Annual Report 2021
Financial statements
Liquidity risk

Liquidity risk is the risk that a.s.r. is not able to meet its financial obligations to policyholders and other creditors when they become due and payable, at a reasonable cost and in a timely manner. Liquidity risk is not quantified in the SCR of a.s.r, and is therefore separately discussed here.

a.s.r. recognises different levels of liquidity management. First, short-term liquidity management which covers the day-to-day cash requirements and aims to meet short-term liquidity risk targets. Second level covers the long-term liquidity management. This, among others, considers the strategic matching of liquidity & funding needs in different business conditions in which market liquidity risk could materialise. Finally stress liquidity management refers to the ability to respond to a potential crisis situation as a result of a market event and / or an a.s.r.-specific event. For example liquidity outflows could occur as result of lapses in the insurance portfolio, catastrophe risk or high cash variation margin payments related to the ISDA / CSA agreements of derivatives. a.s.r. monitors its liquidity risk via different risk reporting and monitoring processes including cash management reports, cash flow forecasts and liquidity dashboards in which liquidity outflows are calculated for different stress scenarios.

a.s.r.’s liquidity management principle consists of three components. First, a well-diversified funding base in order to provide liquidity for cash management purposes. A portion of assets must be held in cash and invested in unencumbered marketable securities so it can be used for collateralised borrowing or asset sales. In order to cover liquidity needs in stress events a.s.r. has committed repo-facilitiies in place to ensure liquidity under all market circumstances. Second, the strategic asset allocation should reflect the expected and contingent liquidity needs of liabilities. Finally, an adequate and up-to-date liquidity policy and contingency plan are in place to enable management to act effectively and efficiently in times of crisis.

In managing the liquidity risk from financial liabilities, a.s.r. holds liquid assets comprising cash and cash equivalents and investment grade securities for which there is an active and liquid market. These assets can be readily sold to meet liquidity requirements. As at 31 December 2021, a.s.r. had cash (1,211 million), short-term secured deposits
(1,298 million) and liquid government bonds (14,265 million). Furthermore, a.s.r. has access to committed cash facilities and an unsecured revolving credit facility in order to meet its liquidity needs in times of stress.

The following table shows the contractual undiscounted cash flows of the insurance liabilities based on Solvency II. All other line items as well as the total carrying value are based on IFRS principles.

The insurance liabilities include the impact of expected lapses and mortality risk as well as non profit sharing cash flows. Profit sharing cash flows of insurance liabilities are not taken into account, nor are equities, property and swaptions. Since the portfolio of Brand New Day IORP is fully consolidated, an extra line item relating to liabilities arising from investment contracts, is included. Furthermore, cash flows of the pension benefit obligations are taken into account.

Contractual cash flows
Payable on demand< 1 years1-5 years5-10 years> 10 yearsTotal carrying value
31 December 2021
Insurance liabilities-5,24010,1349,72233,33552,404
Liabilities arising from investment contracts-12892271,6241,952
Pension Benefit Obligation-544686383,2883,990
Derivatives liabilities-230183185293759
Financial liabilities6,155597250671,0608,117
Future interest payments-45177218664-
Payable on demand< 1 years1-5 years5-10 years> 10 yearsTotal carrying value
31 December 2020
Insurance liabilities-4,4769,7889,42532,70454,617
Pension Benefit Obligation-504285943,3854,228
Derivatives liabilities-2215562274341,419
Financial liabilities8,353616242221,00310,227
Future interest payments-43170213705-

The insurance liabilities per 31 December 2020 have been restated to include the cash flows of the other life insurance and exclude the cash flows for the own pension contract. Furthermore, the pension benefit obligation has been added.

When the amount payable is not fixed the amount reported is determined by reference to the conditions existing at the reporting date.

Financial liabilities payable on demand include the liability recognised for cash collateral received under ISDAs, concluded with counterparties. The related cash collateral received is recognised as cash and cash equivalents, and not part of the liquidity risk exposure table.