Financial developments

Table 12: Zwitserleven

In € millions 2011 2010 Change

Result

Regular life premiums 820 776 6%

Single life premiums 341 309 10%

Premium income 1,161 1,085 7%

Reinsurance premiums 5 5 0%

Net premium income 1,156 1,080 7%

Net fee and commission income 14 6 133%

Investment income 359 375 (4%)

Investment income for account of policyholders 202 451 (55%)

Result on financial instruments 28 18 56%

Income invested collateral securities lending 2 2 0%

Other operating income -- 9

Total income 1,761 1,941 (9%)

Technical claims and benefits 1,527 1,680 (9%)

Acquisition costs for insurance operations 26 27 (4%)

Impairment charges 145 32 353%

Total operating expenses 137 131 5%

Income invested collateral securities lending 1 1 0%

Other interest expenses 37 25 48%

Total expenses 1,873 1,896 (1%)

Result before tax (112) 45 (349%)

Taxation (21) 9 (333%)

Net result for the period (91) 36 (353%)

One-off items (107) (25) (328%)

Adjusted net result for the period 16 61 (74%)

Operating cost/premium ratio 14.9% 14.9%

New annual premium equivalent Life 258 249 4%

Value New Business 8 13 (38%)

10.2.1 Result 2011 compared to 2010

Zwitserleven posted a significant net loss due to a goodwill impairment of € 107 million net (€ 131 million pre-tax). This related to the difficult circumstances in the pensions market, as evidenced by the continued low interest rate

environment, the longer life expectancy and the expected higher future capital requirements. In addition, the lower risk profile of the investment portfolio implies lower future investment income.

Adjusted for one-off items, Zwitserleven’s net result also decreased sharply due to additions to provisions for interest rate guarantees and lower realised gains on the fixed-income portfolio.

However, mainly due to higher technical results on mortality, Zwitserleven’s underlying net result increased compared to 2010, even though the release of a provision for pension commitments had impacted the underlying result positively in 2010.

Table 13: Underlying result Zwitserleven

In € millions 2011 2010 Change

Net result for the period (91) 36 (353%)

Realised gains, losses and impairments on equity 3 7 (57%)

Realised gains, losses and impairments on fixed-income securities 11 35 (69%)

Result on financial instruments 21 13 62%

Changes in Insurance contracts due to movements of fair value items (60) (21) (186%)

Total net impact investment portfolio and hedges (25) 34 (174%)

Impact of one-off items (107) (25) (328%)

Net result excluding impact of one-off items and impact of investment portfolio and hedges 41 27 52%

Amortisation VOBA and other intangible assets (14) (25) 44%

Underlying result Zwitserleven 55 52 6%

Results on equity hedges are included in realised gains/losses on equity portfolio in stead of result on financial instruments Net of capitalised external and internal acquisition costs

Including changes in provisions for interest rate guarantees in unit-linked portfolio and seperate accounts, the impact of shadow aacounting and the impact of the hedging of inflation. Comparative figures of Zwitserleven are restated, reflecting the net impact of hedging inflating.

In 2011, realised gains, losses and impairments on equities were limited to € 3 million positive compared to € 7 million positive for 2010. Realised gains, losses and impairments on the fixed-income portfolio decreased to € 11 million positive compared to € 35 million positive for 2010.

The result on financial instruments of € 21 million positive increased by € 8 million compared to 2010. The increase was mainly due to higher results on derivatives related to interest rate guarantees and higher results on inflation swaps, largely offset by sharply lower unrealised gains on interest rate derivatives. The result on inflation swaps was partly mirrored in changes in insurance contracts due to movements of fair value items.

Changes in insurance contracts due to movements of fair value items amounted to € 60 million negative in 2011. This consisted of the net impact of additions to provisions for interest rate guarantees (€ 74 million), due mainly to the low interest environment, the net impact of shadow accounting (€ 19 million positive) and higher technical expenses due to the impact of inflation (€ 5 million).

In 2010, changes in insurance contracts due to movements of fair value items had amounted to € 21 million negative. This consisted of higher provisioning for inflation (€ 2 million) and the net impact of shadow accounting (€ 19 million negative).

Amortisation of VOBA and other intangibles decreased due to lower actuarial amortisation of VOBA and higher capitalised costs of software.

10.3 Income

Both regular and single premium income increased compared to 2010, supported by high retention rates. Market share of new regular pension premium income increased from about 17% year-end 2010 to 29% as at end September 2011. Single pension premium income benefitted from new large group contracts. Zwitserleven successfully attracted new clients in the corporate and SME segment and was voted ‘best pension insurer in The Netherlands’ for the fourth year in a row.

As a result of the new client contacts, NAPE was significantly up to € 258 million. The Value of New Business (VNB) was € 8 million compared to € 13 million in 2010 due to the low interest rate environment and pressure on margins. To increase profitability, a number of products with a negative margin was classified as non-selling during 2011. From mid November 2011 proposals for new clients and renewals of contracts use a reduced technical interest of 2.5% and unit linked guarantees are limited to 2%.

Table 14: Breakdown Investment income for own account Zwitserleven

Gross amounts in € millions 2011 2010 Change

Total investment income 359 375 (4%)

Realised gains/losses on equities 7 15 53%

Realised gains/losses on fixed income securities 22 47 (53%)

Realised gains/losses 29 62 (53%)

Unrealised gains/losses (2) (1) (100%)

Direct investment income 332 314 6%

Total investment income for own account was modestly down compared to 2010 due to lower realised gains on equities and fixed-income securities. Direct investment income was positively affected by the acquisition of retail mortgages from SNS Bank at the end of 2010. However, interest expenses also increased due to the funding of these mortgages. Investment income for risk of policyholders decreased due to widened credit spreads which led to negative revaluations of fixed-income securities and due to lower equity markets.

The result on financial instruments increased as lower unrealised gains on interest rate derivatives were more than compensated by higher results on derivatives used for hedging risks related to interest rate guarantees and higher results on inflation swaps.

10.4 Expenses

Operating expenses increased by € 6 million. However, expenses in 2010 had included a € 12 million release of a provision for pension commitments related to the harmonisation of employment conditions. Adjusted for this provision release, operating expenses showed a limited decline. Acquisition costs for insurance operations were in line with the level of 2010.

Table 15: Breakdown Impairment charges Zwitserleven

Gross amounts in € millions 2011 2010 Change

Impairment charges of equities 2 7 (71%)

Impairment charges of fixed income securities 8 -- --

Other impairment charges 135 25 440%

Total impairment charges 145 32 353%

Impairment charges increased sharply due to the abovementioned goodwill impairment (€ 131 million pre-tax). Other impairment charges in 2010 were related to the distribution network. Impairments on the investment portfolio were somewhat higher, as lower impairments of equities did not wholly compensate for higher impairments on fixed-income securities.