In compliance with the deferral option IFRS 9 under IFRS 4, a.s.r. conducted a solely payments of principal and interest (SPPI) test on the financial assets.

For the purpose of this assessment, principal is defined as the fair value of the financial asset on initial recognition. However, the principal may change over time – e.g. if there are repayments of principal.

Interest is defined as consideration for the time value of money, for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks (e.g. liquidity risk) and costs (e.g. administrative costs), as well as a profit margin that is consistent with a basic lending arrangement. Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are SPPI.

In assessing whether the contractual cash flows are solely payments of principal and interest, a.s.r. considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.

In making this assessment, a.s.r. considers the following:

• Variable interest rates;

• Prepayment features;

• Term extension features;

• Contingent events; and

• Terms that limit a.s.r.’s claim to cash flows from specified assets – e.g. non-recourse asset arrangements.

• ¹ The carrying value of the trade and other receivables is regarded as a good approximation of the fair value, as these assets have a short-term nature.
• ² Other financial assets include the financial assets that fall into the business model held for trading and managed on a fair value basis or those financial assets with contractual terms that do not give rise on specified dates to cash flows that are solely payments of principal and interest.

The fair value movement relates to the revaluations during the year of the financial assets; total movement less the net additions.

The credit risk of the assets not rated, mostly mortgages and savings-linked mortgage loans, is considered low. The a.s.r. portfolio consists only of Dutch mortgages with a limited counterparty default risk, as 30% (2020: 34%) are covered by the National Mortgage Guarantee (NHG), 46% (2020: 34%) have a Loan to Value (LTV) less than 75%, and only 2% (2020: 2%) have a LTV more than 100%. The counterparty default risk of the savings-linked mortgage loans (‘Spaarlossen’) is also considered low. For 32% (2020: 37%) 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. For another 62% (2020: 58%) a.s.r. has a cession-retrocession agreement with the counterparty. Effectively, a.s.r. recognises the underlying receivable from the counterparty (or in the case of insolvency of the counterparty the mortgage loans transfers as collateral), mitigating the counterparty default risk of the savings-linked mortgage loans. For more detailed information about the credit risks of a.s.r., see chapter 6.8.3 and chapter 6.8.4.