a.s.r. manages its business primarily using operational key performance indicators (KPIs). The operating result is the KPI covering the overall profitability of the business. Furthermore, a.s.r. uses other operational measures such as the COR, the life operating expenses as well as the availability and creation of capital, based on the Solvency II standard formula, as key figures in business decision making (see chapter 6.9).
The operating result is managed and presented at the consolidated a.s.r. and at a segment level (see chapter 6.4.3) and is also the key profitability indicator at business line level. The operating result is an inclusive measure covering all result components that can be influenced by the regular business. As such the operating result is the single bottom line performance indicator covering the performance of the business.
As a.s.r. applies shadow accounting and realised gains and loss accounting under IFRS 4, to ensure that insurance liabilities are adequate and to ensure that capital gains or losses on assets backing the insurance liabilities are allocated to the insurance liabilities, the operating result only differentiates from the IFRS result on items which are not directly related to its business. The capital gains on assets backing the insurance liabilities are allocated to the technical provisions and are released into the (operating) result over time. The operating result therefore reflects all investment related components that can be influenced by the business, as included in the IFRS result, but does not include any impairments on financial instruments, nor capital gains and fair value changes on the assets not backing the insurance liabilities (mostly equity and real estate investments).
It is current market practice for insurers to use an operating result to measure the underlying business performance, however the various current operating result definitions in the market seem to diverge. The a.s.r. operating result definition has limited deviations from the IFRS result. Following the implementation of IFRS 17 the operating result definitions need to be revised which may provide the opportunity to enhance the comparability of the operating result definition in the market.
Operating result is calculated by adjusting result before tax for continuing operations reported in accordance with IFRS, as adjusted for the changes in accounting policies and for the following:
Investment related: investment income of an incidental nature (including capital gains and losses, impairments, fair value changes and inflation linked value changes of bonds) on financial instruments for own account, net of applicable shadow accounting and net of additional provisions recognised for realised gains and losses on financial assets backing the insurance liabilities (‘compensation of realised capital gains’) impact;
Model- and methodological changes of a fundamental nature;
Results of non-core operations;
Non-recurring or one-off items related to the ongoing business; and
Other non-recurring or one-off items, which are not directly related to the core business and/or ongoing business of the group, restructuring costs, regulatory costs not related to business activities, changes in the own pension arrangements and expenses related to M&A activities and start-ups.
Starting from 2022 the inflation linked value changes of bonds are classified as non-operating result. These are added under the header 'investment related'. Also in line with the a.s.r. accounting manual, the non-recurring or one-off items related to the ongoing business are included in the definition above; since 2022, this includes the impact of the increase of minimum wages due to government intervention as a result of high inflation.
The RoE, which is based on the operating result, is defined as:
The operating result adjusted for hybrid expenses and the applicable tax divided by
The IFRS equity adjusted for unrealised capital gains reserve and equity components of non-core activities.
a.s.r. introduced the operating result in 2015 prior to the IPO. The operating result has since been the KPI for managing the profitability of the business. The eight-year comparison of the IFRS result and the operating result shows that the IFRS result for the year is more prone to volatility. In every year except 2020 and 2022 the IFRS result has exceeded the operating result. In 2020 and 2022, the operating result was higher than the IFRS result.
In 2022, indirect investment income decreased (€ -226 million), mostly driven by lower, but still positive, revaluations on real estate and lower realised results on fixed income securities. Impairments on investments increased by € 67 million, related to decreasing equity prices on the stock markets and negative revaluations of participations in fixed income and mortgage funds driven by increasing market interest rates, see chapter 6.5.5 and 6.6.9.
In addition, the impact of incidentals was more negative in 2022 compared to 2021, see below.
The development of the operating results shows a steady increase as the business has grown.
The reconciliation of the IFRS result for the year to the operating result is presented as follows:
|Result before tax||929||1,209|
|minus: investment related||78||303|
Starting from 2022 the inflation linked value changes are classified as non-operating result. The comparative figures 'investment related' in 2021 have been adjusted accordingly for an amount of € 12 million.
Indirect investment income amounted to € 78 million, a decrease of € 226 million compared to 2021. The decrease is due to market developments as outlined above. Indirect investment income consists of € -288 million realised gains and losses (2021: € 490 million), € 38 million fair value gains and losses (2021: € 110 million), € -95 million impairments (2021: € -22 million), € 303 million realised gains and losses release from insurance liabilities (2021: € -263 million addition), € 58 million inflation linked value changes included in investment income (2021: € 12 million) and € 61 million other adjustments mainly to prevent doublecounting with own pension scheme results under incidentals (2021: € -23 million). See respective notes for further information on the movements between 2021 and 2022.
Incidentals decreased by € 84 million to € -188 million. This was primarily driven by strengthening of Disability provisions related to the 10% increase of the legal minimum wage as of 1 January 2023 (€ -91 million). In 2022, incidentals also comprise results of the employee benefit pension scheme, revaluations of property development operations, regulatory project implementation costs (IFRS 17 and IFRS 9), amortisation of intangibles identified in business combinations (VOBA, other intangible assets), M&A costs related to the business combination of a.s.r. and Aegon Nederland N.V. and start-up costs for innovations.