Counterparty default risk reflects possible losses due to unexpected default or deterioration in the credit standing of counterparties and debtors. Counterparty default risk affects several types of assets:

• mortgages

• savings-linked mortgage loans

• derivatives

• reinsurance

• receivables

• cash and deposits

Assets that are in scope of spread risk are, by definition, not in scope of counterparty default risk and vice versa. The Solvency II regime makes a distinction between two types of exposures:

• Type 1: These counterparties generally have a rating (reinsurance, derivatives, current account balances, deposits with ceding companies and issued guarantee (letter of credit). The exposures are not diversified.

• Type 2: These counterparties are normally unrated (receivables from intermediaries and policyholders, mortgages with private individuals or SMEs). The exposures are generally diversified.

The total capital requirement for counterparty risk is an aggregation of the capital requirement for type 1 exposure and the capital requirement for type 2 exposure by taking 75% correlation.

The Counterparty risk type 1 has increased due to the addition of the loan positions given as a guarantee on all scheduled payments by a third party in which this guarantee satisfies the requirements of Articles 213(3-5) and 215 Solvency II Delegated Regulation.

The counterparty default risk type 1 has not changed materially due to the fact that saving deposits without collateral agreement are now considered in the spread risk module. This led to a decrease in the counterparty default risk type 1. However, the saving deposits with collateral agreement are split in the outstanding part and corresponding interest (zero risk) and the future premiums and corresponding interest that are treated as the uncollaterised derivative contract in the counterparty default risk type 1 module. The latter resulted in an increase of the counterparty default risk type 1. On balance the net change was not material.

The counterparty risk type 2 has decreased due to the decrease of the exposure to the mortgage portfolio. The latter is due to the quarterly revaluation of the underlying property. The mortgage underlying property has increased by 17% on average in 2021. The total counterparty risk has decreased by € 18 million.

6.8.4.1 Mortgages

Mortgages are granted for the account and risk of third parties and for a.s.r.’s own account. The a.s.r. portfolio consists only of Dutch mortgages with a limited counterparty default risk. The fair value of a.s.r.’s mortgage portfolio was
€ 11,181 million at year-end 2021 (2020: € 9,464 million).

The Loan-to-Value ratio is based on the value of the mortgage according Solvency II principals with respect to the a.s.r. calculated collateral. The percentage of mortgages which are in arrears for over three months has decreased from 0.03% in December 2020 to 0.02% in December 2021.

6.8.4.2 Savings-linked mortgage loans

The counterparty default risk of the savings-linked mortgage loans ('Spaarlossen') depends on the counterparty. For 32% 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 62% of the portfolio, for which the risk is limited. 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.

On September 1, 2021 DNB issued the Q&A and Good Practices document on the treatment of saving mortgages and in December, the Dutch Association of Insurers shared its additional guidance on this subject. These documents provide further requirements and guidelines on the valuation, risk calculations and balance sheet classification. Saving deposits without collateral agreement are considered in the SCR Spread Risk Module. The saving deposits with collateral are treated in the Counterparty Risk Module. Furthermore the collaterised deposits are split in two: a) the outstanding part and corresponding interest are considered in the SCR Counterparty risk type 2 (zero risk); b) the future premiums and corresponding interest are treated as the uncollaterised derivative contract of SCR Counterparty Risk Type 1.

6.8.4.3 Derivatives

Over the Counter (OTC) derivatives are primarily used by a.s.r. to manage the interest-rate risks incorporated into the insurance liabilities. Interest-rate derivatives are traded with a well-diversified and qualitative dealer panel with whom there is an established International Swaps and Derivatives Association (ISDA) contract and a Credit Support Annex (CSA) in place. These CSAs include specific agreements on the exchange of collateral limiting market and counterparty risk. The outstanding value of the interest rate derivative positions is matched by collateral received from eligible counterparties, minimising the net counterparty default risk.

6.8.4.4 Reinsurance

a.s.r. collaborates with reinsurers for fire and catastrophe risk. When entering into reinsurance contracts for fire and catastrophe, a.s.r. requires the counterparty to be rated at least single A. With respect to long-tail business and other sectors, the minimum permitted rating is single A.

The table above shows the exposure to reinsurers per rating. The total exposure to reinsurers at year-end 2021 was
€ 419 million (2020: € 493 million).

6.8.4.5 Receivables

The receivables increased to € 853 million in 2021 (2020: € 856 million), mainly driven by higher other receivables per year-end. The composition of the receivables is presented in the table below.

6.8.4.6 Cash and cash equivalents

The current accounts on the balance sheet amounted € 1,517 million in 2021 (2020: € 1,590 million).

As of 2020, a.s.r. has no deposits in scope of counterparty default risk.