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.
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.
Since market interest rates started rising in 2022, a.s.r. experienced liquidity outflow as a result of cash variation margin outflow related to the ISDA/CSA- and Clearing agreements of derivatives. The cash outflow was financed by returning earlier received cash collateral to counterparties and by liquidating assets. As at 31 December 2023 a.s.r. is a net receiver of cash collateral. Other sources of liquidity risk are (unexpected) lapses in the insurance portfolios and catastrophe risk. a.s.r. monitors its liquidity risk via different risk reporting and monitoring processes including cash management reports, cash flow forecasts, liquidity stress tests and liquidity dashboards in which liquidity outflows are calculated for different (stress) scenarios. For long-term liquidity management purposes, liquidity is also taken into account in the asset allocation process.
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-facilities 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. relies on holding 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 or lend to meet liquidity requirements. As at 31 December 2023, a.s.r. had cash (€ 4,140 million), short-term secured deposits (€ 882 million) and liquid government bonds (€ 16,068 million).
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 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. Furthermore, cash flows of the pension benefit obligations are taken into account.
| | Payable on demand | < 1 years | 1-5 years | 5-10 years | > 10 years | Carrying value |
|---|---|---|---|---|---|---|
| 31 December 2023 | | | | | | |
| Insurance liabilities | 621 | 4,752 | 27,817 | 23,555 | 78,211 | 99,384 |
| Pension Benefit Obligation | - | 122 | 999 | 1,289 | 6,388 | 5,218 |
| Derivatives liabilities | - | 1,520 | 2,508 | 2,802 | 4,630 | 10,132 |
| Savings deposits | 9,160 | 820 | 1,048 | 525 | 470 | 12,022 |
| Financial liabilities | 2,074 | 3,914 | 3,205 | 1,422 | 2,544 | 13,137 |
| Future interest payments | - | 100 | 537 | 563 | 1,278 | - |
| | | | | | | |
| Total | 11,856 | 11,228 | 36,114 | 30,156 | 93,521 | 139,894 |
| | Payable on demand | < 1 years | 1-5 years | 5-10 years | > 10 years | Carrying value |
|---|---|---|---|---|---|---|
| 31 December 2022 | | | | | | |
| Insurance liabilities | - | 5,234 | 10,236 | 9,845 | 34,294 | 42,103 |
| Pension Benefit Obligation | - | 64 | 540 | 725 | 3,594 | 2,742 |
| Derivatives liabilities | - | 459 | 2,608 | 2,006 | 1,310 | 5,681 |
| Financial liabilities | 1,770 | 576 | 53 | 74 | 2,059 | 4,512 |
| Future interest payments | - | 90 | 450 | 563 | 1,390 | - |
| | | | | | | |
| Total | 1,770 | 6,423 | 13,887 | 13,213 | 42,647 | 55,039 |
The insurance contract liabilities contractual cash flows for the period 1-5 years can be split into: 1-2 years € 11,688 mln (2022 € 3,188 million), 2-3 years € 5,523 mln (2022 € 2,450 million), 3-4 years € 5,346 mln (2022 € 2,381 million) and 4-5 years € 5,260 mln (2022 € 2,216 million).
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.