Annual Report 2022
Counterparty default risk

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.

Counterparty default risk - required capital
31 December 202231 December 2021
Type 1103113
Type 2138289
Diversification (negative)-15-21

The Counterparty default risk type 1 has decreased due to the decrease in derivatives exposure, which is the results of the change in SCR interest rate risk. The SCR interest rate shock scenario Up is dominant per year-end 2022, while end of 2021 the opposite applied. If an IRS disappears because of a default, this results in a reduction of SCR interest Up. In 2021 the opposite was true, SCR interest Down increased.

The Counterparty default risk type 2 has decreased due to the decreased exposure of the mortgage portfolio. This is driven by the quarterly revaluation of the underlying property and the increase of interest rates. The total counterparty risk has decreased by 155 million. 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 9,534 million at year-end 2022 (2021: 11,181 million). The decrease in value is driven by a lower market value of the mortgages (due to the increase of interest rates) and positive revaluations of the underlying property.

Composition mortgage portfolio

The Loan-to-Value ratio is based on the value of the mortgage according to 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 increased from 0.02% in December 2021 to 0.03% in December 2022. Savings-linked mortgage loans

The counterparty default risk of the savings-linked mortgage loans ('Spaarlossen') depends on the counterparty. For 13% 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 84% 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.

Composition savings-linked mortgage loans portfolio

Please note that due to a methodology change, the composition of the savings-linked mortgage loans portfolio for 2021 has been adjusted. 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. 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 2022 was 309 million (2021: 419 million).

Composition reinsurance counterparties by rating
31 December 202231 December 2021
Total100%100% Receivables

The receivables decreased to 632 million in 2022 (2021: 853 million), mainly driven by lower other receivables and lower receivables from Health insurance fund. The receivables of Policyholders increased due to the new VVT-contract. The composition of the receivables is presented in the table below.

Composition receivables
31 December 202231 December 2021
Reinsurance receivables6383
Health insurance fund70148
Total632853 Cash and cash equivalents

The current accounts on the balance sheet amounted 1,756 million in 2022 (2021: 1,517 million).

Composition cash accounts by rating
31 December 202231 December 2021
Lower than A1128

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