Interest income for all interest-bearing instruments is recognized using the effective interest-rate method, including all transaction costs incurred and share premium/discount. When a receivable is impaired, its carrying amount is reduced to the recoverable amount, i.e. estimated future cash flows discounted at the original effective interest-rate of the instrument.
Dividends
Dividend income is recognized in the income statement when a right to receive payment is established.
Rentals
Rentals from investment property are allocated to the period to which they relate.
2.31 Realized gains and losses
Realized gains and losses include proceeds from the disposal of investment property, financial assets available for sale, associates and joint ventures.
With respect to financial assets available for sale, realized gains or losses are comprised of:
• the proceeds from the sale or disposal of an asset or liability less the amortized cost of the asset or liability sold,
• impairments previously recognized and • hedge accounting adjustments.
Any unrealized gains and losses previously recorded in equity (the difference between the carrying amount and amortized cost) are recognized in the income statement.
2.32 Fair value gains and losses
Fair value gains and losses include realized and unrealized changes in the value of financial assets at fair value through profit and loss and derivatives. With respect to derivatives, this is based on the fair value excluding accrued interest (clean fair value).
2.33 Result on investments on behalf of policyholders
Investments on behalf of policyholders are measured at fair value through profit and loss. Any changes in value are recognized in result on investments on behalf of policyholders. This also includes interest income and dividends received on investments on behalf of policyholders.
2.34 Fee and commission income
Fee and commission income relates mainly to reinsurance, asset management and other services. These items are generally recognized as income in the period in which the services are performed.
2.35 Insurance claims and benefits
This item includes changes in liabilities arising from insurance contracts (see chapter 2.25) and the related benefits. Expenses associated with contracts on behalf of policyholders relate to changes in liabilities arising from insurance contracts on behalf of policyholders, including the benefits charged to the liabilities.
2.36 Operating expenses
This item relates to expenses associated with a.s.r.’s operations that are directly attributable to the reporting period, such as marketing costs, ICT expenses, consulting fees, business accommodation expenses, cost of temporary staff, and depreciation charges.
Personnel expenses are mainly comprised of salaries, social security contributions and pension costs.
2.37 Acquisition costs
This mainly relates to commissions paid and amortization of capitalized deferred acquisition costs. For details on capitalized deferred acquisition costs see chapter 2.13.
2.38 Impairments
An asset is impaired when its carrying amount exceeds its recoverable amount. Impairment losses are recognized in the income statement as soon as they are identified. For details, see the relevant items of chapter 2 as mentioned earlier.
2.39 Income tax expense
Income tax is based on profit before tax, after any adjustments for previous periods and changes in deferred tax assets and liabilities using the tax rates and tax laws that have been enacted or substantially enacted by the end of the reporting period. Income tax is recognized in the period in which the income was achieved.
Deferred taxes in respect of revalued assets and liabilities, whose value adjustments were directly credited or charged to equity, are taken to equity and, upon realization, included in the income statement together with the value adjustments.
Risk management is an integral part of our daily business activities. a.s.r applies an integrated
approach in managing risks, ensuring that our strategic goals (customer interests, financial solidity and efficiency of processes) are maintained. This integrated approach ensures that value will be created by identifying the right balance between risk and return, while ensuring that all obligations towards our stakeholders are met. Risk management enables a.s.r. to identify, measure and manage risks in order to take prompt action in the event of changes in a.s.r’s risk profile.
a.s.r. is exposed to the following types of risks: market risk, counterparty default risk, insurance risk, strategic risk and operational risk. The risk appetite is established at both group and legal entity level and includes limits for executing the strategy. The risk environment requires continuous integrated monitoring and assessment of risks in order to understand and manage complex risk interactions across the organization.
This chapter describes the risks a.s.r. is exposed to and how these risks are managed.
3.1 Key risk developments in 2013
General
• The Economic Capital model (ECAP) of a.s.r. is an integral and essential part of the steering mechanism for value management. The dynamic investment policy is based on the ECAP solvency ratio and specific risk budgets.
• The risk appetite statements have been further developed. Risk appetite statements are established at both group and legal entity level including risk tolerances, limits and targets. • Risk appetite and Key Risk Indicator framework function as tools for optimizing risk returns at both
group and business unit level.
• Various value metrics (MCEV, ECAP (internal model), SCR, VANB) have been integrated. • Standard and Poor’s has confirmed a.s.r.’s rating of A with a stable outlook.