See accounting policy I.

Derivatives consist primarily of derivatives used to hedge interest rate movements. Changes in the fair value of derivatives at fair value through profit or loss are recorded in ‘fair value gains and losses’, see chapter 6.6.4.

a.s.r. trades both cleared and non-cleared derivatives on the basis of standardised contracts and exchanges cash variation margin with its counterparties. The derivatives are valued daily and cash collateral is exchanged to reflect the change in mark-to-market (MtM) of the derivatives. Because of this periodic margining process, counterparty risk on derivatives is negligible.

In addition to the above variation margin obligations, there is also an initial margin obligation for central cleared derivatives which further reduces the risk of a.s.r. and its counterparties that they cannot fulfil their obligations.

Notional amounts are not recognised as assets or liabilities in the balance sheet, however notional amounts are used in determining the fair value of the derivatives. Notional amounts do not reflect the potential gain or loss on a derivative transaction.

The derivatives do not include the derivatives on behalf of policyholders of € 6 million (2020: € 14 million).

Derivatives decreased primarily as a result of negative revaluations due to increasing interest rates.

In addition to the use of swaps and options a.s.r. manages interest rate risk by using bond forwards, included in interest rate contracts futures.

The notional amounts of both receiver and payer swaps are included in the total notional amounts of foreign exchange contracts.

The fair value of interest rate contracts is calculated by first determining the cash flows of the floating leg based on the Euribor-curve corresponding the interest reset period (3 months, 6 months or 12 months) of the swap. Then the net present value of the floating and fixed leg is determined by discounting the cash flows. As part of global industry efforts around benchmark reform, Central Clearing Counterparties (CCPs) have switched the overnight cost of funding collateral and discounting on all cleared EUR-denominated products to euro short-term (€STR) in July 2020, for USD-denominated derivatives to SOFR in October 2020, and GBP-denominated derivatives to SONIA in December 2021. In the second half of 2021, all bilateral derivative agreements have been amended to reference the relevant Alternative Reference Rates.

The fair value of the interest rate contracts using the above valuation method form the basis for the amount of collateral that is exchanged between a.s.r. and its counterparties in accordance with the underlying contracts. For more information see chapter 6.8 on risk management.

Of the derivatives € 6,121 million assets (2020: € 9,113 million) and € 658 million liabilities (2020: € 1,410 million) is expected to be recovered respectively settled more than one year after the balance sheet date.

Transition

Throughout the world, a transition is currently taking place from interbank offered rates (IBORs) to alternative benchmarks. In the EU, the transition to alternative interest-rate benchmarks is governed by the Benchmark Regulation (BMR). Pursuant to the BMR, IBOR based contracts need to be amended to reference alternative rates or to be provided with a fallback option.

The transition away from IBORs is mainly affecting a.s.r.’s derivative book, which is measured at fair value through profit or loss. Although most references under these derivatives remain BMR compliant, the Cash Collateral Interest Rate, and consequently discount rates, have required amendments towards Alternative Reference Rates (ARRs).

During 2020 and 2021, all contracts referencing IBORs have been amended to reflect ARRs, with the exception of USD Libor Referenced Interest Rate Swaps, which are expected to remain BMR Compliant until June 2023. A project team has been formed in order to effectively manage the transition from IBORs to ARRs, and mitigating any adverse operational and / or financial impact. As at 31 December 2021, the transition from USD Libor References towards its respective ARRs is still outstanding and is expected to be finished well in advance of its cessation in June 2023. The following table provides details related to a.s.r.’s exposure to USD Libor References at the end of 2021.