The risk priorities of a.s.r. are defined annually by the Executive Board. Defining risk priorities is a bottom-up process. Risk priorities are based, for instance, on the Control Risk Self Assessments of the business units. Risk Management reports the actual status of the risk priorities and progress of the defined actions in the a.s.r. Risk Committee on a quarterly basis.
The risk priorities defined for 2014 are described below. Fundamental changes in the insurance market
a. Changes in distribution channel and customer behaviour require a.s.r. to adapt
The diminishing insurance market, changes in customer behaviour and the distribution channel require a.s.r to adapt. In addition, the current market is characterized by fierce competition and a growing focus on price by customers, decreasing margins and premium income.
b. Discrepancy between developments in cost- and sales volumes
Premium income is under pressure as a result of the current economic situation and changing legislation. This pressure can manifest itself in an increase in non-life policy cancellations, loss of retention in the life business and a drop in sales of new insurance contracts. At the same time, the new organizational requirements for insurance companies limit the scalability of departments. It is an increasing challenge to match the planned cost reductions with the decrease in premium income.
Uncertain financial markets and economic climate
The economic climate remains uncertain and forms an unabated high risk for the development of premium and realization of investment returns. Although the risk of unrest in the financial markets remains high, the situation has improved compared to last year. a.s.r. will be vigilant about any developments and has adequate risk control and monitoring in place.
Increased claim culture of society
This risk may manifest itself as a result of an increasing legalization of society and the uncertainty of the current legal disputes of other insurance companies. Court rulings and decisions by arbitration boards may have an industry-wide impact, as well as triggering widespread media attention and evoking negative sentiments among policy holders. This potentially increases the reputation risk for a.s.r. The current transparency dossier has largely been finalized. Although firm compensation agreements have been made with the foundations to compensate policy holders, the risk of new claims is ever-present.
Information security risk
Due to technological developments such as cloud computing, bring your own device, social media and online distribution, further integration of a.s.r. data with the environment is necessary. This requires a.s.r. to constantly stay on top of these developments to anticipate on future cyber-attacks and information security risks and to prevent confidential (financial) information or (client) information is unintentionally available for others. A high level of awareness regarding the use of confidential information and the safeguarding of assets of the company, employees and customer data, is of great importance.
Impact of supervision, laws and regulations
The Dutch insurance market is characterized by a strong increase of regulation. New laws and regulations are introduced rapidly. The increasing pressure from politics and supervisors could have the following implications:
• a.s.r. might suffer reputational damage if it is not able to implement new requirements promptly. • A substantial part of available capacity is spent implementing new requirements, shifting focus
away from the core activities of a.s.r., which are undertaken in the interest of customers. • Processes will become less efficient and work pressure will increase.
• Fines and legal action will be imposed on a.s.r. if it is unable to implement new requirements promptly.
Solvency II
Solvency II is the regulatory framework for European insurance companies that will replace the current Solvency I regime. The introduction of the new regime is intended to harmonize the European insurance market, increase protection of policyholders and improve risk awareness in both the governance and management of insurance companies. Solvency II sets more sophisticated solvency requirements and will form an integral part of the risk management of insurance companies.
In December 2013, the Council of the EU adopted the Solvency II Directive scheduling the application date of the Solvency II Directive for 1 January 2016. In anticipation of the implementation date of 1 January 2016 EIOPA has published Preparatory Guidelines, in particular regarding Pillar 2 topics such as System of Governance and Forward Looking Assessment of Own Risks and Pillar 3 Reporting guidelines. DNB has adopted these guidelines which apply to Dutch insurance companies as of 1 January 2014.
Solvency II at a.s.r. in 2014
With the introduction of the Preparatory Guidelines and the application date set at 1 January 2016, a.s.r. will continue with the preparations for Solvency II readiness. Priority will be given to implementation of all Preparatory Guidelines to ensure that Solvency II requirements will be implemented in 2016. With another two years to go a.s.r. expects to be ready for the application of the Solvency II Directive as of 1 January 2016.
Highlights in 2013
• Solvency II implementation is on track.
• ORSA has been further developed and is structurally embedded in the business. The ORSA at group level has been performed for the third time. The ORSA was also carried out at legal entity level in 2013. The ORSA at group and legal entity level will be carried out at least once a year. • Actions taken in 2012 regarding data management were continued in 2013 and a.s.r. decided to
develop EIOPA’s Quantitative Reporting Templates (QRT) with regard to data management in order to comply with Solvency II.
• a.s.r. performed the first test run of the QRT’s in Q4 2013.
• a.s.r. participated in the Long Term Guarantee Assessment (LTGA), organized by EIOPA in 2013. The LTGA assesses the so-called LTG package – a series of selected regulatory measures aimed at ensuring an appropriate supervisory treatment of long-term guarantee products, also under volatile market conditions. Six LTG measures are covered by this assessment, tested in different combinations through a series of 13 quantitative scenarios and tailored qualitative questions. The LTGA technical specifications were adapted by a.s.r. in 2013. The LTGA was carried out for several legal entities.
• ASR Levensverzekering N.V. participated in the Theoretic Solvency Criteria (TSC) assessment organized by DNB (known as Solvency 1,5) in 2013. The TSC is a criterion in addition to current legislation which aims to improve current supervision to become more risk based and forward looking. The outcome of the TSC could indicate whether DNB might be requested to issue a statement of no objection for a specific type of capital extraction.