Spread risk

Spread risk arises from the sensitivity of the value of assets and liabilities to changes in the level of credit spreads on the relevant risk-free interest-rates. Spread risk relates to several types of assets: • fixed-income investments;

• deposits;

• savings-linked mortgage loans.

Assets in scope of spread risk are by definition not in scope of counterparty default risk (see Chapter 3.6)

34% 25% 27% 5% 9% 2013 2012 Rural 34% 30% Retail 25% 26% Residential 27% 30% Other 5% 5% Offices 9% 9% 26% 30% 5% 30% 9% Composition property portfolio 2012 Composition property portfolio 2013

Fixed-income investments

Spread risk is managed on a portfolio basis within limits and risk budgets established by the relevant risk committees.

Where relevant, credit ratings provided by the external rating agencies are used to determine risk budgets and monitor limits. A limited number of bond investments do not have an external rating. These investments are generally assigned an internal rating. Internal ratings are based on methodologies and rating classifications similar to those used by external agencies.

The following tables provide a detailed breakdown of fixed-income exposure by rating class, sector, and country of risk and level of subordination for the financial sector. The table includes all bonds, fixed-income funds and loans subject to spread risk according to our risk models.

31 December 2013 31 December 2012 Exposure Percentage Exposure Percentage

AAA 4,722 26% 10,503 54% AA 7,352 40% 2,653 14% A 2,623 14% 2,834 14% BBB 2,561 14% 2,441 12% Lower than BBB 567 3% 724 4% Not rated 455 3% 432 2% 18,280 100% 19,587 100%

The changes in the rating distribution of the fixed-income portfolio are attributable to the combination of market factors, such as interest-rates and spread movement, implementation of the investment policy and rating actions by S&P and Moody’s rating agencies. Higher interest-rates and the downgrade of the Dutch sovereign bonds from AAA to AA+ by S&P in November 2013 were the main drivers of the decline in market value of the AAA rating category. Loans to intermediaries and externally managed fixed-income funds are included in the not-rated category.

31 December 2013 31 December 2012 Government 9,638 10,482 Financial institutions 4,608 5,113 Corporates 3,434 3,352 Structured entities 600 640 18,280 19,587

The market value changes in fixed-income portfolio are to a large extent attributable to changes in rates and credit spreads. Higher rates had a more pronounced impact on the market value of the government portfolio due to its higher interest-rate sensitivity. All credit sectors benefited from tightening credit spreads in 2013. Despite considerable spread performance, the weight of financial institutions in the bond portfolio fell due to a further reduction in our exposure to this sector.

Government 31 December 2013 31 December 2012 Netherlands 4,154 6,094 Germany 2,955 2,322 Austria 554 463 Supranationals 367 434 France 224 423 Belgium 657 0 Periphery 36 1 Other 691 745 9,638 10,482

A combination of changes in tactical positioning and rising interest-rates resulted in changes in the geographical breakdown of the government bond portfolio. The most visible change is an increase in the exposure to Belgian and German government bonds at the expense of Dutch and French sovereigns. The exposure in the Periphery category is in Spanish sovereign debt. The category other includes investments in Australian, Scandinavian, Canadian and investment-grade Emerging Markets sovereigns.

Financial institutions 31 December 2013 31 December 2012

Senior 1,548 1,695 Tier 2 1,211 1,336 Tier 1 911 956 Covered 810 951 Other 128 175 4,608 5,113

The change in market values of bonds issued by financial institutions reflects both a gradual reduction in our exposure to senior and subordinate securities in line with our strategic investment plan and a substantial positive spread performance in these subsectors. Part of the available proceeds was reinvested in government bonds and non-financial credits. Higher interest-rates and the higher interest-rate sensitivity of the covered bond portfolio were the factors mainly responsible for the decline in the market value of this sector.

Structured entities 31 December 2013 31 December 2012

ABS 43 67

CDO 159 133

MBS 367 402

Structured financial instruments 31 38

600 640

Redemptions are responsible for the decline in the market value of the Structured Entities. Most redemptions took place in the MBS portfolio, which consists predominately of Dutch residential MBS investments. In total, redemptions amounted to approximately €103 million. The market value of the remaining structured products portfolio increased in the course of 2013 due to tightening credit spreads.

As a.s.r. participates in structured entities solely for investment purposes, no other commitments or guarantees have been made to the structured entities concerned. The maximum exposure is therefore limited to the fair value of the structured entity and amounts to € 600 million (2012: € 640 million).

Asset-backed securities (ABS)

An asset-backed security is a financial security backed by a portfolio of loans, leases or receivables against assets other than real estate and mortgage-backed securities. This portfolio consists of various securities backed by several types of assets.

Collateralized debt obligation (CDO)

Collateralized debt obligations are securities backed by a pool of bonds, loans or other assets. CDO’s do not specialize in one type of debt, but are often non-mortgage loans or bonds. CDO’s are unique in that they represent different types of debt and credit risk. In the case of CDO’s, these different types of debt are often referred to as ‘tranches’ or ‘slices’. Each slice has a different maturity and risk associated with it.

The CDO portfolio of a.s.r. currently consists mainly of senior tranches in collateralized loan obligations (CLO’s), which are CDO’s backed by a portfolio of European bank loans. Also, the portfolio contains various CDO’s with several types of collateral, such as loans to smaller financial institutions and ABS. Mortgage-backed securities (MBS)

Mortgage-backed securities are a type of asset-backed security that is secured by a portfolio of mortgages. a.s.r.’s MBS portfolio of a.s.r. mainly consists (approximately 88%) of AAA tranches in Dutch residential mortgage backed securities. The rest of the portfolio consists of investments in the most senior tranches of UK RMBS (around 4%) and some peripheral exposure (mostly in Spain (5%)), all of which have started to redeem.

Other structured financial instruments (SFI)

This part of the portfolio consists of equity tranches of CDO’s, i.e. the most risky tranche in the CDO structure. These ‘first loss’ tranche will be the first to fall in value if losses occur in the assets that back the CDO and are not rated. The largest positions (almost 50%) in this portfolio is a so-called ‘combination note’, which is a combination of an equity piece and a safer rated tranche or zero coupon bond. This rated tranche serves as principal protection for the equity piece. The other positions in this portfolio are almost all equity pieces of European CLO’s.

The next table gives a detailed overview of the distribution of the total-fixed income portfolio over ratings and sectors.

Government Financial institutions Corporates Structured entities

31 December 2013 2012 2013 2012 2013 2012 2013 2012 AAA 3,752 9,394 598 734 38 12 334 363 AA 5,637 887 1,110 1,223 544 436 61 107 A 139 112 922 1,053 1,470 1,594 92 75 BBB 110 67 1,641 1,621 783 725 27 28 Lower than BBB 0 22 337 481 161 178 69 43 Not rated 0 0 0 1 438 407 17 24 9,638 10,482 4,608 5,113 3,434 3,352 600 640

The non-rated category corporates includes predominantly externally managed fixed-income funds and loans issued to intermediaries. The group applies stringent application and approval procedures to these loans. Following an intermediary’s application, their credit quality is determined based on an internal risk-rating model. The loan application is then submitted for approval to the Credit Committee.

The parameters of the internal risk-rating model are regularly adjusted in response to market conditions as well as new legislation. The ban on commissions regarding so-called ‘complex’ insurance products, will most likely have a minor impact on the rating of the loan portfolio issued to intermediaries due to the aforementioned internal risk-rating model. The group has already

in our loan policy. Furthermore the current value of the collateral already incorporates the effect of the ban on commissions. This value is subsequently used in our internal risk-rating model.

31 December 2013 31 December 2012

Loans to intermediaries Amount Percentage Amount Percentage

Loan < 75% value under foreclosure 28 29% 31 27%

Loan > 75% value under foreclosure 68 71% 83 73%

96 114

At year-end 2013, the outstanding amount of loans to intermediaries was € 96 million (2012: € 114 million) and cumulative impairments amounted to € 53 million (2012: € 42 million). The loans are generally secured by collateralizing an insurance portfolio. At year-end 2013, 20% (2012: 15%) of the loans were in arrears.

Deposits

Total deposits amounted to € 850 million (2012: € 1,779 million) of which € 153 million (2012: € 737 million) had a single A rating, € 69 million (2012: € 36 million) a triple A rating and € 611 million (2012: € 1,006 million) is on secured deposit.

Savings-linked mortgage loans

Savings-linked mortgages have been sold with savings-linked contracts carried in a.s.r.’s statement of financial position where the mortgage loan is recognized in the balance sheet of third parties. One of the characteristics of a savings-linked mortgage loan is that the interest on the insurance contract and the interest on the mortgage loan are linked. At the same time, a.s.r. extends loans to these third parties with a nominal value equal to the value of the savings-linked contract and at an interest-rate linked to the interest-rate on the mortgage. The amortized cost of these loans amounted to € 2,520 million at year-end 2013 (2012: € 2,330 million).

Savings-linked mortgage loans 31 December 2013 31 December 2012

Counterparty SPV 1,263 1,068

Agreement cession-retrocession 369 325

Other 887 937

ToTAl 2,519 2,330

The credit risk of the savings-linked mortgage loans depends on the counterparty. For 50% of the portfolio the counterparties are Special Purpose Vehicles. The risk is limited due to the robust quality of the mortgages in the Special Purpose Vehicles in combination with the tranching.

a.s.r. has a cession-retrocession agreement with the counterparty for 15% of the portfolio, for which the risk is limited. Effectively, a.s.r. receives the underlying mortgage loans as collateral, mitigating the credit risk of the savings-linked mortgage loans.

The credit risk The other 35% of the savings-linked mortgage loans portfolio by credit rating of the counterparty is shown below. Due to the downgrade of Dutch sovereign bonds the government guaranteed savings-linked mortgage loans moved from AAA to AA.

Savings-linked mortgage loans - other 31 December 2013 31 December 2012

AAA 0 514

AA 536 0

A 351 423