 3 TERMS) (RE)APPOINTED / EXPIRATION OF CURRENT TERM Second 2010 / 2014 Third 2012 / 2016 S.T. van Lonkhuijzen Dutch Female Board member First 2011 / 2015 (1960) 1 M. Lückerath Dutch Female Board member First 2011 / 2015 (1968) 3 P.F.M. Overmars Dutch Male Board member Second 2009 / 2013 (1945) 1 H.J. Slijkhuis * Dutch Male Board member Third 2012 / 2016 (1946) 1 A.C.W. Sneller ** Dutch Female Board member First 2013 / 2017 (1965) 3 A.W. Veenman Dutch Male Board member First 2009 / 2013 (1947) 2 A.J.A.M. Vermeer Dutch Male Board member Second 2010 / 2014 (1949) 2 B.J. van der Weg Dutch Male Board member Third 2010 / 2014 (1943) 1 3 * Steps down 28 March ** Appointed 1 January Nominated by VA. 2 Nominated by Rabobank. 3 Nominated by COR. enforced recommendation right; eventually, the COR will be entitled to nominate three members directly, based on a total number of 11 Supervisory Board members. This, however, will be implemented gradually. In their turn, Supervisory Board members individually participate in a meeting of the COR at least once a year. Any proposed changes to the composition of the Supervisory Board are submitted to the General Meeting of Shareholders for appointment and discussed with the COR. In filling these vacancies, the aim is to preserve the balance of skills on the Executive Board while ensuring that new appointees have the requisite insurance and finance & risk experience. The Supervisory Board currently has ten members. The vacancy resulting from Mr. Flip Buurmeijers retirement will be filled as soon as possible in 2013, on the basis of a nomination by Vereniging Achmea and both the general profile and a specific profile requiring expertise in the insurance industry, commerce, and marketing and/or retail experience. Supervisory Board members are selected and appointed based on a profile consisting of the required professional background, education, (international) experience, skills, diversity and independence. The current composition of the Supervisory Board is such that the mix of experience and expertise enables the members of the Supervisory Board to fulfil their obligations in an appropriate manner. As of 1 January 2013, the Supervisory Board consisted of seven men and three women, of which one male member will resign as per 28 March In addition to diversity in knowledge, expertise and age, diversity in gender has also been realised. 95

96 corporate governance Corporate Governance Areas of professional expertise NAME EDUCATION MANAGEMENT GOVERNANCE INSURANCE BANKING FINANCE / RISK / AUDIT HR / REMUNERATION LAW / COMPLIANCE COMMERCE / CUSTOMERS INTERESTS IT E.A.J. van de Merwe Economics M. Minderhoud Chemistry S.T. van Lonkhuijzen Business administration M. Lückerath Economics P.F.M. Overmars Law H.J. Slijkhuis * Agriculture A.C.W. Sneller ** Econometrics A.W. Veenman Technical sciences A.J.A.M. Vermeer Agriculture B.J. van der Weg Human resources * Steps down 28 March ** Appointed 1 January Achmea therewith complies with the legal requirement for gender diversity in the Supervisory Board. Furthermore, with the exception of one member, all Supervisory Board members comply with the new bill on management and supervision that puts limitations on the number of supervisory positions that a managing director or a supervisory director of an N.V., a B.V. or a foundation (stichting) that qualifies as a large company may hold. The one member currently exceeding the new limitations will resign from some of his positions in 2013 in order to comply with the new requirements. Permanent education At the beginning of each year, the themes for the permanent education program for the Supervisory Board are established in consultation with the chairman of the Supervisory Board. This program is aimed at maintaining and broadening the expertise of the members of the Supervisory Board. In addition to these dedicated sessions, often held together with the Executive Board, in regular meetings attention is also paid to relevant developments through presentations from internal and/or external specialists. Furthermore, new members of the Supervisory Board participate in a tailor-made introductory programme. Supervisory Board committees The Supervisory Board has three dedicated committees that advise the full Supervisory Board: the Audit & 96

97 corporate governance Corporate Governance Risk Committee, the Remuneration Committee, and the Selection & Appointment Committee. All Supervisory Board members receive the minutes of the individual committee meetings and, at their request, also the agenda and any accompanying documents. Financial, audit, risk and compliance issues are discussed in the Audit & Risk Committee. Audit & Risk Committee meetings are always attended by the CFRO, the chairman of the Executive Board, the directors of Internal Audit, Finance and Risk & Compliance and the external auditor. Meetings between the Audit & Risk Committee and the external auditor, without the presence of members of the Executive Board, take place at least once a year. For further information, see also the Supervisory Board Report section. The Remuneration Committee s primary task is to advise the Supervisory Board on remuneration policy for the entire Achmea Group (including foreign operating companies). In addition, the Remuneration Committee is responsible for setting guidelines and monitoring the execution of and adherence to the Achmea remuneration policy for the entire Achmea Group. This includes advising the Supervisory Board on performance management (for example, ensuring a balance between short- and long-term interests and focus on customer interest) of the members of the Executive Board. A regular review of remuneration is carried out to ensure that reward levels are appropriate to the duties and responsibilities of the role. This includes adequate preparation of necessary policy revisions or adjustments to comply with new regulations or legislation. The chairman of the Executive Board attends all Remuneration Committee meetings but excuses himself during agenda items where his own remuneration is discussed or in other cases when requested by the Committee Chairman. The Selection & Appointment Committee s task is to monitor the composition and profile of both the Supervisory and Executive Boards. It searches for and makes recommendations on potential candidates, in some cases in consultation with the COR. The chairman of the Executive Board attends all Selection & Appointment Committee meetings but excuses himself during agenda items where his own functioning is discussed or in other cases when requested by the Committee Chairman. Shares, shareholders and shareholders meetings Shareholders Our largest shareholders, Vereniging Achmea and Rabobank, are cooperative organisations. Others are primarily unlisted European organisations with cooperative roots. Dutch customers are represented through Achmea s largest shareholder, Vereniging Achmea, directly and through the Stichting Administratiekantoor Achmea (STAK Achmea). STAK Achmea is a shareholder that has, in its turn, issued depository receipts to Vereniging Achmea. STAK Achmea is managed by a Board consisting of the chairman and the two vice-chairmen of Vereniging Achmea. Important STAK Achmea decisions require prior approval from the Board of Vereniging Achmea and in some cases also the Members Council of Vereniging Achmea. At year-end 2012, Vereniging Achmea held a total of 65.3% of the capital rights in Achmea and 61.6% of the voting rights in the General Meeting of Shareholders. Rabobank, the largest bank on the Dutch market, is Achmea s second largest shareholder; it is also a cooperative association. At year-end 2012, Rabobank held a total of 29.2% of the capital rights in Achmea and 27.6% of the voting rights in the General Meeting of Shareholders. Other shareholders, jointly representing 5.5% of the capital rights and 5.2% of the voting rights in the General Meeting of Shareholders, are BCP Pension Fund, Länsförsäkringar Liv Försäkringsaktiebolag, Länsförsäkringar Sak Försäkringsaktiebolag, Gothaer Allgemeine Versicherung, Gothaer Finanz Holding and Schweizerische Mobiliar Holding. With the exception of BCP Pension Fund, all are members of the Eurapco Alliance of independent European financial services providers (for more information, see Besides ordinary shares, 5.6% of Achmea s entire issued share capital is in preference shares held by Achmea Tussenholding B.V. (managed by the Executive Board 97

98 corporate governance Corporate Governance of Achmea). All shares in Achmea Tussenholding B.V. are held by Stichting Administratiekantoor Achmea Tussenholding that, in turn, has issued share certificates to investors. The investors are therefore the recipients of dividends paid on the preference shares; they do not have voting rights in the General Meeting of Shareholders of Achmea. These lie with Achmea Tussenholding B.V. Shareholders per 31 December 2012 * voting rights capital rights Vereniging Achmea (directly and via STAK) 61.6% 65.3% Rabobank 27.6% 29.2% BCP Group 2.6% 2.8% Länsförsäkringar Liv Försäkringsaktiebolag 0.4% 0.5% Länsförsäkringar Sak Försäkringsaktiebolag 0.4% 0.5% Gothaer Allgemeine Versicherung A.G. 0.5% 0.5% Gothaer Finanz Holding A.G. 0.6% 0.6% Schweizerische Mobiliar Holding A.G 0.7% 0.7% Achmea Tussenholding B.V. ** 5.6% Total 100% 100% * As a result of rounding, numbers might not add up to 100%. ** Preference shares. Shareholders meetings In addition to the annual General Meeting of Shareholders, extraordinary meetings can be called based on legislation, Articles of Association and corporate documentation if deemed necessary and can also be convened by a shareholder with more than 10% of the voting rights. Due to the legal structure regime that applies to Achmea, the power of the General Meeting of Shareholders is constrained; based on legislation and corporate agreements certain responsibilities are allocated to the Supervisory Board. Nevertheless, shareholder approval is required for primarily corporate decisions, such as amendment of the Articles of Association; adoption of the Financial Statements, including profit allocation and dividend; decisions on share issues or on the granting of rights to subscribe for shares (or to designate the Executive Board to resolve such issues or grants); reduction of the share capital of Achmea; appointment and dismissal of members of the Supervisory Board and decisions to dissolve, merge or divide Achmea. Fundamental and large-scale strategic changes or investments require the approval of 80% of the votes in the General Meeting of Shareholders. Besides the annual General Meeting of Shareholders held on April 2012 in which further to the regular decisions on the Annual Report and Financial Statements 2011, dividend policy, dividend distribution and the discharge of the members of the Executive Board and Supervisory Board, decisions were taken on the re/appointment of members of the Supervisory Board and the final settlement of the purchase price of DFZ in Achmea shares one extraordinary meeting was convened in 2012 on the proposed appointment of Mrs. Lineke Sneller. Voting rights Specific rights are attributed to the A-share, indirectly held by Vereniging Achmea, including the right to make non-binding nominations to the Supervisory Board for the appointment of members of the Executive Board, the appointment of the chairman of the Supervisory Board, the approval of a decision on dissolution, merger and division of Achmea, and the issuance and transfer of shares in Achmea. The holders of depository receipts issued on the A-share and the ordinary shares are entitled to attend the General Meeting of Shareholders but they do not have any voting rights. This provision, however, does not apply to holders of a right of usufruct and holders of a right of pledge with voting rights. Shareholders and holders of depository receipts can be represented by written proxy. Members of both the Executive Board and Supervisory Board are authorised to attend General Meeting of Shareholders. They have an advisory and informative role at these meetings. Dividend policy The distribution of profits is laid down in Achmea s Articles of Association. Dividends are due and payable four weeks after the General Meeting of Shareholders has declared them (unless any other date is determined). The Executive Board can propose that the General Meeting of Shareholders resolves that distributions shall be made in whole or in part in a form other than cash. 98

99 corporate governance Corporate Governance The General Meeting of Shareholders may resolve to distribute all or part of the net result. Interim distribution can be effected if the General Meeting of Shareholders so decides, following a proposal by the Executive Board. Achmea s dividend policy is described more fully and in more detail in the Capital and Liquidity Management chapter. 99

100 Executive Board Willem A.J. van Duin (1960) Chairman of the Executive Board Mr. van Duin joined Achmea in He held various positions at Holding level and in the Health, Broker and Direct distribution divisions before being appointed to the Executive Board in He was appointed Vice-Chairman of the Executive Board on 1 October 2008, and Chairman on 10 February In addition to his overall responsibility for Achmea, his core responsibilities include Internal Audit, Corporate Office, Communication & CSR and the Central Works Council. In addition to supervisory directorships of a number of Achmea entities, he is member of the board of the European Alliance Partners Eurapco. Furthermore, he is a member of the board of the Dutch Association of Insurers (Verbond van Verzekeraars), member of the boards of VNO-NCW and Nationale Cooperatieve Raad. Internationally, he is member of the IFHP Council (International Federation of Health Plans) and of the strategic board of Insurance Europe, the European insurance and reinsurance federation. Mr. van Duin is also a board member of a number of charitable foundations in the Netherlands. Jeroen A.S. van Breda Vriesman (1967) Mr. van Breda Vriesman studied law at the University of Utrecht and began his career at ING Group, where he held a number of management positions at Nationale Nederlanden. In 2004 he joined Achmea as Chairman of the Occupational Health division. From 2006 until the end of September 2008 he was Chairman of the Health division, when he was appointed member of the Executive Board of Achmea. His core responsibilities include the Health and the Life and Pensions product division, the banking distribution division and Group IT. Mr. van Breda Vriesman holds supervisory directorships of a number of Achmea entities. In 2011 he became a member of the Supervisory Board of the African Research & Resource Forum, Kenya, member of the Supervisory Council of the Eye Hospital in Rotterdam and a member of the Supervisory Board of Netspar, the Network on Studies on Pensions, Aging and Retirement. Danny van der Eijk (1958) After obtaining his professional insurance qualifications, Mr. van der Eijk completed an MBA at Henley (UK). He worked in a variety of positions at R&SA Benelux from , the last two years as CEO. Within Achmea he was a director of Avéro Achmea, managing director of Achmea Commercial lines and subsequently of the direct distribution division. He became a member of the Executive Board in October His core responsibilities include the Direct, Broker and Corporate Clients distribution divisions and the Non-life product division, Market Strategy, Reinsurance and Group HR. Mr. van der Eijk is a supervisory director of a number of Achmea entities. He is chairman of the statistics committee and vice-chairman of the non life sector board of the Dutch Association of Insurers. From 1 January 2011, he is also member of the advisory board for NIBE SVV, the knowledge institute for the Dutch financial, insurance and investment sectors. In 2011 he became a member of the board of the International Insurance Society. 100

101 Supervisory Board Erik A.J. van de Merwe (1950) Chairman of the Supervisory Board Mr. van de Merwe is Chairman of the Supervisory Board. In addition, he is Chairman of the Supervisory Board and Audit & Risk Committee of Achmea Bank Holding N.V. and Staalbankiers N.V. Away from Achmea, Mr. Van de Merwe holds a number of other supervisory board positions. He is a member of the Supervisory Board and Audit, Compliance & Risk Committee of Rabobank Nederland, the non-executive Chairman of GWK Travelex, and is Chairman of the Advisory Board and member of the Audit Committee of the Dutch Burns Foundation as well as Chairman of the Euro Tissue Bank (part of the Dutch Burns Foundation). Mr. Van de Merwe is also Chairman of the Curatorium Corporate Compliance & Integrity of the Vrije Universiteit, a member of the Advisory Board of the Institute of Internal Auditors and a jury member of the Henri Sijthoff Award. Marinus Minderhoud (1946) Vice-Chairman of the Supervisory Board Mr. Minderhoud is Vice-Chairman of the Supervisory Board. In addition, he is a member of the Supervisory Board and Chairman of the Audit & Risk Committee of De Friesland Zorgverzekeraar N.V. He is also a member of the Supervisory Board of Rabobank Nederland and Chairman of the Board of Vodafone International Holdings and Vodafone Europe. Joke S.T. van Lonkhuijzen Hoekstra (1960) Ms. Van Lonkhuijzen Hoekstra is a member of the Supervisory Board. In addition, she is a member of the Supervisory Board of Achmea Zorgverzekeringen N.V. Until the merger between Vereniging De Friesland, the shareholder of the De Friesland Zorgverzekeraar, and Vereniging Achmea and the successive transfer of the activities of the De Friesland Groep to Achmea, she was a member of the Supervisory Board and Audit & Risk Committee of De Friesland Zorgverzekeraar N.V. She has a broad background in the Dutch health sector, beginning her career as a nurse. Until 2012 she was chairman and CEO of several psychiatric institutions in Amsterdam (GGZ ingeest). She is a member of the Supervisory Council of Trimbos Institute, a member of the board of NVZD and also Chairman of the Curatorium postdoctoral education change management at the VU University Amsterdam. 101

102 corporate governance Supervisory Board Mijntje Lückerath Rovers (1968) Ms. Lückerath-Rovers is a member of the Supervisory Board. In addition, she is a member of the Supervisory Board of Achmea Pensioen- & Levensverzekeringen N.V. She holds the chair of Corporate Governance at Nyenrode Business Universiteit in the Netherlands. She is a member of the Supervisory Board of ASN Investmentfunds and the Greenfund of the ASN Bank. In 2011 she became a member of the Board of Betaalvereniging Nederland. She is (co-)editor of a number of academic journals, including Good Governance, the Journal of Supervision and the Corporate Governance Year Book. Paul F.M. Overmars (1945) Mr. Overmars is a member of the Supervisory Board. In addition, he is Chairman of the Achmea Foundation, Chairman of the Supervisory Board of Achmea Zorgverzekeringen N.V. and a member of the Board of SCEA (Stichting Continuïteit Eureko/Achmea). Prior to his retirement in 2004, Mr Overmars was CEO of Achmea and Vice-Chairman of the Executive Board of Eureko. As from 31 March 2010, he was appointed Chairman of Vereniging Achmea. Until 17 June 2010 he was a member of the Supervisory Board of Rabobank Nederland. Until mid-2005, he was Chairman of the Board of the Dutch Association of Insurers and a member of the Management Board of VNO-NCW. Henk J. Slijkhuis (1946) Mr. Slijkhuis is a member of the Supervisory Board. In addition, he is a member of the Supervisory Board of Achmea Zorgverzekeringen N.V. and of the Board of Directors of Vereniging Achmea. He is an independent farmer. Until July 2011 he was Chairman of the Supervisory Board of Countus Accountants- en Belastingadviseurs. Mr. Slijkhuis will step down from the Supervisory Board as of 28 March Lineke C.W. Sneller (1965) Ms. Sneller is member of the Supervisory Board. In addition, she is member of the Supervisory Board of Achmea Pensioen- en Levensverzekeringen N.V. Since 2011, she is CIO at Vodafone Nederland and professor in Accounting Information Systems at Nyenrode Business University. She started her career at Ortec Consultants in Ms. Sneller is a member of the Advisory Board of VRC (Vereniging van Registercontrollers), and a member of the Review Board Informatievoorziening Nationale Politie Dutch ministry of Justice. She is also a member of the Advisory Board CIOnet. 102

103 corporate governance Supervisory Board Aad W. Veenman (1947) Mr. Veenman is a member of the Supervisory Board. In addition, he is a member of the Supervisory Board of Achmea Schadeverzekeringen N.V. From 2002 until 2009 he was Chairman and CEO of Dutch national railways, NS. Before joining the NS, he had a long career with the Dutch industrial enterprise Stork, where he was a member of the Board of Management from 1990, and CEO from 1998 through Until 17 June 2010 he was a member of the Supervisory Board of Rabobank Nederland. Currently, Mr. Veenman is Chairman of the Supervisory Board of Tennet Holding and a member of the Supervisory Board of Draka Holding. Antoon J.A.M. Vermeer (1949) Mr. Vermeer is a member of the Supervisory Board. In addition, he is Chairman of the Supervisory Board of Achmea Schadeverzekeringen N.V. He is co-owner of a dairy farm, and is Vice-Chairman of the Supervisory Board of Rabobank Nederland. He is also a member of the curatorium of the ZLTO Chair Food, Farming and Agribusiness, Tilburg University and Chairman of the HAS Supervisory Board. Bé J. van der Weg (1943) Mr. van der Weg is a member of the Supervisory Board. In addition, he is Chairman of the Supervisory Board of Achmea Pensioen- en Levensverzekeringen N.V. and a member of the Board of Directors of Vereniging Achmea. He is also Chairman of the Board of Stichting Administratie Kantoor IMK. 103

104 Abbreviated Consolidated Financial Statements Consolidated statement of financial position 105 Consolidated income statement 106 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 107 Consolidated Statement of Changes in Total equity 108 CONSOLIDATED STATEMENT OF CASH FLOWS

105 Abbreviated consolidated Financial statements Consolidated statement of financial position (before appropriation of profit) ( million) 31 december december 2011 Assets Intangible assets 1,639 1,573 Associates Property for own use and equipment Investment property 1,172 1,243 Investments 42,001 41,113 Investments backing linked liabilities 24,972 23,314 Banking credit portfolio 16,436 16,932 Deferred tax assets Deferred acquisition costs Income tax receivable Amounts ceded to reinsurers Receivables and accruals 5,232 4,589 Cash and cash equivalents 1,078 1,325 94,779 92,303 Assets classified as held for sale Total assets 94,817 92,313 Equity Equity attributable to holders of equity instruments of the Company 10,354 9,769 Non-controlling interest 20 6 Total equity 10,374 9,775 Liabilities Insurance liabilities 38,908 37,520 Insurance liabilities where policyholders bear investment risks 22,259 20,771 Investment contracts 2,123 2,193 Post-employment benefits 893 1,024 Other provisions Banking customer accounts 5,351 5,001 Loans and borrowings 9,625 11,086 Derivatives 1,779 1,586 Deferred tax liabilities Income tax payable Other liabilities 3,084 2,942 84,405 82,511 Liabilities classified as held for sale Total equity and liabilities 94,817 92,

106 Abbreviated consolidated Financial statements Consolidated income STATEMENT ( million) Income Gross written premiums Non-life 3,764 3,819 Gross written premiums Health 13,471 12,400 Gross written premiums Life 3,210 3,431 Gross written premiums 20,445 19,650 Reinsurance premiums Change in provision for unearned premiums (net of reinsurance) 15 1 Net earned premiums 19,774 18,802 Income from associates 4 1 Investment income 1,115 1,254 Realised and unrealised gains and losses Income from investments backing linked liabilities 2, Banking income Fee and commission income, and income from service contracts Other income Total income 25,257 23,198 Expenses Claims and movements in insurance liabilities 19,271 18,668 Claims and movements in insurance liabilities ceded to reinsurers Profit sharing and bonuses Movements in insurance liabilities where policyholders bear investment risks 1, Fair value changes and benefits credited to investment contracts Operating expenses 3,024 3,031 Banking expenses Interest and similar expenses Other expenses Total expenses 24,845 23,445 Profit before tax Income tax expenses Net profit Net profit attributable to: Holders of equity instruments of the Company Non-controlling interest 1 1 Earnings per share from continuing operations (euros) and diluted earnings per share from continuing operations (euros)

107 Abbreviated consolidated Financial statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME ( million) Net profit Currency translation differences on subsidiaries, intangible assets and associates Unrealised gains and losses of property for own use Unrealised gains and losses on available for sale instruments 1, Share in other comprehensive income of associates -2 Transfer from/to provision for profit sharing and bonuses Gains and losses on available for sale instruments reclassified to the Income Statement on disposal Impairment charges on available for sale instruments reclassified to the Income Statement Comprehensive income Comprehensive income attributable to: Holders of equity instruments of the Company Non-controlling interest 1 1 Except for the currency translation differences on subsidiaries, intangible assets and associates, which is included in the Exchange difference reserve, other comprehensive income is included in the Revaluation reserve. 107

108 Abbreviated consolidated Financial statements Consolidated Statement of Changes in Total equity ( million) 2012 SHARE CAPITAL OWN SHARES legal reserves revaluation reserve exchange difference Reserve hedging reserve retained earnings profit for the year other equity instruments equity attributable to holders of equity instruments of the company non- controlling interest total equity Balance at 1 January 11, , ,325 9, ,775 Currency translation differences on subsidiaries, intangible assets and associates Revaluation property for own use Unrealised gains and losses on available for sale instruments 1,061 1,061 1,061 Share in other comprehensive income of associates Transfer from/to provision for profit sharing and bonuses Gains and losses on available for sale instruments reclassified to the Income Statement on disposal Impairment charges on available for sale instruments reclassified to the Income Statement Net other comprehensive income Net profit Comprehensive income Appropriations to reserves Dividends and coupon payments Issue, repurchase and sale of equity instruments Other movements Balance at 31 December 11, , ,325 10, ,374 Share capital includes 10,923 million share premium ( ,933 million). Due to the loss in 2011 no dividends were distributed during the financial year 2012 to holders of ordinary shares (2011: 0.10 per share). 108

109 Abbreviated consolidated Financial statements Consolidated Statement of Changes in Total equity ( million) 2011 SHARE CAPITAL OWN SHARES legal reserves revaluation reserve exchange difference Reserve hedging reserve retained earnings profit for the year other equity instruments equity attributable to holders of equity instruments of the company non- controlling interest total equity Balance at 1 January 11, ,242 1,220 1,325 10, ,357 Currency translation differences on subsidiaries, intangible assets and associates Revaluation property for own use Unrealised gains and losses on available for sale instruments Transfer from/to provision for profit sharing and bonuses Gains and losses on available for sale instruments reclassified to the Income Statement on disposal Impairment charges on available for sale instruments reclassified to the Income Statement Net other comprehensive income Net profit Comprehensive income Appropriations to reserves ,220 Dividends and coupon payments Issue, repurchase and sale of equity instruments Other movements Balance at 31 December 11, , ,325 9, ,

110 Abbreviated consolidated Financial statements CONSOLIDATED STATEMENT OF CASH FLOWS ( million) Cash flow from operating activities Profit before tax Adjustments of non-cash items and reclassifications: Unrealised results on investments -1,796-1,340 Foreign exchange results Amortisation and impairment charges on intangible assets, property for own use and equipment Amortisation of deferred acquisition costs Interest paid Changes in operating assets and liabilities: Purchase of Investment property 16 7 Purchase of Investments -40,285 36,701 Purchase of Investments backing linked liabilities 14,606 13,342 Divestments of Investment propery Divestments of Investments 40,578 38,042 Divestments of Investments backing linked liabilities 15,237 13,523 Capitalised deferred acquisition costs 19 3 Changes in receivables and accruals and other liabilities Changes in insurance liabilities net of reinsurance 1,801 1,230 Changes in banking credit portfolio Changes in banking customer accounts and loans and borrowings related to banking activities Interest received Income taxes paid Changes in income tax Other changes ,695 2,434 Total cash flow from operating activities 2,182 1,867 Cash flow from investing activities Investments, acquisitions and direct return on investments: Subsidiaries and Associates (net of cash acquired) Property for own use and equipment Total cash flow from investing activities Divestments and disposals: Property for own use and equipment

111 Abbreviated consolidated Financial statements CONSOLIDATED STATEMENT OF CASH FLOWS (continued) ( million) Cash flow from financing activities Issue, repurchase and sale of equity instruments -200 Dividends and coupon payments Interest paid Other credit facilities -1,656-1,395 Total cash flow from financing activities -2,235-2,325 Net cash flow Cash and cash equivalents at 1 January 1,325 1,939 Cash and cash equivalents at 31 December 1,078 1,325 Cash and cash equivalents include the following items: Cash and bank balances 788 1,172 Call deposits Cash and cash equivalents at 31 December 1,078 1,

112 Other information BASIS OF PREPARATION The Achmea Abbreviated Financial Statements, including the 2011 comparative figures, comprising of Consolidated Statement of Financial position, Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Total equity and the Consolidated Statement of Cash Flows, have been derived from the Consolidated Financial Statements of Achmea B.V. for the year ended 31 December These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards, including International Accounting Standards (IAS) and Interpretations, as adopted by the European Union (hereafter EU-IFRS). Furthermore, the Achmea Consolidated Financial Statements comply with the requirements of Article 362 (9) Book 2, part 9 of the Dutch Civil Code. For the notes comprising the significant accounting policies and other explanatory information as required by EU-IFRS we refer to the Achmea Consolidated Financial Statements. Reading the Abbreviated Financial Statements is not a substitute for reading the Achmea Consolidated Financial Statements. The Abbreviated Financial Statements should be read in conjunction with the Consolidated Financial Statements from which the Abbreviated Financial Statements were derived. The Achmea Consolidated Financial Statements are available at Statement of the Executive Board of Achmea B.V. The Executive Board of Achmea B.V. is responsible for the preparation of the Annual Report 2012, including the Consolidated Financial Statements The Consolidated Financial Statements 2012 are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The Company Financial Statements 2012 and Executive Board Report 2012 are prepared in accordance with Book 2, Part 9 of the Dutch Civil Code, and the Financial Supervision Act part 5.1A. The Executive board reviewed the Achmea B.V. Consolidated and Company Financial Statements on 18 February 2013 and authorized them for submission to the Supervisory Board. The Executive Board of Achmea B.V. declares that, to the best of its knowledge, the Achmea B.V. Consolidated and Company Financial Statements 2012 give a true and fair view of the assets, liabilities, financial position and profit or loss of Achmea B.V. and that the information contained herein has no omissions likely to modify significantly the scope of any statements made. The Executive Board of Achmea B.V. also declares that the Executive board Report 2012 gives a true and fair view of the situation on 31 December 2012, the development and performance during 2012 and describes the principal risks of the business of the Group. The Achmea B.V Consolidated Financial Statements and 2012 Company Financial Statements will be submitted to the Annual General Meetings of Shareholders for approval on 28 March Zeist, 5 March 2013 The Executive Board W.A.J. (Willem) van Duin, Chairman J.A.S. (Jeroen) van Breda Vriesman D. (Danny) van der Eijk 112

113 Independent auditor s report TO: THE GENERAL MEETING OF SHAREHOLDERS AND SUPERVISORY BOARD OF ACHMEA B.V. The accompanying abbreviated consolidated financial statements of Achmea B.V., Zeist as set out on pages 105 to 111, which comprise the consolidated statement of financial position as at 31 December 2012, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in total equity and consolidated statement of cash flows for the year then ended, and related notes, are derived from the audited consolidated financial statements of Achmea B.V. for the year We expressed an unqualified audit opinion on those consolidated financial statements in our report dated 5 March Those consolidated financial statements, and the abbreviated consolidated financial statements, do not reflect the effects of events that occurred subsequent to the date of our report on those financial statements. The abbreviated consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code. Reading the abbreviated consolidated financial statements, therefore, is not a substitute for reading the audited financial statements of Achmea B.V. THE EXECUTIVE BOARD S RESPONSIBILITY The Executive Board is responsible for the preparation of the abbreviated consolidated financial statements derived from the consolidated financial statements on the basis described in the notes to the abbreviated consolidated financial statements. AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on the abbreviated consolidated financial statements and the related notes based on our procedures, which we conducted in accordance with Dutch Law, including the Dutch Standard 810 Engagements to report on abbreviated financial statements. OPINION In our opinion, the abbreviated consolidated financial statements derived from the audited consolidated financial statements of Achmea B.V. for the year 2012 are consistent, in all material respects, with those consolidated financial statements, on the basis described in the notes to the abbreviated consolidated financial statements. Amsterdam, 5 March 2013 PricewaterhouseCoopers Accountants N.V. Original signed by G.J. Heuvelink RA 113

114 Five Years Key Figures key figures ( MILLION) RESULTS Gross written premiums 20,445 19,650 19,852 19,645 19,306 Contribution investment contracts Profit before tax ,226 1,507-2,620 Net profit ,220 1,381-2,118 INSURANCE GROSS WRITTEN PREMIUMS Non-Life 3,764 3,819 3,992 4,030 3,816 Health 13,471 12,400 12,289 10,617 11,259 Life 3,210 3,431 3,571 4,998 4,231 BANKING Net interest margin STATEMENT OF FINANCIAL POSITION Total assets 94,817 92,313 93,138 93,189 92,453 Total investments (excluding unit-linked) * 43,265 * 42,443 40,991 40,657 38,768 Banking credit portfolio 16,436 16,932 16,828 19,302 18,921 Total equity 10,374 9,775 10,357 10,127 7,451 Embedded value Pension & Life business 4,112 ** 4,231 ** 4,969 4,910 4,123 * Includes Investments in associates, Investment property and Investments. ** Based on Market Consistent (MCEV) principles. 114

115 five years key figures key RATIOS (%) GROUP Solvency FCD Solvency insurance entities (IGD) Return on equity Return on adjusted equity Debt leverage INSURANCE Combined ratio Non-life Netherlands * Combined ratio Health Netherlands * BANKING Cost/income ratio Core Tier 1 ratio ** FIGURES PER ORDINARY SHARE ( ) Net profit (Proposed) dividend on ordinary shares EMPLOYEES Full-time equivalents (FTEs) 18,905 19,490 20,185 21,209 21,256 Number of employees n.a. 21,356 22,013 23,151 22,710 Absenteeism ** 4.1% 4.5% 4.3% 4.2% 4.3% Employee satisfaction ** 85% 83% 81% 78% 76% CUSTOMER SATISFACTION *** Centraal Beheer Achmea B.V Interpolis Zilveren Kruis Achmea Agis RATING **** Rating Achmea B.V. A- A- A- A- A- Rating insurance entities A+ A+ A+ A+ A+ Rating Achmea Hypotheekbank A A- A- A- A- * Since 2011 ordered per segment. ** Dutch activities. *** In 2010, 2011 and 2012 outcomes are based on independent satisfaction surveys carried out by the Dutch Association of Insurers. **** Standard & Poor s. 115

116 Abbreviations Afm Dutch Financial Markets Authority Hr Human Resources Alm Asset and Liability Management Iab Interamerican Bulgaria Aov Ape Arc Atc AuM Awbz Cba Cds Cebs Cor Csr Db Arbeidsongeschiktheidsverzekering / diability coverage for the self-employed Annual Premium Equivalents Audit and Risk Committee Achmea Transfer Centre Assets under Management Algemene Wet Bijzondere Ziektekosten/ General Act on Medical Expenses Centraal Beheer Achmea Credit Default Swap Committee of European Banking Supervisors Central Works Council Corporate Social Responsibility Defined Benefit pension contract Iag Ias Ics Igd Imf Kri Lat Lgbt Lsp Ltro Mcev M&a Orsa Interamerican Greece International Accounting Standard Internal Control Statement Insurance Group Directive International Monetary Fund Key Risk Indicator Liability Adequacy Test Lesbian, Gay, Bisexual, Transgender Life Science Partners Long-term Refinancing Operation Market Consistent Embedded Value Merger & Acquisitions Own Risk and Solvency Assessment Dc Dfz Dmpl Dnb Ecb Ees Eev Efsf Esg Eu Fba Fcd F&c Frc Fte Fx Gdp Ghf Defined Contribution pension contract De Friesland Zorgverzekeraar Dutch Mortgage Portfolio Loans Dutch Central Bank European Central Bank Employee Engagement Survey European Embedded Value European Financial Stability Facility Environmental, social and governance European Union Friesland Bank Assurantiën Financial Conglomerate Directive F&c asset management Finance and Risk Committee Full-time Equivalent Foreign Exchange Gross Domestic Product Gedragscode Hypothecaire Financieringen / Code of conduct mortgage financing Ovo Pbt Ppi Pri Psi PwC Qe Sii S&p Sme Stak Ufr Un Unep Unep fi Uwv Vnb Onderlinge Verzekeringen Overheid / Dutch specialist liability and fraud insurer Profit before tax Pension Premium Institutions Principles for Responsible Insurance Principles for Sustainanle Insurance PricewaterhouseCoopers Quantitative Easing Solvency II Standard & Poor s Small and Medium Enterprises Stichting Administratiekantoor Achmea Ultimate Forward Rate United Nations United Nations Environment Programme The United Nations Environment Programme Finance Initiative Institute for Employee Insurance Value of New Business Giips Gri Greece, Ireland, Italy, Portugal and Spain Global Reporting Initiative Wga Regeling Werkhervatting Gedeeltijk Arbeidsgeschikten / Return to work scheme for partialy disabled Gwp Gross written Premium Zka Zilveren Kruis Achmea 116

117 Contact Details Achmea Mailing address P.O.Box AW Zeist The Netherlands Office address Handelsweg NH Zeist The Netherlands T Eureko Re Mailing address P.O. Box LA Tilburg The Netherlands T Oranta Insurance Company Russia Lyusinovskaya 36/ Moscow, Russia T Eureko Sigorta Ord. Prof. Fahrettin Kerim Gökay Caddesi No:20, Üsküdar, Istanbul Turkey T: Friends First Ireland Cherrywood Business Park Loughlinstown Dublin 18, Ireland T Interamerican Greece 350 Sygrou Avenue Kallithea, Athens Greece T Interamerican Bulgaria 55 Alexander Stambolyiski Blvd Sofia 1301, Bulgaria T Eureko Romania Decebal Blvd Bucharest 3 Romania T Union Slovakia Bajkalská 29/A Bratislava 1 Slovakia T

118 Masthead CONTENT, TEXT AND PRODUCTION Achmea Investor Relations VISUAL CONCEPT AND DESIGN Koeweiden Postma, Amsterdam LAYOUT Sensum, Almere PHOTOGRAPHY Patrick van der Sande