FINANCIAL STATEMENTS

Financial Statements

Achmea Annual Report 1 FINANCIAL STATEMENTS

Achmea 2012 Financial Statements

2 Achmea Annual Report FINANCIAL STATEMENTS

Financial Statements

CONSOLIDATED FINANCIAL STATEMENTS 4

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 11

COMPANY FINANCIAL STATEMENTS 132

NOTES TO THE COMPANY FINANCIAL STATEMENTS 133

OTHER INFORMATION 139

SUBSEQUENT EVENTS

STATUTORY REQUIREMENTS FOR APPROPRIATION OF RESULTS

ACHMEA SHAREHOLDERS AT 31 DECEMBER 2012

ACHMEA SUBSIDIARIES AND JOINT VENTURES

TRUSTEE REPORTS ON OTHER EQUITY INSTRUMENTS

STATEMENT OF THE EXECUTIVE BOARD OF ACHMEA B.V.

AUDITOR’S REPORT

Achmea Annual Report 3 FINANCIAL STATEMENTS Consolidated Financial Statements

CONSOLIDATED STATEMENT OF FINANCIAL POSITION (BEFORE APPROPRIATION OF RESULT) (€ MILLION) 31 DECEMBER 31 DECEMBER NOTES 2012 2011

4 Achmea Annual Report FINANCIAL STATEMENTS Consolidated Financial Statements

CONSOLIDATED INCOME STATEMENT (€ MILLION) NOTES 2012 2011

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Achmea Annual Report 5 FINANCIAL STATEMENTS Consolidated Financial Statements

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (€ MILLION) NOTES 2012 2011

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Except for the currency translation differences on subsidiaries, intangible assets and associates, which are included in the Exchange difference reserve, other comprehensive income is included in the Revaluation reserve.

6 Achmea Annual Report FINANCIAL STATEMENTS Consolidated Financial Statements

CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY (€ MILLION) EQUITY ATTRIBUT- ABLE TO HOLDERS OF EQUITY EXCHANGE OTHER INSTRU- REVALUA- DIFFER- PROFIT EQUITY MENTS NON-CON- SHARE OWN LEGAL TION ENCE HEDGING RETAINED FOR INSTRU- OF THE TROLLING TOTAL 2012 CAPITAL SHARES RESERVES RESERVE RESERVE RESERVE EARNINGS THE YEAR MENTS COMPANY INTEREST EQUITY

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Share capital includes €10,923 million share premium (2011 €10,933 million).

Due to the loss in 2011 no dividends were distributed during the financial year 2012 to holders of ordinary shares (2011: €0.10 per share).

Reference is made to Notes 18 and 19.

Achmea Annual Report 7 FINANCIAL STATEMENTS Consolidated Financial Statements

CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY (€ MILLION) EQUITY ATTRIBUT- ABLE TO HOLDERS OF EQUITY EXCHANGE OTHER INSTRU- REVALUA- DIFFER- PROFIT EQUITY MENTS NON-CON- SHARE OWN LEGAL TION ENCE HEDGING RETAINED FOR INSTRU- OF THE TROLLING TOTAL 2011 CAPITAL SHARES RESERVES RESERVE RESERVE RESERVE EARNINGS THE YEAR MENTS COMPANY INTEREST EQUITY

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8 Achmea Annual Report FINANCIAL STATEMENTS Consolidated Financial Statements

CONSOLIDATED STATEMENT OF CASH FLOWS (€ MILLION) NOTES 2012 2011

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Achmea Annual Report 9 FINANCIAL STATEMENTS Consolidated Financial Statements

CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED) (€ MILLION) NOTES 2012 2011

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10 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

GENERAL INFORMATION

Achmea B.V. is incorporated in the Netherlands and seated in Zeist. The head office is located at Handelsweg 2 in Zeist. The Achmea Group (hereafter called Achmea) comprises Achmea B.V. and the entities it controls.

1. ACCOUNTING POLICIES

A AUTHORISATION FINANCIAL STATEMENTS

The Achmea Consolidated Financial Statements for the year ended 31 December 2012 were authorised for issue in accordance with a resolution of the Executive Board on 5 March 2013. At the same date, the Supervisory Board gave its advice to the General Meeting of Shareholders on adoption of the Financial Statements. The Executive Board may decide to amend the Financial Statements as long as these have not been adopted by the General Meeting of Shareholders. The General Meeting of Shareholders may decide not to adopt the Financial Statements, but may not amend these.

B BASIS OF PRESENTATION

The Achmea Consolidated Financial Statements, including the 2011 comparative figures, have been prepared in accordance with the International Financial Reporting Standards - including International Accounting Standards (IAS) and Interpretations - as at 31 December 2012 and as adopted by the European Union (hereafter EU and EU-IFRS). Furthermore, the Achmea Consolidated Financial Statements comply with the requirements of Article 362 (9) Book 2, part 9 of the Dutch Civil Code. The exemption pursuant to Article 402 Book 2, part 9 of the Dutch Civil Code, applies to the Company Income Statement of Achmea B.V. All amounts in the Consolidated Financial Statements are in millions of euros unless stated otherwise.

C CHANGES IN REPORTING

Initial application of accounting policies The following amendments and revisions to Standards have been adopted by Achmea as of 1 January 2012 but have no material impact on Net profit or Total equity of Achmea.

Achmea Annual Report 11 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Accounting policies not applied A number of new Standards, amendments to Standards and Interpretations were published by the International Accounting Standard Board (IASB) in 2012 or prior years but are not applicable for the year ended 31 December 2012, and have not been applied in preparing these Consolidated Financial Statements. These are:

IFRS 1 First-time adoptions of IFRS (amendment) The amendments add an exception to the retrospective application of IFRSs to require that first-time adopters apply the requirements in IFRS 9 Financial Instruments and IAS 20 Accounting for Government Grants and Disclosure of Government Assistance prospectively to government loans existing at the date of transition to IFRSs. This means that first-time adopters shall not recognise the corresponding benefit of the government loan at a below-market rate of interest as a government grant. However, entities may choose to apply the requirements of IFRS 9 and IAS 20 to government loans retrospectively if the information needed to do so had been obtained at the time of initially accounting for that loan. These amendments give first-time adopters the same relief as existing preparers of IFRS Financial Statements. As Achmea already applies EU-IFRS, the amendments are not applicable for Achmea and, hence, have no effect on Achmea‟s Financial Statements.

IFRS 7 Financial Instruments: Disclosure (amendment) On 16 December 2011, the IASB issued an amendment to IFRS 7 relating to disclosure requirements that are intended to help investors and other financial statement users to better assess the effect or potential effect of offsetting arrangements on a company's financial position. The amendments will be applicable for reporting periods beginning on or after 1 January 2013 and should be applied retrospectively. These amendments will have no impact on Net profit and Total equity of Achmea.

IFRS 9 Financial Instruments The IASB issued a new standard on the accounting for financial instruments. The standard issued on 12 November 2009 covers the recognition and measurement of financial assets. On 28 October 2010, the IASB issued guidance on the recognition and measurement of financial liabilities. On 16 December 2011, the IASB issued an amendment that defers the mandatory effective date from 1 January 2013 to 1 January 2015 and therefore entities are required to apply the new standard for reporting periods beginning on or after 1 January 2015. According to the current version of IFRS 9, financial assets must be measured at amortised cost depending on the specific features of the financial instrument and the business model used. All other financial assets are to be measured 'At fair value through profit or loss'. For financial liabilities the existing amortised cost measurement for most liabilities will be maintained. IFRS 9 states that an entity choosing to measure a liability at fair value will present the portion of the change in its fair value due to changes in the entity's own credit risk in other comprehensive income. The other phases in the IFRS 9-project, impairment and hedge accounting, remain to be completed.

The EU has postponed the endorsement of IFRS 9. Achmea has decided not to adopt this accounting standard for the current reporting period as only part of IFRS 9 is finalised and the completion of the new standard on the accounting for insurance contracts is still pending.

Currently, the IASB has reopened its discussion on the classification and measurement of financial instruments, introducing a third category for the measurement of financial assets. This new category implies a material deviation from the original framework presented in IFRS 9. Due to this fact and the interaction with the future standard for the accounting of insurance contracts, no reasonable estimate can be made of the impact of IFRS 9.

IFRS 10 Consolidated Financial Statements The IASB issued IFRS 10 on 12 May 2011. The standard was developed as part of the IASB improvement process on the accounting for off- balance sheet activities and joint arrangements. IFRS 10 supersedes IAS 27, 'Consolidated and Separate Financial Statements', and SIC-12, 'Consolidation- Special Purpose Entities', and will be applicable for reporting periods beginning on or after 1 January 2013. The EU has endorsed this standard, but set the effective date for this standard for financial periods beginning on or after 1 January 2014. Although early adoption is permitted, Achmea decided not to adopt this standard as of 1 January 2013. IFRS 10 defines the principle of control and establishes control as the sole basis for determining which entities are to be consolidated in the Financial Statements. The standard also sets out requirements on how to apply the control principle.

On 28 June 2012, the IASB issued amendments to clarify the transition guidance in IFRS 10 Consolidated Financial Statements. The amendments also provide additional transition relief in IFRS 10, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, limiting the requirement to provide adjusted comparative information to only the preceding comparative period. Furthermore, for disclosures related to unconsolidated structured entities, the amendments will remove the requirement to present comparative information for periods before IFRS 12 is first applied. The amendments are effective for reporting periods beginning on or after 1 January 2013, which is

12 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements aligned with the effective date of IFRS 10, 11 and 12. To date, these standards have not been endorsed by the EU and therefore Achmea cannot apply these amendments.

On 31 October 2012, the IASB issued Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). The amendments apply to a particular class of business that qualifies as investment entities. The IASB uses the term 'investment entity' to refer to an entity whose business purpose is to invest funds solely for returns from capital appreciation, investment income or both and that evaluates the performance of its investments on a fair value basis. Under IFRS 10 Consolidated Financial Statements, reporting entities were required to consolidate all investees that they control (i.e. all subsidiaries). The Investment Entities amendments provide an exception to the consolidation requirements in IFRS 10 and require investment entities to measure these particular subsidiaries 'At fair value through profit or loss' rather than consolidate them. The amendments also set out disclosure requirements for investment entities. The amendments are effective from 1 January 2014 with early adoption permitted. To date, these amendments have not been endorsed by the EU and therefore Achmea cannot apply these amendments.

Achmea has started an investigation to assess the impact of these new standards. The preliminary findings of this investigation are that the implementation of IFRS 10 will not materially change the group of entities to be consolidated. Therefore, it is expected that Total equity, Total assets and Net profit will not materially be affected by the implementation of IFRS 10.

IFRS 11 Joint Arrangements IASB issued IFRS 11 on 12 May 2011. The standard was developed as part of the IASB improvement process on the accounting for off- balance sheet activities and joint arrangements. IFRS 11 supersedes IAS 31, 'Interest in Joint Ventures', and SIC-13, 'Jointly Controlled Entities-Non-Monetary Contributions by Venturers', and will be applicable from 1 January 2013. The EU has endorsed this standard, but set the effective date for this standard for financial periods beginning on or after 1 January 2014. Although early adoption is permitted, Achmea decided not to adopt this standard as of 1 January 2013. Furthermore, on 28 June 2012 amendments were issued by the IASB (refer to IFRS 10 for brief summary of the amendments).

IFRS 11 focuses on the rights and obligations of arrangements rather than their legal form (as is currently the case). Furthermore, the standard limits the accounting method for interests in jointly controlled entities to a single method: the equity method as described in the reissued IAS 28 (rather than the proportionate consolidation method).

Achmea has started an investigation to assess the impact of these new standards. The preliminary findings of this investigation are that the implementation of IFRS 11 will not materially impact Net profit and Total equity of Achmea as joint ventures are not material to the group. Therefore, it is expected that Total equity, Total assets and Net profit will not materially be affected by the implementation of IFRS 11.

IFRS 12 Disclosure of Interests in Other Entities The IASB issued IFRS 12 on 12 May 2011. The standard was developed as part of the IASB improvement process on the accounting for off- balance sheet activities and joint arrangements. IFRS 12 will be applicable for reporting periods beginning on or after 1 January 2013. The EU has endorsed this standard, but set the effective date for this standard for financial periods beginning on or after 1 January 2014. Although early adoption is permitted, Achmea decided not to adopt this standard as of 1 January 2013. Furthermore, on 28 June 2012 and 31 October 2012 amendments were issued by the IASB (refer to IFRS 10 for brief summary of the amendments).

IFRS 12 is applicable to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. The standard establishes disclosure objectives according to which an entity discloses information. This standard will have limited impact on the presentation of Achmea‟s interests in joint arrangements, associates or unconsolidated entities. The standard will have no impact on Net profit and Total equity of Achmea.

IFRS 13 Fair Value Measurement On 12 May 2011, the IASB issued IFRS 13 which defines fair value and sets out a single framework for measuring fair value. Furthermore, the standard describes disclosure requirements. The standard applies to all standards that require or permit fair value measurements or disclosures about fair value (except in specified circumstances). The standard is applicable to reporting periods beginning on or after 1 January 2013. The standard will have no material impact on Net profit and Total equity of Achmea.

IAS 1 Presentation of Financial Statements (amendment) On 16 June 2011, the IASB issued an amendment that changes and aligns the presentation of items of Other Comprehensive Income. The amendment requires presentation of items of Net Other Comprehensive Income that may be recycled through Net profit as a single item. The

Achmea Annual Report 13 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements amendment does not clarify which items have to be recycled through Net profit. The amendment is applicable to reporting periods beginning on or after 1 July 2012. The amendment will have no impact on Net profit and Total equity of Achmea.

IAS 19 Employee Benefits (amendment) On 16 June 2011, the IASB issued an amended version of IAS 19. The improved standard no longer allows the use of the corridor approach. It requires that changes in measurement of plan assets and liabilities of the defined benefit schemes are presented as 'Other Comprehensive Income' and it requires more extensive disclosures for these schemes. The amendments will be applicable for reporting periods beginning on or after 1 January 2013 and should be applied retrospectively. Adoption of IAS 19R will have a significant effect on Achmea's Net profit and Total equity. The main effects arise from: The elimination of the corridor method and recognition of all actuarial gains and losses in Other comprehensive income as they occur. Replacement of expected returns on plan assets with an interest amount that is calculated by applying the discount rate to the defined benefit obligation.

Furthermore, the inclusion of the future employee contributions in calculating the defined benefit obligation has a limited lowering effect on the defined benefit obligation. If Achmea had adopted the revised standard IAS 19R from 1 January 2012, total equity would have increased by approximately €664 million as at 1 January 2012. The adoption would have had a positive impact on Net profit 2012 of approximately €13 million and a negative impact on Net Other Comprehensive Income of approximately €582 million. The resulting positive impact of all these effects on Total equity as at 31 December 2012 would have been approximately €95 million, whereas solvency of the Group would increase by 2 percentage points. The movement in the impact on Total equity of 2012 is mainly caused by the decrease of the prescribed discount rate, resulting in a higher defined benefit obligation. This increase is offset by the increase of the value of the plan assets. The prescribed discount rate to be used in IAS 19 and IAS 19R is a rate based on high quality corporate bonds. Therefore, the presumption exists that a pension fund would invest in these corporate bonds, whereas the actual investment policy of the pension fund is based on a more conservative profile. Consequently, the plan assets exist primarily of top-rated government bonds. Due to the volatile and often different movements in both interest rates, a mismatch exists between the movements of the defined benefit obligation and the movement of the related plan assets.

IAS 27 Reissued as IAS 27 Separate Financial Statements On 12 May 2011, the IASB reissued IAS 27. The revised IAS 27 contains accounting and disclosure requirements only for investments in subsidiaries, joint ventures and associates in company Financial Statements. The standard applies to reporting periods beginning on or after 1 January 2013. Furthermore, on 31 October 2012 amendments were issued by the IASB (please refer to IFRS 10 for brief summary of the amendments). The EU has endorsed this standard, but set the effective date for financial periods beginning on or after 1 January 2014. The standard will have no impact on Achmea‟s Company Financial Statements as Achmea makes use of the option provided in section 362 (8) Book 2, part 9 of the Dutch Civil Code for accounting for subsidiaries, joint ventures and associates in separate Financial Statements.

IAS 28 Reissued as IAS 28 Investments in Associates and Joint Ventures On 12 May 2011, the IASB reissued IAS 28. The revised IAS 28 prescribes the accounting for investments in associates and sets out requirements for the application of the equity method when accounting for investments in associates and joint ventures. The standard applies to reporting periods beginning on or after 1 January 2013. The EU has endorsed this standard but set the effective date for this standard for financial periods beginning on or after 1 January 2014. Although early adoption is permitted, Achmea decided not to adopt this standard as of 1 January 2013. The revised standard will have a limited impact on the presentation of the joint ventures in which Achmea is involved. The revised standard will have no impact on Net profit and Total equity of Achmea.

IAS 32 Offsetting financial assets and financial liabilities (amendments) On 16 December 2011, the IASB issued amendments to IAS 32 that clarify the requirements for offsetting financial instruments. The amendments address inconsistencies in current practice when applying the offsetting criteria in IAS 32 Financial Instruments: Presentation. The amendments clarify the meaning of 'currently has a legally enforceable right of setoff' and that some gross settlement systems may be considered equivalent to net settlement. The amendments are applicable to reporting periods beginning on or after 1 January 2014. These amendments are expected to have a limited impact on Achmea as no different offsetting decisions are expected. The amendments will have no impact on Net profit and Total equity of Achmea.

Annual Improvements to International Financial Reporting Standards: 2009-2011 Cycle On 17 May 2012, the IASB issued Annual Improvements 2009-2011 Cycle, a collection of amendments to IFRSs in response to six issues addressed during the 2009-2011 cycle. The IASB uses the Annual Improvements process to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of any other project. The amendments are effective for reporting periods beginning on or after

14 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

1 January 2013. To date, these amendments have not been endorsed by the EU and therefore Achmea cannot apply these amendments. These amendments will have no or limited impact on Net profit and Total equity of Achmea.

Other On 19 October 2011, the IASB issued IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. The Interpretation clarifies when production stripping should lead to the recognition of an asset and how that asset should be measured, both initially and in subsequent periods. The Interpretation is applicable to reporting periods beginning on or after 1 January 2013 with earlier application permitted. This interpretation is not applicable to Achmea and will have no impact on Net profit and Total equity of Achmea.

Changes in presentation As from the second half of 2012, Achmea presents the cash flows related to Investment property, Investments and Investment backing linked liabilities as part of Cash flows from operating activities. In the past these cash flows were presented as part of Cash flows from investing activities. Being a financial institution, Achmea is of the opinion that it provides more meaningful information to present these cash flows as part of the Cash flows from operating activities. Comparative figures have been adjusted accordingly.

As from the second half of 2012, Achmea presents certain Deposits from credit institutions as part of Loans and Borrowings. In response to the decreased liquidity in the banking market followed on the financial crisis ECB offers financial institutions Long Term Refinancing Operations (LTRO). The LTRO are funding instruments for the banking activities. Because the other funding instruments are presented as part of Loans and Borrowings, e.g. secured banks loans, unsecured bank loans and subordinated loans, Achmea decided to present the LTRO as part of this balance sheet item. The adjusted presentation does not impact Net profit and Total equity of Achmea.

As from the second half of 2012, Achmea presents administration fees received for services provided for the implementation of certain Dutch health regulations (for example to so-called AWBZ) as part of Fee and commission income, and income from service contracts. In previous reporting periods, these fees were presented as part of 'Other Income'. Due to the specific nature of the fees received, Achmea is of the opinion that presenting these as part of Fee and commission income is more appropriate. Comparative figures have been adjusted accordingly.

In 2012, changes were made to the segment reporting as disclosed in Note 3 'Segment Reporting' of these Consolidated Financial Statements. In accordance with the 'management approach', the segmentation of Achmea's business operations is based on the way the Executive Board regularly reviews components of Achmea in order to allocate resources to the segment and to assess its performance. In 2012 Achmea changed its organisational structure, changing the manner in which the different components of Achmea are managed. Due to this change, Achmea reassessed its reportable segments and the main adjustments resulting from the reassessment are: The international activities are presented as a separate segment. Before 2012 these were presented as part of the Non-life, Health, Life and Banking activities; The asset and pension fund management activities in the Netherlands are presented as part of segment Other. Before 2012 these activities were presented as part of the Life segment.

The adjusted presentation does not impact Net profit and Total equity of Achmea. Comparative figures have been adjusted accordingly.

As from 2012, Achmea has renamed a certain item in the Consolidated Income Statement as Achmea is of the opinion that the adjusted name is a more accurate description of the content of the line item. Furthermore, in certain cases current presentation in the notes differs from the previous year presentation. Where applicable, comparative figures have been adjusted accordingly. These adjustments do not have an effect on Net profit and Total equity of Achmea.

Changes in accounting estimates In preparing these Consolidated Financial Statements, the significant judgements made by management in applying Achmea's accounting policies and the key sources of estimation uncertainties were the same as those that were applied to the Consolidated Financial Statements for the year ended 31 December 2011, with the following exception:

The discount rate used for measuring the liabilities related to certain insurance contracts which guarantee a minimum value at maturity of the contract and a portfolio of insurance contracts whose cash flows are discounted using market based interest rates. As from 2012 Achmea uses the Euro swap curve, including an illiquidity premium depending on the profit sharing features of the insurance contract, which is extrapolated by means of an ultimate forward rate (UFR). Per year-end 2011, Achmea used the three-month average Euro Swap curve to calculate these insurance liabilities. With the application of an UFR to determine the discount rate (e.g. yield curve) Achmea anticipates the extrapolation technique for the discount rate that will be used for Solvency II. This became clear when The Dutch Central Bank changed its

Achmea Annual Report 15 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements method for determining the discount rate for regulatory purposes as of 30 June 2012 making use of the UFR-method. By applying this discount rate, the insurance liabilities declined with (net of tax) €321 million at 31 December 2012 which has also positively impacted Net profit.

Furthermore, the discount rate used in Liability Adequacy Testing (LAT) and calculating the solvency margin was adjusted, according to new regulations of the Dutch Central Bank. Reference is made to Note 51 Capital management.

D CONSOLIDATION FRAMEWORK

Basis for consolidation The following principles apply to Achmea's Consolidated Financial Statements: Entities (including special purpose vehicles) over which Achmea exercises control (directly or indirectly) are considered as subsidiaries and are fully consolidated in Achmea's Financial Statements. Generally, control is presumed to exist when the interest in the entity's ordinary share capital or voting rights (including potential voting rights) represents more than 50%. Third-party interests in these entities are presented as Non-controlling interest within Total equity. Entities over which Achmea exercises significant influence are accounted for using the equity method. Generally, significant influence is presumed to exist when the participation in ordinary share capital or voting rights (including potential voting rights) is between 20 and 50%. These entities are presented as Associates. Entities over which Achmea and other Entities share joint control by means of contractual arrangements are considered to be joint ventures. Achmea accounts for joint ventures using the proportionate consolidation method.

All of Achmea's subsidiaries, associates and joint ventures are included in the Consolidated Financial Statements based on Achmea's accounting framework.

For the accounting of business combinations of entities or businesses under common control Achmea uses the pooling of interest method in case of a (legal) merger and carry over accounting (transfer based on the carrying amount) in case of an acquisition. Such transactions do not have an impact on Net profit and Total equity of Achmea.

Intra-group adjustments Intra-group transactions have been eliminated in the Consolidated Financial Statements.

Profits and losses resulting from transactions with associates or joint ventures are eliminated to the extent of Achmea‟s interest in the associate or joint venture.

E ACCOUNTING FRAMEWORK

Consolidated statement of cash flows The Consolidated Statement of Cash Flows has been set up according to the indirect method with a breakdown into cash flows from operating, investing and financing activities.

Foreign currency differences The Consolidated Financial Statements are presented in Euros, which is Achmea's functional and presentation currency. Items included in the Company Financial Statements of Achmea's subsidiaries are measured using the currency of the primary economic environment in which the subsidiary operates (the functional currency).

For consolidation, assets and liabilities of foreign subsidiaries with a functional currency other than the euro, are translated into euros at the exchange rates at reporting date. The income and expenses of such subsidiaries are translated at the weighted average exchange rates for the reporting period. Translation differences arising from the application of year-end exchange rates to the opening balance of net assets and goodwill of such subsidiaries and to the results for the reporting period are recognised in Total equity and reported as Net other comprehensive income.

The net asset value of associates with a functional currency other than the euro is translated into euros at the exchange rates at reporting date. The results of associates are translated at the weighted average exchange rates for the reporting year. Translation differences arising from the application of reporting date exchange rates to the opening net asset value of associates and to the results for the reporting period are recognised in Total equity and reported as Net Other Comprehensive Income.

16 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Transactions in currencies other than the functional currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at reporting date exchange rates of monetary assets and liabilities denominated in currencies other than the functional currency are recognised in Net profit, except when deferred in Total equity as part of qualifying cash flow hedges or qualifying net investment hedges.

THE PRINCIPAL EURO EXCHANGE RATES ARE SUMMERISED IN THE FOLLOWING TABLE: CLOSING RATES CLOSING RATES AVERAGE RATES AVERAGE RATES 2012 2011 2012 2011

Recognition financial instruments When Achmea becomes a party to the contractual provision of a financial instrument (i.e. trade date), Achmea recognises the instrument at fair value including transaction cost (unless it is classified as 'at fair value through profit or loss').

Derecognition financial instruments A financial asset (or part of a financial asset) is derecognised when the contractual rights to receive cash flows from the financial asset have expired or when Achmea has transferred substantially all risks and rewards of ownership. If Achmea neither transfers nor retains substantially all the risks and rewards of ownership of a financial asset, it is derecognised if Achmea no longer has control over the asset. In transfers where control over the asset is retained, Achmea continues to recognise the asset to the extent of its continuing involvement. The extent of continuing involvement is determined by the extent to which Achmea is exposed to changes in the value of the asset.

A financial liability (or a part of a financial liability) is derecognised when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expired).

Upon derecognition, the difference between the disposal proceeds and the carrying amount is recognised in the Income Statement as a realised gain or loss. Any cumulative unrealised gains or losses previously recognised in Total equity are transferred from Total equity to the Income Statement.

Achmea uses the average cost method when derecognising financial assets and liabilities.

Offsetting of financial assets and liabilities Financial assets and liabilities are offset and reported at the net amount when Achmea: Has a legally enforceable right to offset the recognised amounts; and Intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Hedge accounting Achmea applies fair value hedge accounting for its banking and treasury operations and certain investment portfolios. When Achmea applies fair value hedge accounting, a fair value adjustment is recognised in the Income Statement to reflect the changes in the fair value of the hedged items attributable to the hedged risk. Achmea assesses the effectiveness of the hedge relationship at each reporting date. The hedge relationship is discontinued when the effectiveness is not within the 80%-125% range or when the hedge is terminated or revoked. Achmea starts amortising the related fair value adjustment over the remaining duration of the hedged item when the hedge relationship is discontinued.

When Achmea applies cash flow hedge accounting or applies hedge accounting for a net investment in a foreign operation, the fair value changes of the hedging instruments, for the effective part of the hedge relationship, are recognised net of taxes in the Hedging reserve, part of

Achmea Annual Report 17 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Total equity. Fair value changes due to ineffective parts of the hedge relationship are recognised in the Income Statement. Amounts accumulated in Total equity are recycled through the Income Statement in the periods in which the hedged item affects Net profit.

Impairment In general, an impairment of an asset exists when its carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. At each reporting date, Achmea assesses whether there is an indication that an asset could be impaired and whether it is necessary to recognise an impairment loss.

Irrespective of whether there is any indication of an event requiring an impairment test, every year, Achmea tests goodwill from business combinations and other intangible assets with an indefinite life for impairment.

Impairments on Investments are recognised as Realised and unrealised gains and losses in the Income Statement. All other impairments are recognised as Other expenses in the Income Statement.

Impairment losses recognised in prior years are reversed if the reversal can be objectively attributed to the disappearance or removal of the impairment event since the impairment loss was recognised. If this is the case, the carrying amount of the asset is increased to its recoverable amount. An increase in the carrying amount due to the reversal of the impairment loss will not exceed the carrying amount if no impairment loss would have been recognised in prior periods. The increase due to a reversal of an impairment loss is recognised in the Income Statement (Realised and unrealised gains and losses for fixed-income investments and in Other expenses for other reversals). Impairment losses on equity instruments classified as 'Available for sale' are not reversed through the Income Statement. Subsequent fair value changes are recognised in the Revaluation reserve, part of Total equity. An impairment loss regarding goodwill and intangible assets with an indefinite life is not subject to reversal.

Held for sale classification Assets or components of assets and related liabilities are classified as 'Held for sale' when it is highly probable that the carrying amount will be recovered principally through a sale transaction rather than through continuing use.

A sale of an asset or a group of assets is highly probable if: Achmea is committed to a plan to sell these assets and has an active programme to locate a buyer; The assets are actively marketed for sale at a price that is reasonable in relation to its current fair value; and The sale is expected to qualify for recognition as a completed sale within one year from the date of classification as 'Held for sale'.

Assets and liabilities classified as 'Held for sale' are measured at the lower of their carrying amount or fair value less costs to sell and are presented separately in the Statement of Financial Position. If a loss occurs when classifying assets and liabilities as 'Held for sale', this loss is recognised in Other expenses in the Income Statement.

Borrowing cost Borrowing costs incurred for the construction of qualifying assets (assets that take a substantial period of time to acquire or construct) are capitalised during the period required to complete and prepare the asset for its intended use. As Achmea borrows funds on a general basis, the amount of borrowing costs is based on the weighted average of the borrowing costs applicable to the borrowings of Achmea that are outstanding during the period. Other borrowing costs are recognised in the Income Statement in the period in which they have been incurred.

Leasing Leases entered into by Achmea are primarily operating leases. The total payments made under operating leases are recognised in the Income Statement on a straight-line basis over the period of the lease.

18 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

F ASSETS AND LIABILITIES

All assets and liabilities are measured at fair value unless a different measurement is stated in the accounting policies.

Intangible assets

Goodwill Goodwill arising on a business combination represents the excess of the consideration transferred to acquire the business over the fair value of the net identifiable assets (including separately identified intangible assets), liabilities and contingent liabilities acquired at acquisition date. Goodwill is stated at cost less accumulated impairment losses.

Recognised goodwill is subject to an annual impairment test as it is perceived to have an indefinite useful economic life. Achmea has allocated the acquired goodwill due to business combinations to cash generating units (CGUs) that are expected to benefit from the business combination. This is done on the basis of synergies expected to be realised by the combination. Goodwill is monitored at business domain level, being an aggregation of products or group of products with the same risk characteristics and at which level risks are managed and capital is allocated. Any excess of the carrying amount of the domain over its recoverable amount will firstly be allocated to goodwill. Impairment tests at CGU level are performed at a fixed time every year and more frequently if triggering events occur. If an impairment loss occurs, it will be allocated to the relevant CGU. An impairment loss recognised for goodwill is not subject to reversal in a subsequent period.

Intangible assets excluding goodwill

Internally developed software Internally developed software is recognised at cost (including borrowing cost incurred) and is capitalised if the following criteria are met: Internally developed software is clearly defined and the costs attributable can be separately identified; The technical feasibility can be demonstrated; Management has indicated the intention to develop and market, or use, the product or process; and There is a clear indication of a future market for the product or process, or its usefulness can be demonstrated.

Capitalised internally developed software is amortised using the straight-line method over a maximum useful life of five years, or up to ten years when related to base system software.

Brand name When Achmea enters into a business combination it recognises brand name as an intangible asset. The initial value of a brand name is based on the application of the 'relief of royalty method', with the use of market observable variables and management expectations. The valuation techniques used are commonly applied.

Based on management expectations Achmea assesses whether the useful life is either finite or indefinite. Achmea will decide on a case-by- case basis the appropriate useful life, with a maximum of twenty years. The amortisation policy is straight-line unless a different method is more appropriate. When the useful life is indefinite, an annual impairment test is performed to assess the recoverability of the carrying amount. Achmea subsequently measures the brand names at the initially established cost and if applicable less accumulated amortisation and/or impairments losses.

Value of business acquired Achmea recognises the value of business acquired (VOBA) as part of the acquisition of a portfolio of (insurance) contracts or as part of a business combination in case of an expanded presentation. The initial value of VOBA is equal to the difference between the fair value of 'in force' (insurance) contracts in the acquired business using current estimates of relevant assumptions at the time of the business combination and the liability measured according to Achmea‟s accounting principles. Achmea will subsequently value VOBA at this initially established cost less accumulated amortisation and impairment losses. The amortisation policy is straight-line over the expected life unless a different method is more appropriate.

Distribution networks When Achmea enters into a business combination it recognises distribution networks as an intangible asset. The initial value of this intangible asset is based on the application of the 'multi-period excess earnings method', with the use of market observable variables and management expectations. The valuation techniques used are commonly applied within the industry.

Achmea Annual Report 19 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Based on management expectations Achmea assesses on a case-by-case basis the appropriate useful life generally not exceeding twenty years. Achmea will subsequently value Distribution networks at the initially established cost less accumulated amortisation and impairment losses. The amortisation policy is straight-line unless a different method is more appropriate.

Other intangible assets Other intangible assets acquired by Achmea are stated at cost less accumulated amortisation and impairment losses. Based on management expectations Achmea assesses whether the useful life is either finite or indefinite. Achmea will decide on a case-by- case basis the appropriate useful life, generally not exceeding twenty years. When the useful life is indefinite an annual impairment test is performed to assess the recoverability of the carrying amount. Other intangible assets with a finite useful life are amortised using the straight-line method unless a different method is more appropriate.

Amortisation charges Amortisation charges on Intangible assets are recognised as Other expenses in the Income Statement.

Impairments At each reporting date, Achmea assesses whether an indication of an impairment loss exists for intangible assets with a finite useful economic life. Various indicators are used, such as whether the intangible asset is abandoned, readily obtainable in the market, or the cost to maintain the intangible asset is significantly higher than expected. At each reporting date, Achmea assesses whether there is any indication that an impairment loss recognised in a prior period for intangible assets may no longer exist or may have decreased. Achmea considers the various indicators, such as: whether the asset‟s market value has increased significantly during the period; significant changes (technological, market, economic or legal environment) with a favourable effect on Achmea have taken place during the period; market interest rates have decreased and are likely to affect the discount rate used in calculating value in use and increase recoverable amount materially. If this is the case, the carrying amount of the intangible asset is increased to its recoverable amount. An increase in the carrying amount due to the reversal of the impairment loss will not exceed the carrying amount if no impairment loss would have been recognised in prior periods. A reversal of an impairment loss on Intangible assets is recognised as Other expenses in the Income Statement.

Internally developed intangible assets Expenditures related to internally generated goodwill, brand names and research costs are recognised in the Income Statement as an expense when incurred.

Property for own use and equipment

Property for own use Property for own use is measured at the revalued amount, being its fair value at the date of the revaluation less any (subsequent) accumulated amortisation and (subsequent) accumulated impairment losses. Changes in the carrying amount resulting from revaluations of Property for own use are recorded in the Revaluation reserve, part of Total equity net of deferred taxes. A decrease in the carrying amount due to revaluation is recognised as a decrease in the Revaluation reserve with the remaining amount being recognised through the Income Statement. A revaluation decrease will be reversed through the Income Statement in subsequent years if the revalued amount is higher than the carrying amount. When Property for own use is derecognised, revaluations included in the Revaluation reserve will be transferred directly to Retained earnings and not through the Income Statement.

If Property for own use comprises major components with a different useful life, they are accounted for as separate items.

Amortisation on Property for own use or on items accounted for separately is charged to the Income Statement on a straight-line basis over the estimated useful economic life, generally not exceeding fifty years. The amortisation method and useful economic life are reviewed annually and adjusted if circumstances or expectations have changed significantly. Land is not amortised. When Property for own use or its separate items accounted for is revalued, the depreciation charge is eliminated against the gross carrying amount of that item of Property for own use. Property for own use that is under construction or in development is stated at cost until either its fair value can be reliably determined or construction or development is complete.

20 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Equipment Equipment is measured at cost (including borrowing costs incurred) less accumulated amortisation and impairment losses. If equipment comprises major components with a different useful life these are accounted for as separate items.

Amortisation is charged to the Income Statement on a straight-line basis over the estimated useful life of items of equipment and major components that are accounted for separately. The estimated useful life is: software three to five years, hardware three to four years, office furniture (including components) three to six years and other equipment three to six years.

The amortisation method and useful life of equipment is reviewed annually and altered prospectively if circumstances or expectations have changed significantly.

Investment property Investments in real estate are measured at fair value. The fair value is based on current prices for similar real estate and similar locations and in similar condition or on commonly used valuation models and assumptions. All fair value changes are recognised as Realised and unrealised gains and losses in the Income Statement. Rental income from Investment property is recognised as Investment income in the Income Statement. Investment property that is being constructed or developed for future use as Investment property is classified as 'Property in development' and stated at cost until either its fair value can be reliably determined or construction or development is complete.

Investments

Investments classified as 'Available for sale' The classification 'Available for sale' is used for investments backing both insurance liabilities not measured at fair value and insurance liabilities whose cash flows are discounted using market based interest rates. Furthermore, all investments not backing insurance or banking liabilities are classified as 'Available for sale'. Investments classified as 'Available for sale' are measured at fair value. Unrealised fair value changes are transferred to the Revaluation reserve, part of Total equity net of deferred taxes. Upon derecognition of the investment any cumulative unrealised gains or losses, previously recognised in Total equity, are transferred from Total equity to the Income Statement. Foreign currency results on fixed-income investments are recognised as Realised gains and losses in the Income Statement as if they were carried at amortised cost in foreign currency. Interest income on fixed-income investments is determined by using the effective interest rate method.

At each reporting date, Achmea assesses whether there is objective evidence that an asset is impaired. If any such evidence exists the decline in the fair value below the (amortised) cost that has been recognised in Total equity is transferred to the Income Statement. In the case of investments in equities classified as 'Available for sale', objective evidence that the cost may not be recovered, can be demonstrated through a significant (20% or more) or prolonged (12 consecutive months or longer) decline in the fair value below its cost. Fixed-income investments are impaired if there is objective evidence that, as a result of one or more loss events (e.g. financial difficulty at the issuer or breach of contract), estimated future cash flows are impacted negatively.

Investments classified as 'At fair value through profit or loss' The classification 'At fair value through profit or loss' is used for investments that are either designated at initial recognition to be measured at fair value with changes in fair value recognised in the Income Statement, or as 'Held for trading'.

Achmea designates an investment as 'At fair value through profit or loss' whenever: this designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (also referred to as an 'accounting mismatch'); financial assets, financial liabilities or both are managed as a group, and their performance is evaluated by management on a fair value basis in accordance with a documented risk management or investment strategy; or financial instruments contain one or more embedded derivatives, except if the embedded derivative does not modify significantly the associated cash flows.

Achmea does not invest in financial instruments principally for the purpose of selling or repurchasing them in the near term (i.e. for trading purposes).

Achmea Annual Report 21 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Investments classified as 'Loans and receivables' The classification 'Loans and receivables' is used for investments that are backing financial liabilities measured at amortised cost and for savings accounts which are directly linked to insurance liabilities not measured at fair value or of which the cash flows are discounted using market based interest rates. These investments are stated at amortised cost, less any allowance for uncollectability. If there is objective evidence that an impairment loss on 'Loans and receivables' has been incurred, the amount of the loss is measured as the difference between the asset‟s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset‟s original effective interest rate (i.e. the effective interest rate computed at initial recognition). The interest income recognised on an impaired loan or receivable is disclosed separately. A new amortised cost schedule is determined which governs the future interest income recognised in the Income Statement. The carrying amount of the financial asset is reduced through the use of an allowance account and the amount of the impairment loss is recognised in the Income Statement.

Equity investments Equity investments are classified as either 'Available for sale' or 'At fair value through profit or loss'. When optional dividends are taken up as shares, an amount equal to the cash dividend is recognised in the Income Statement.

Venture capital investments Venture capital investments which are part of an investment portfolio managed by asset managers are classified in accordance with the framework as described above either 'At fair value through profit or loss' or 'Available for sale' depending on the measurement basis of the related insurance liabilities. Venture capital investments which are made through the use of a Venture capital organisation, and which are not considered to be a subsidiary are classified as „At fair value through profit or loss‟. The fair value of Venture capital investments which are not listed on a stock exchange is based on models as recommended by the European Venture Capital Association.

Fixed-income investments For fixed-income investments classified as 'Available for sale' which cover insurance liabilities of which the cash flows are based on locked assumptions within the Dutch life insurance business, unrealised fair value changes included in Total equity are subsequently transferred to Profit sharing and bonuses as part of the Insurance liabilities. This transfer is halted whenever Profit sharing and bonuses is negative. Unrealised losses on the fixed-income investments included in the Income Statement, in case the transfer to Profit sharing and bonuses was halted, are reversed through the Income Statement if the fair value of the investments subsequently increases. When the reversal is complete, the transfer to Profit sharing and bonuses is resumed.

Derivatives All derivatives are defined as 'Held for trading'. Achmea uses derivatives to manage its exposure to market risks arising from operating, investing and/or financing activities. Derivatives embedded in other financial instruments are separated and measured separately if they are not closely related to the host instrument. A convertible bond is separated into a bond part classified as 'Available for sale' and an equity conversion option classified as a derivative. The bond part is measured according to the valuation of a similar bond with the same characteristics. The fair value of interest rate swaps is the estimated amount that would be received or paid to terminate the swap at reporting date, taking into account current interest rates and creditworthiness of the swap counterparties.

Depending on their value, derivatives are either presented as Investments (assets) or as Derivatives (liabilities).

Investments related to cash collateral received in securities lending Investments related to cash collateral received in securities lending are directly related to invested collateral under securities lending programmes. The investments are not at free disposal and can only be used to repay the collateral provided by the borrower on the related securities lending transaction. The repayment obligation with respect to the collateral provided is included in the Statement of Financial Position as part of Other liabilities. The investments are measured at fair value with unrealised fair value changes recognised in separate components of Total equity net of taxes, unless defaults in the investment funds occur which are treated as an impairment loss.

22 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Securities borrowing and lending Investments lent under securities lending arrangements continue to be recognised in the Statement of Financial Position and are measured in accordance with the accounting policy for assets 'At fair value through profit or loss' or 'Available for sale' as appropriate.

Investments backing linked liabilities

Investments backing linked liabilities are investments related to insurance contracts where the policyholder bears the investment risk or which are backing 'Investment contracts'. These investments comprise segregated investment contracts, deposits for group life contracts with full profit sharing, unit-linked life insurance policies, investment contracts and investments covering obligations under insurance or investment contracts where the benefits are index-linked. These investments are designated as 'At fair value through profit or loss' to reduce a measurement inconsistency that would arise as related liabilities are measured at fair value and both are managed as a group.

Banking credit portfolio

These assets relate to the banking activities and consist of loans and advances to customers and loans and advances to credit institutions. These assets are either measured at amortised cost and classified as 'Loans and receivables' or measured at fair value and classified as 'At fair value through profit or loss'. The classification 'At fair value through profit or loss' is used for assets that are either designated at initial recognition to be measured at fair value with changes in fair value recognised in the Income Statement or as 'Held for trading'. Assets are designated as 'At fair value through profit or loss' whenever this designation eliminates or significantly reduces a measurement or recognition inconsistency (accounting mismatch) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them using different bases. Foreign currency results are recognised in the Income Statement.

The Banking credit portfolio, measured at amortised cost, is adjusted by an allowance account to reflect identified incurred losses within the portfolio and incurred but not yet reported losses within the portfolio. Achmea applies hedge accounting for some of its banking and treasury operations.

Deferred acquisition costs

Acquisition costs are expenses incurred in connection with the acquisition of new insurance contracts or the renewal of existing contracts (including investment contracts). They include commissions paid and expenses for processing of proposals.

Acquisition expenses directly or indirectly related to the sale of insurance contracts not measured at fair value are deferred to the extent that they are deemed recoverable from future revenues. Deferred acquisition costs are subject to recoverability testing at the time of policy issue and included in the liability adequacy test of insurance liabilities at the end of each reporting period. Acquisition expenses related to securing the right to provide investment management services related to investment contracts are deferred to the extent deemed recoverable from future revenues. Deferred acquisition costs related to investment contracts are tested separately for impairment. Achmea does not consider anticipated investment income in the determination of the recoverability.

Any irrecoverability of Deferred acquisition costs as a result of liability adequacy testing is recognised as an impairment loss and included in Operating expenses.

Deferred acquisition costs are amortised over the lifetime of the related insurance contracts.

Amounts ceded to reinsurers

Reinsurance premiums ceded and reinsurance recoveries on benefits and claims incurred are deducted from the respective income and expense accounts. Prepaid reinsurance premiums represent the ceded portion of unearned premiums. Amounts recoverable from reinsurance are estimated in a manner consistent with the claim liability associated with the reinsured risk. An impairment loss is accounted for if there is objective evidence as a result of an event that Achmea will not receive all amounts due under the contract and this amount can be measured reliably. Accordingly, revenues and expenses related to reinsurance agreements are recognised consistently with the underlying risk of the business reinsured.

Receivables and accruals

Receivables are measured at fair value, being the difference between the face value and accumulated impairment losses.

Achmea Annual Report 23 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Cash and cash equivalents

Cash and cash equivalents comprise cash, bank balances and call deposits. For the purpose of the Consolidated Statement of Cash Flows, bank overdrafts that are repayable on demand and form an integral part of Achmea‟s cash management processes are recognised as a component of Cash and cash equivalents.

Total equity

Achmea shares held by the company (own shares) are accounted for by a reduction within Total equity at the moment of purchase by Achmea or its subsidiaries on the basis of purchase price paid. Any results upon the subsequent sale of such treasury shares are recognised directly within Total equity. Any Non-controlling interest related to subsidiaries is presented as a separate component within Total equity and is equal to the third-party share in the subsidiary's equity based on Achmea's accounting principles.

Insurance liabilities

Insurance contracts are defined as contracts that transfer significant insurance risk. Insurance risk exists if an economic viable scenario exists under which, based on an insured event, additional payments have to be made. Insurance risk is considered significant if the payment on occurrence of an insured event differs at least 10% from the payment if the event does not occur.

General measurement principles Gross written premiums for Life insurance contracts are generally recognised in the Income Statement when due. Earned premiums for Non- life and Health insurance contracts are generally recognised in proportion to the period of insurance coverage provided.

A loading for expenses is included in premiums. When premiums are recognised, the loadings emerge and are included in Insurance liabilities and subsequent released in future periods to offset actual expenses, including operating expenses, non-deferrable acquisition costs and amortisation of deferred acquisition costs.

When premiums are recognised, liabilities for future contract benefits are recorded, resulting in benefits and expenses being matched with the revenues and profits being recognised over the lifetime of the contracts. The assumptions used in the calculation of the provisions are based on objective externally published data or, when not available, internal data.

For participations in underwriting pools, co-insurance or guarantee fund agreements, an amount equal to the share in these agreements is recognised under the respective liability. The information used is received from management of these agreements.

Options, guarantees and other derivatives embedded in an insurance contract that do not bear any insurance risk and that are not closely related to the host insurance contract are separately recognised as a derivative. Options and guarantees that are closely related to the insurance contract are included in the measurement of Insurance liabilities.

Achmea tests the adequacy of the recognised insurance liabilities and related assets at each reporting date and more often if deemed necessary. The test applies to value of business acquired, deferred acquisition costs and insurance liabilities. The test considers current estimates of all contractual cash flows of the insurance liabilities, including expected cost for claim handling, guarantees and embedded options. If the test shows that the insurance liabilities are inadequate, Achmea will recognise a loss by first reducing any recognised value of business acquired. Any remaining deficit is either compensated first by reductions of deferred acquisition costs or ultimately by increasing the related insurance liabilities.

Profit sharing and bonuses (Life and Non-life) A provision is made for any profit share that policyholders or beneficiaries are entitled to. Vested rights that have not yet been credited to policyholder accounts are included in the provision for profit sharing and bonuses. Other vested rights are included in the provision for life policy liabilities. The calculation of the provision depends on the extent to which policyholders benefit from any surpluses earned on insurance contracts or operations.

The provision includes amounts allocated under the relevant local statutory or contractual regulations to the account of policyholders.

24 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The provision for profit sharing and bonuses also includes amounts arising from the valuation of certain fixed-income investments at fair value and derivatives held to mitigate the interest rate risk inherent in the related insurance liabilities. Unrealised gains and losses in connection with the valuation of these investments are recognised in Total equity and subsequently transferred to Profit sharing and bonuses to the extent that the policyholder will participate in such gains and losses on the basis of statutory or contractual regulations.

Provision for unearned premiums (Health and Non-life) Gross written premiums attributable to income of future years are accrued in the Provision for unearned premiums. The Provision for unearned premiums is determined in proportion to the duration of the contract.

Provision for premium deficiency (Health and Non-life) The Provision for premium deficiency is calculated for each insurance portfolio on the basis of estimates of future claims, costs, premium earned and proportionate investment income. For insurance policies covering a risk which increases during the term of the policy at premium rates independent of age, this risk is taken into account in determining the provision.

Outstanding claims provision including incurred but not reported claims (Health and Non-life) The Outstanding claims provision relates to insurance claims that have not been settled at reporting date. These claims are determined either case-by-case or statistically. The provision also includes amounts for incurred but not reported claims at reporting date. In determining the provisions, costs for claim handling are taken into account.

The Outstanding claims provision is based on estimates of expected losses and unexpired risks for all lines of business. This takes into consideration management's judgement on the anticipated level of inflation, regulatory risks and trends in claims and claim handling. Estimates of expected losses are developed using historical claims experience, other known trends and developments, and local regulatory requirements. No deductions are made for salvage, subrogation and other expected recoveries from third parties for reported claims. These are accounted for under non-insurance assets acquired by exercising rights to recoveries, as part of Receivables and accruals.

Expected claim payments included in the Outstanding claims provision are not discounted except for disability insurance contracts. For this type of insurance contracts the provision reflects the present value of the expected claim payments, calculated on the basis of a fixed interest rate (3%). Waiting periods are taken into account when determining the provision. An average term is taken into account for the probability of rehabilitation.

For some risk exposures no adequate statistical data are available, such as environmental and asbestos claims and large-scale individual claims, because some aspects of these types of claims are still evolving. Provisions for such claims have been made following an analysis of the portfolio in which such risks occur.

Provision for life policy liabilities Insurance liabilities for traditional life insurance contracts are established by the net-level premium method and based on the actuarial and economic assumptions used in pricing the contracts. The assumptions on which the calculations are based vary, particularly with regard to mortality, morbidity and interest rates. These assumptions are initially based on best estimates of future experience at policy inception date, in some cases taking into account a margin for the risk of adverse deviation. The assumptions used are regularly reviewed, compared to actual experience and, if necessary, updated, depending on the type of products. The Provision for unearned premiums, Provision for premium deficiency and unexpired risks and Provision for outstanding claims are included to the extent that these relate to the life insurance business.

In the adequacy test mortality and morbidity rate assumptions are based on most recent observations as published by relevant bodies which are adjusted to reflect Achmea's own experience and to allow for the trend in mortality risk over the coming years. Persistency assumptions are based on historical experience.

Different accounting principles are used to measure the life policy liabilities based on the matching characteristics between (financial) assets and the life policy liabilities and the specific nature of the portfolios, profit sharing features and embedded options: Insurance liabilities measured at fair value. All assumptions used are based on actual assumptions and current market interest rates. Fair value changes are recognised in the Income Statement. The related financial investments are classified as 'At fair value through profit or loss'. Insurance liabilities whose cash flows are discounted using market based interest rates which are sometimes based on the (projected) market return of related financial investments. Changes in the value of these insurance liabilities are recognised in the Income Statement. The related financial investments are classified as 'At fair value through profit or loss'.

Achmea Annual Report 25 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Insurance liabilities whose cash flows are based on locked assumptions are discounted at fixed discount rates (3% or 4% depending on their date of inception). For the Dutch life insurance business, the fair value changes of related interest sensitive financial instruments, classified as 'Available for sale', are transferred through Total equity to 'Profit sharing and bonuses'. This component of Profit sharing and bonuses may not be negative. Insurance liabilities whose cash flows are directly influenced by profit sharing features are adjusted through the application of shadow accounting. Unrealised fair value changes of investments (classified as 'Available for sale') backing these insurance liabilities are transferred to Total equity. The related change in the value of the insurance liabilities is also transferred to Total equity.

Deferred interest surplus rebates The Deferred interest surplus rebates in the Dutch life insurance industry are netted with the Provision for life policy liabilities. These rebates are granted in any year on regular or single premiums for pension and life insurance which are based on the expectation that actual investment yields will exceed the discount rate applied in the pricing of the policies. The rebates are amortised over a 10-year period on the basis of annually increasing amounts, consistent with the manner in which the interest surplus was expected to be realised.

Insurance liabilities where policyholders bear investment risks

Insurance liabilities for unit-linked policies and other insurance contracts where the policyholder bears the investment risk are accounted for at the value of the associated investments. The insurance liabilities for contracts with segregated investments are generally calculated on the basis of the contractual provisions for the insurance contract. In case of a surplus of these segregated assets, the amounts are recognised as Other liabilities.

Investment contracts

Contracts with no or insignificant insurance risk are recognised as Investment contracts. Investment contracts are measured at fair value with changes in fair value through the Income Statement. The fair value of investment contracts is the higher of the fair value of the financial instruments linked to the investment contracts, the surrender value (adjusted for any surrender penalties) and the discounted maturity value (against a risk-free interest rate). The fair value for non-linked investment contracts is the higher of the discounted exit value using a risk-free interest rate or the surrender value (adjusted for surrender penalties).

Post-employment benefits

Contributions payable to defined contribution pension plans are recognised as an expense in the Income Statement when incurred.

The net obligation in respect of defined benefit pension plans is calculated separately for each plan using the 'projected unit credit method'. In accordance with this method, the future benefits that employees have earned in return for their service in the current period and prior periods are estimated. The rates used for salary developments, discounting and other adjustments reflect the specific country conditions. The liability is discounted to determine the present value and the fair value of qualifying plan assets is deducted.

When the benefits of a plan are improved, the portion of the increased benefit relating to past services is recognised as an operating expense in the Income Statement on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately as operating expense in the Income Statement.

Actuarial gains and losses related to the differences between the actuarial and financial assumptions used in the calculations and the actual amounts obtained are recognised following the 10% corridor method.

The present value of defined benefit assets at reporting date is recognised to the amount of the economic benefit that will be available to Achmea in the form of refund from the plan of reduction in future contributions.

Other provisions

Other provisions are recognised when a legal or constructive obligation, which can be reliably estimated, exists as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the provision is to be used over a period longer than one year, expected cash flows are discounted.

26 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

A provision for restructuring is recognised when management has approved a detailed and formal restructuring plan, and the restructuring was either commenced or has been announced to the parties concerned prior to reporting date. Costs relating to the ongoing activities of Achmea are not provided for.

Until 2009, employees of Achmea could participate in an equity participation plan. This plan is classified as a cash-settled share-based payment. The liability is measured at an estimation of the fair value.

Achmea's net obligation in respect of other long-term service benefits, other than pension plans, is the amount of future benefits that employees have earned in return for their service in the current period and prior periods. The obligation is calculated using the 'projected unit credit method' and is discounted to its present value and the fair value of any related assets is deducted.

Banking customer accounts and Loans and borrowings

Banking customer accounts are measured at amortised cost. Loans and borrowings include all loans from external parties to Achmea, financial lease liabilities and financial reinsurance liabilities. These consist of deposits from banks, secured banks loans, unsecured bank loans and subordinated loans. These liabilities are measured at amortised cost. Cash collateral received from borrowers related to securities lending programmes is recognised as a financial liability as there is an obligation to repay the cash received by the lending agent. These liabilities are measured at amortised cost. As no premiums or discounts are received on the collateral, the amortised cost equals the nominal value. Fair value hedge accounting is applied to some loans when this is in accordance with the financial risk management policy. Some financial liabilities are measured at fair value when these liabilities are recognised due to the termination of insurance contracts and the future sale of related financial assets.

Taxation

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the Income Statement except to the extent that it relates to items recognised in Total equity, in which case these items are recognised in Total equity net of taxes.

Expected tax payable or receivable are based on the taxable profit or loss for the year using tax rates enacted or substantially enacted at reporting date, and any adjustment to current tax in respect of previous years.

Deferred tax is provided for using the balance sheet liability method for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided for is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantially enacted at reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

G KEY ACCOUNTING ESTIMATES

For the measurement of certain items of the Statement of Financial Position, Achmea uses assumptions and estimates concerning future results or other developments, including the likelihood, timing or amounts of future transactions or events. Inherent to estimates is that the actual results may differ materially. The accounting estimates that are most critical to Achmea's business operations and to the understanding of its results and which involve complex or subjective decisions or assessments are presented below.

Impairment testing of intangible assets In testing for impairment of intangible assets, the carrying amount is compared with the recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. Determining the value in use is an area involving management judgement, requiring assessment as to whether the carrying value of assets can be supported by the net present value of future cash flows derived from such assets using cash flow projections which have been discounted at an appropriate rate. In calculating the net present value of the future cash flows, assumptions are required to be made in respect of uncertain matters like timing and amount in projecting cash flows and development of future discount rates.

Assumptions regarding goodwill impairment testing are further disclosed in Note 7 Intangible assets.

Achmea Annual Report 27 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Fair value of Property for own use and Investment property Property for own use is measured at the revalued amount and Investment property is reported at fair value. These values are based on regular appraisals by independent qualified valuators that apply agreed procedures within the industry. Techniques used are discounted cash flow (DCF) projections based on estimates of future cash flows and using a discount rate that reflects current market assessments of the uncertainty in the amount and timing of the cash flows. The assumptions used in applying the DCF-method are supported by the terms of any existing lease and other relevant contracts and by external evidence such as recent and expected general economic trends, current market rents for similar properties in the same location and condition. Vacancy and rent-free periods are also taken into account. Rental growth rates are based on general economic trends, taking into account the specific characteristics of property being valued.

The valuation of property involves various assumptions and techniques. The use of different assumptions and techniques may have a significant impact on these valuations.

Impairment testing of financial assets There are a number of significant risks and uncertainties inherent in the process of monitoring financial assets and determining if an impairment loss exists. For example, Achmea's assessment of an issuer's ability to meet all of its contractual obligations when the creditworthiness of that issuer or the economic outlook of the issuer changes.

Achmea applies judgement to establish whether a loss event has occurred resulting in an impairment loss for a fixed-income investment. Specifically, Achmea assesses an issuer's ability to meet both principal and interest payments when the financial condition of the issuer changes.

Objective evidence of impairment of an equity investment classified as 'Available for sale' includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity investment may not be recovered. A significant or prolonged decline in the fair value of an equity investment below its cost is also objective evidence for impairment. Equity investments held in an unrealised loss position that are below cost for over twelve consecutive months or significantly below cost (20%) at reporting date are impaired. When determining the impairment loss, qualitative factors are also used to determine if impairment is required before these thresholds are met.

In the Banking credit portfolio, future cash flows are evaluated for impairment for a portfolio of financial assets on the basis of the contractual cash flows of the assets in the portfolio and historical loss experience for assets with credit risk characteristics similar to those in the portfolio. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist. Current observable data may include changes in unemployment rates, property prices and commodity prices. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

Fair value of financial assets determined using valuation techniques In the absence of an (active) market, the fair value of non-quoted financial assets is estimated by using present value or other valuation techniques. For example, the fair value of non-quoted fixed-interest debt instruments is estimated by discounting expected future cash flows using a current market interest rate applicable to financial instruments with similar yield, credit quality and maturity characteristics. Valuation techniques are subjective in nature and significant judgement is involved in establishing fair values for certain financial assets and liabilities. Valuation techniques involve various assumptions on the pricing factors. The use of different valuation techniques and assumptions could have an effect on fair value.

Recognition of deferred tax assets Deferred tax assets are established for the tax benefit related to deductible temporary differences, carry forwards of unused tax losses and carry forwards of unused tax credits when, in the judgement of management, it is likely that Achmea will receive the tax benefits. A change in judgement could have a substantial effect on value of the deferred tax asset. As there is no absolute assurance that these assets will ultimately be realised, management reviews Achmea‟s deferred tax positions periodically to determine if it is likely that the assets will be realised. Furthermore, management considers tax planning strategies to increase the likelihood that the tax assets will be realised.

Other receivables - Health segment Settlement of medical care costs between Dutch health insurers and hospitals, mental health institutions („GGZ-Instellingen‟) and rehabilitation centres is based on so-called „DBC op weg naar Transparantie‟ (DOT) that cover the whole duration of a medical treatment.

28 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

DOTs are based on a pre-arranged budget. Before 2012 this settlement was based on so-called „Diagnose Behandel Combinaties‟ (DBC) with an upfront funding which is included in Other receivables and accruals.

The private health insurance system in force in the Netherlands consists of two parts: basic health insurance and supplementary health insurance. Coverage within basic health insurance is heavily determined by law and influenced by political processes. The basic health system (inherently) comprises uncertainties due to the calculation methods applied. A system of risk mitigating features is in force in the Netherlands to reduce the uncertainties raised by the system. The measurement of receivables regarding the Health Insurance Fund is an inherently uncertain process, involving assumptions for national healthcare costs and allocation of healthcare costs to budget parameters. For more details regarding the uncertainties and the risk mitigating factors in health insurance, a reference is made to Note 50 Risk management. Any change in the assumptions could have an impact on the settlement with the Dutch government (Health Insurance Fund).

Insurance liabilities including deferred acquisition costs (DAC) and value of business acquired (VOBA) The measurement of insurance liabilities, DAC and VOBA is an inherently uncertain process, involving assumptions for changes in legislation; social, economic and demographic trends; inflation; investment returns; policyholder behaviour; and other factors, and, in the Life and part of the Non-life insurance business, assumptions concerning mortality and morbidity trends. Specifically, significant assumptions related to these items that could have a material impact on Net profit include interest rates, mortality, morbidity, property and casualty claims and assumptions used in the liability adequacy test.

The data used to calibrate the outstanding claims provision related to Dutch health-insurance contracts is based on historical information. The results on the equalisation fund (including standard nominal premium) and claims level are preliminary and will probably change and shift between insurers for some years. Achmea reassesses provisions for the underwriting year on an annual basis based on the latest information on claims level, macro-neutrality and settlements with the Dutch government (equalisation fund allocation for the related underwriting year). When appropriate, Achmea has made additional provisions.

In addition, the adequacy of the provision for life policies liabilities, net of DAC and VOBA, is evaluated regularly. The assumptions used are based on a combination of experience within Achmea and market benchmarks, such as those supplied by the statistics department of the Dutch Association of Insurers and the Dutch Society of Actuaries and similar bodies throughout Europe. Where possible, Achmea uses market observable variables and models / techniques which are commonly used in the industry. The use of different assumptions in this evaluation could have an effect on the insurance liabilities and underwriting expenses.

Insurance liabilities also include the impact of minimum guarantees which are included in certain insurance contracts. The recognition of these guarantees depends on the difference between the potential minimum benefits payable and the total account balance, expected mortality and surrender rates. The determination of the potential minimum benefits payable also involves the use of assumptions on inflation, investment returns, policyholder behaviour, and mortality and morbidity trends. The use of different assumptions on these factors could have an effect on insurance liabilities and underwriting expenses.

Valuation of Post-employment benefits The liability recognised in the Statement of Financial Position in respect of the defined benefit pension plans is the present value of the defined benefit obligation at reporting date less the fair value of the plan assets, together with adjustments for unrecognised actuarial gains and losses, and unrecognised past service costs. The determination of the defined benefit plan liability is based on actuarial models and calculations using the projected unit credit method. Inherent in these actuarial models are assumptions for discount rates, rates of increase in future salary and benefit levels, mortality rates, healthcare costs trend rates, consumer price index, and the expected return on plan assets. The assumptions are based on available market data and the historical performance of plan assets, and are updated annually. Reference is made to Note 23 Post-employment benefits for the assumptions used in connection with pension and other post-employment benefits. The actuarial assumptions may differ significantly from the actual results due to changes in market conditions, economic and mortality trends, and other assumptions. Any changes in these assumptions could have an impact on the valuation of defined benefit plans.

Valuation of Other provisions A provision involves a present obligation arising from past events, the settlement of which is expected to result in an outflow from Achmea of resources embodying economic benefits, however the timing or the amount is uncertain. Provisions are discounted when the effect of the time value of money is material using a pre-tax discount rate. The determination of provisions is an inherently uncertain process involving estimates regarding amounts and timing of cash flows.

Achmea Annual Report 29 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

2. EXCEPTIONAL EVENTS

During 2012, no exceptional events occurred that have had a major impact on Achmea's financial position and the 2012 Financial Statements.

30 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

3. SEGMENT REPORTING

Following the change in the organisational structure of Achmea in 2012, the reportable segments were changed compared to the reportable segments in the Achmea Consolidated Financial Statements 2011. Achmea recognises the segments Non-life Netherlands, Health Netherlands, Pension & Life Netherlands, International, Banking Netherlands and Other. Comparative figures have been adjusted accordingly.

Non-life Netherlands Achmea's segment Non-life Netherlands consists of insurance contracts issued to customers to cover the risks associated mainly with motor vehicles, property, general liability, occupational health and accident, including disability prevention.

Health Netherlands Achmea's Health Netherlands segment covers basic and supplementary health insurance and health services in the Netherlands.

Pension & Life Netherlands The principal activities of the segment Pension & Life Netherlands are life and pension insurance, including unit-linked insurance.

International Achmea's segment International contains all activities outside the Netherlands. Segment International operates activities in the core countries Greece, Russia and Turkey and the countries Bulgaria, Ireland, Romania and Slovakia. Moreover, segment International conducts a greenfield start up with Rabobank in Australia.

The international activities include primarily insurance activities, but also banking activities. Insurance activities relate to the provision of Non-life, Health and Life insurance policies, including the provision of investment contracts containing no or insignificant insurance risk. Banking activities are operated in Ireland and include consumer finance operations through Friends First Finance. Furthermore, associates in which significant influence is exercised by management outside the Netherlands are included within this segment.

Banking Netherlands Achmea is active in banking in the Netherlands through Achmea Bank and Staalbankiers. The principal activities of this segment are providing residential mortgage loans and saving accounts and private banking.

Other The segment Other consists of both asset and pension fund management activities (Syntrus Achmea) and aggregator activities (Independer.nl). Furthermore, investments not related to the Non-life Netherlands, Health Netherlands, Pension & Life Netherlands, International and Banking Netherlands, shared service centres and staff departments, net of their recharges to the segments described above are included in this segment.

Achmea's Executive Board sets goals and targets for the segments throughout the company. The segments formulate strategic, commercial and financial policies in conformity with the strategy and performance targets set by the Executive Board.

All reported segment revenues relate to external customers. As Achmea's business relates mainly to retail customers, no customers with a contribution of 10% or more of revenues (Gross written premiums, Banking income and Fee and commission income) are identified. Achmea's activities are located mainly in the Netherlands.

The accounting policies of the segments are the same as those described under Accounting policies. Transfer prices for intersegment transactions are set at a 'cost-price-plus' basis. Segment results represent revenues earned by each segment minus operational and other expenses allocated to the segment. Expenses for shared service centres and corporate expenses are allocated to segments based on fixed amounts that are based on experience concerning time spent by personnel, activities performed and transactions processed, among others. In 2012 additional expenses for shared service centres and corporate expenses are allocated to segment Health Netherlands based on the finalisation of an agreement with the Dutch tax authority relating to tax deductable expenses in previous years. These additional expense allocations are presented as part of Other expenses.

Achmea Annual Report 31 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

SEGMENT CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012 (€ MILLION) NON-LIFE HEALTH PENSION & LIFE BANKING INTERSEGMENT 2012 NETHERLANDS NETHERLANDS NETHERLANDS INTERNATIONAL NETHERLANDS OTHER ELIMINATIONS TOTAL

− − −

− − − −

−

−

−

− −

− − − −

−

The intersegment eliminations consist primarily of the elimination of intersegment finance activities. The following capital expenditures are included in segments: Non-life Netherlands €13 million (2011: €4 million), Health Netherlands €4 million (2011: €6 million), Pension & Life Netherlands €12 million (2011: €6 million), International €15 million (2011: €39 million), Banking Netherlands €0 million (2011: €0 million) and Other activities including intersegment adjustments €82 million (2011: €158 million).

32 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

SEGMENT CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2011 * (€ MILLION) NON-LIFE HEALTH PENSION & LIFE INTER- BANKING INTERSEGMENT 2011 NETHERLANDS NETHERLANDS NETHERLANDS NATIONAL NETHERLANDS OTHER ELIMINATIONS TOTAL

−

− − − − −

−

−

−

− −

− − − − −

− Adjusted for comparison reasons

Achmea Annual Report 33 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

SEGMENT CONSOLIDATED INCOME STATEMENT FOR THE YEAR 2012 (€ MILLION) NON-LIFE HEALTH PENSION & LIFE BANKING INTERSEGMENT 2012 NETHERLANDS NETHERLANDS NETHERLANDS INTERNATIONAL NETHERLANDS OTHER ELIMINATIONS TOTAL

− − − − −

− − −

− − −

−

−

−

−

−

−

− − − − −

− − −

1 The ratios of segment International include both Non-life and Health insurance business

34 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

SEGMENT CONSOLIDATED INCOME STATEMENT FOR THE YEAR 2011 * (€ MILLION) NON-LIFE HEALTH PENSION & LIFE BANKING INTERSEGMENT 2011 NETHERLANDS NETHERLANDS NETHERLANDS INTERNATIONAL NETHERLANDS OTHER ELIMINATIONS TOTAL

− − − − −

− −

− − − −

− − −

− − −

− −

− −

− −

−

− − − −

− − − − − − −

1 The ratios of segment International include both Non-life and Health insurance business Adjusted for comparison reasons

Achmea Annual Report 35

FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

GEOGRAPHICAL SEGMENT REPORTING, INCLUDING INTERGROUP ADJUSTMENTS (€ MILLION)

THE TOTAL TOTAL NETHERLANDS TURKEY RUSSIA GREECE IRELAND SLOVAKIA OTHER 2012 2011

4. FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE

This note provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into three levels (fair value hierarchy) based on the significance of the inputs used in making the fair value measurements.

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using quoted prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active or valuation techniques where all significant inputs are directly or indirectly observable from market data. Level 3: Valuation techniques using significant non-observable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the non-observable inputs have a significant effect on the instrument´s valuation, such as venture capital investments, private equity investments, private sector loans and advances which are part of the Banking credit portfolio.

Main changes in the fair value hierarchy in 2012 At each reporting date Achmea assesses the classification of the financial instruments measured at fair value. The assessment of the classification in the fair value hierarchy requires judgement, for example the importance of (un)observable inputs used in determining the fair value or with respect to activity of the market. In case of inactive markets, judgement is required on the valuation techniques to be used in order to determine the fair value as well as the interpretation of the level of using market data. As a result, the outcome of the classification process may differ between reporting periods.

During 2012, the classification of the back to back swap has been changed, from level three to level two because the calculation of the discounted cash flows could be based on external market data in 2012. This swap has both debet and credit the same value of €229 million (31 December 2011: €184 million) and is presented within Investments as Derivatives as well as Liabilities Derivatives. These back to back swaps are swap agreements between a Special Purpose Vehicle (SPV), Achmea and a third party, which have been structured in such a manner, that the annual net result of the SPV will be zero. The fair value is based on the discounted cash flow method by calculating the present value of expected future cash flows related to the swap, discounted using current interest rates. In determining the fair value of the derivatives, Achmea also considers any prepayment risk and inherent credit risk.

In 2012, the classification of non-US corporate bonds has been changed to level one as these corporate bonds have quoted prices in active markets. The comparative figures have been adjusted accordingly, resulting in a transfer of €8 billion from level two to level one in 2011.

Deposits with credit institutions and Cash and cash equivalents are classified as Level 1 financial instruments, due to the short-term nature of these instruments.

36 Achmea Annual Report

FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE (€ MILLION) TOTAL TOTAL LEVEL 1 LEVEL 2 LEVEL 3 2012 LEVEL 1 LEVEL 2 LEVEL 3 2011

Financial instruments measured at fair value based on Level 3 The Level 3 classified Equities and similar investments comprise mainly of alternatives and private equity investments which are classified as 'Available for sale' Investments. The fair value is determined using an adjusted equity value method.

The Level 3 classified Banking credit portfolio comprises mainly of private sector loans and advances, which are classified as 'At fair value through profit or loss'. The fair value is based on the discounted cash flow method by calculating the present value of expected future cash inflows using current interest rates for loans with a similar risk profile and a similar remaining term to maturity. In determining fair value, Achmea also considers the specific loan characteristics and inherent credit risk of the loan portfolio and risk mitigating factors such as collateral arrangements.

Achmea Annual Report 37

FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The movements of Level 3 financial instruments are as follows:

ASSETS (€ MILLION) 2012 2011

− − −

− −

LIABILITIES (€ MILLION) 2012 2011

−

The amounts related to financial instruments still held at the end of 2012 included in the Income Statement are presented as Realised and unrealised gains and losses for an amount of €-3 million (2011: €3 million) and as Banking income for an amount of €-1 million (2011: €188 million). The amounts included in Total equity are included in the Revaluation reserve.

Sensitivity analysis of Financial instruments measured at fair value based on Level 3 The private equity investment portfolio, amounting to €624 million (2011: €540 million), mainly consists of investments with a highly diversified nature in terms of sector, geographical region and type of investment. There is no significant unobservable input or combination of inputs that can be used to perform a reasonable possible sensitivity analysis for this portfolio. Part of the private equity investment portfolio, amounting to €80 million (2011: €102 million), is related to Achmea's venture capital entity and is classified as 'At fair value through profit or loss'. An increase or decrease in the value of these investments of 10% would result in a €8 million (2011: €10 million) profit or loss, respectively. The remainder of the private equity investments portfolio is classified as 'Available for sale'. An increase or decrease in the value of these investments of 10% would result in a €41 million (2011: €30 million) increase or decrease of Total equity, respectively.

The level 3 investments also include preference shares related to one counterparty which are included in 'Equities and similar investments'. The fair value of these preference shares as at 31 December 2012 amounts to €84 million (2011: €90 million) and is mainly based on expected future dividend payments. In 2012, the counterparty involved paid dividend to Achmea of €6 million (2011: €5 million).

The impact on the fair value of the Banking credit portfolio, calculated using different assumptions relating to prepayment risk (+1%) and the default rate of our counterparties (increase of 10 base-points), is not material. It should be noted that in case the actual prepayment ratio and the default rate differs from the estimate, this will also have an impact on the interest rate risk.

38 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

5. ASSETS AND LIABILITIES HELD FOR SALE AND DIVESTMENTS

Achmea Vitale On 15 January 2012, Achmea signed an agreement to sell Achmea Vitale's activities, by way of a transfer of assets and liabilities. This agreement was effected on 2 July 2012 and consequently control was transferred. Achmea Vitale provides occupational health services and was included in the Non-life Netherlands segment. The one-off 'Other expenses' related to the sale agreement included in the 2012 result amount to €-33 million.

Eureko Romania On 28 January 2013, Achmea signed an agreement to sell Eureko Romania's life and pension activities, by way of a transfer of assets and liabilities. This agreement will be effected during 2013. Eureko Romania issues, amongst other insurance products, life insurance contracts in Romania and is included in segment International. As at 31 December 2012, assets and liabilities related to these activities were reclassified to Assets classified as 'held for sale' and Liabilities classified as 'held for sale'. The reclassified assets and liabilities mainly comprise investments and insurance liabilities. As at 31 December 2012 unrealised gains and losses for a total amount of €2 million are included in Total equity.

Due to the reclassification and the expected future closing down of the Romanian activities, one-off expenses were accounted for amounting to €-17 million, which were included in 'Other expenses'.

6. BUSINESS COMBINATIONS

Business combination Achmea - De Friesland Zorgverzekeraar During the second half year of 2012, the accounting of the business combination with De Friesland Zorgverzekeraar has been finalised, based on information which came available during 2012. The final consideration transferred and fair value of the net assets acquired did not differ materially from the provisional amounts disclosed in Achmea‟s Consolidated Financial Statements 2011.

Business combination Achmea – Independer.nl N.V. On 19 December 2011, Achmea signed an agreement to effectively obtain control of Independer.nl N.V. (hereafter „Independer‟) and its fully-owned subsidiary Independer Zorg B.V. as per 1 January 2012. At closing date, on 3 January 2012, Achmea acquired seventy seven percent of the ordinary shares and all preference shares of Independer. The agreement includes the right of Achmea to purchase the non- controlling interest during the years 2014 to 2016 should certain conditions be met. Furthermore, the individual holders of the non- controlling interest have the right to sell their shares to Achmea during certain periods in 2015 and 2016. In case these rights will not be exercised, Achmea will purchase the non-controlling interest in 2017 against an agreed consideration.

Independer is an aggregator of insurance policies and financial services and offers consumers a costless possibility to compare products offered by different insurance companies. Achmea has entered into this business combination in order to improve the development of client focussed insurance products and financial services. The goodwill paid for Independer reflects future economic benefits to Achmea resulting from synergies to be expected from the business combination.

The amounts recorded reflect the outcome of the purchase price allocation which was finalised during the second half year of 2012. The insignificant differences between the provisional values initially recorded and the final values materially relate to the final cash consideration, as a result of the settlement payment in the second half year of 2012 and the final determination of the value of the identified intangible assets. As a result, the final goodwill amount does not differ materially from the provisional amount.

The final cash consideration of eighty million euro relates to the acquired shares. The fair value of the redemption liability, related to the future purchase of the non-controlling interest, is determined at thirty nine million euro. Achmea has used a discounted cash flow model, discounting the liability against a risk free discount rate to measure the fair value of the redemption liability. The final consideration to be paid related to this liability will depend on future operational results and related multiples. Due to the use of these multiples a meaningful range for the final amount to be paid can not be determined. The value of the Non-controlling interest that is included as part of Total equity at the date of closing is determined at fifteen million euro, as the holders are substantially entitled to the risks and rewards related to this interest and taking into account the profit sharing rights of the different classes of shares.

Goodwill is not deductible for tax purposes in the Netherlands and has been allocated to the cash generating units Independer (thirty five million euro), Health Netherlands (forty six million euro) and Non-life Netherlands (twenty three million euro). Fair value of Total assets

Achmea Annual Report 39 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements acquired within this business combination amounts to forty six million euro, including Property for own use and equipment amounting to one million euro, Intangible assets (brand name amounting to seventeen million euro, internally developed software amounting to nine million euro and other amounted to six million euro), Receivables and accruals (mainly comprising trade related receivables) amounting to nine million euro and Cash and cash equivalents amounting to three million euro. Total liabilities acquired amount to thirty one million euro (Other provisions amounting to nine million euro, Loans and borrowings amounting to fourteen million euro and Other liabilities amounting to eight million euro).

Independer's income (excluding intercompany transactions) and Net profit for the year of 2012 amounted to thirty two million euro and five million euro respectively, which have been included in Achmea's Consolidated Income Statement.

Business combination Achmea - FBA Holding B.V. On 31 December 2012, Achmea signed an agreement with Friesland Bank N.V., a group company of Rabobank Group, and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. to effectively obtain 100% of shares and control at that date of FBA Holding B.V. (hereafter “FBA Holding”) and its fully-owned subsidiaries FBA Friesland B.V., Friesland Bank Assuradeuren B.V. and Friesland Bank Assurantiën B.V. from Friesland Bank N.V. FBA Holding's consolidated activities represent an intermediary with a strong base in the northern part of the Netherlands, particularly in Friesland. With its regional focus, FBA Holding's insurance activities are complementary to the existing business of Achmea. It has been agreed that in the post-acquisition period FBA Holding's client advising activities will be transferred to the local offices of Rabobank, while the insurance portfolio will be transferred to Achmea. After this transition period the activities of FBA Holding will be closed down.

It should be noted that the financial data presented regarding this business combination are based on the preliminary purchase price allocation since the settlement based on the closing balance has to be finalised. Furthermore, the fair value of certain contingent components of the consideration has to be determined in more detail, when more information about the results of the transition becomes available. Consequently, the purchase price allocation will be finalised during the financial year 2013.

The fair value of the total consideration for FBA Holding consists of a consideration transferred of twenty million euro and liabilities incurred relating to the acquisition of five million euro. The final consideration will be determined after the closing down of FBA Holding and depends on the results of the transition. The fair value of the net assets acquired amounts to eight million euro. The resulting goodwill of seventeen million euro paid for FBA Holding reflects future economic benefits to Achmea resulting from synergies to be expected from the business combination, especially as a result of increased insurance activities and intensifying of the cooperation with Rabobank Group. The goodwill has been allocated to the cash generating unit 'Non-life Netherlands'. Goodwill is not deductible for tax purposes in the Netherlands.

The provisional fair value of the net assets acquired within this business combination amounts to eight million euro as at 31 December 2012. Total assets amount to sixteen million euro, including Intangible assets ('Customer Relationships') amounting to eight million euro, Receivables and accruals (mainly comprise trade receivables) amounting to five million euro and Cash and cash equivalents amounting to three million euro. Total liabilities acquired amount to seven million euro, including Other provision of four million euro and Other liabilities amounting to three million euro.

If the acquisition had occurred as of the beginning of 2012, FBA Holding's contribution to the consolidated revenues would have been twelve million euro and Net profit of one million euro for the full year 2012 (excluding amortisation of intangible assets acquired).

40 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

7. INTANGIBLE ASSETS

(€ MILLION) INTERNALLY VALUE OF OTHER DEVELOPED BUSINESS DISTRIBUTION INTANGIBLE TOTAL TOTAL GOODWILL SOFTWARE BRAND NAME ACQUIRED NETWORKS ASSETS 2012 2011

− −

−

−

− − −

With the exception of goodwill, all intangible assets have a finite useful life and are amortised accordingly.

An amount of €1,555 million (2011: €1,487 million) of the Intangible assets is expected to be recovered more than twelve months after the reporting date.

Change in composition of the group in 2012 relate to the acquisition of FBA Holding and Independer. Reference is made to Note 6 Business Combinations. The foreign currency differences on goodwill and distribution networks relate to Eureko Sigorta and Oranta.

GOODWILL BY CASH GENERATING UNIT (€ MILLION) 2012 2011

Achmea Annual Report 41 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

As a result of the acquisition of Independer an additional Cash Generating Unit “Independer” was identified.

In 2012 Achmea included the life activities of its Turkish associate in the Cash Generating Unit Eureko Sigorta due to a reorganisation of the reporting structure in 2012 of the Turkish activities.

During the second half year of 2012 Achmea‟s activities in Romania have been reclassified to a separate Cash Generating Unit “Romania” as a result of the changed monitoring in anticipation of the expected sale. As at 31 December 2012, the goodwill relating to the Romanian activities has been impaired.

Recognised goodwill is tested annually for impairment. An impairment loss is recognised when the recoverable amount of a cash generating unit is lower than the carrying amount of the cash generating unit. The recoverable amount is the higher of the 'fair value less cost to sell' and the 'value-in-use'. The assumptions are assessed at each reporting date and adjusted when appropriate. Besides Eureko Sigorta and Oranta Russia, goodwill is related to Achmea's Dutch operations.

A Discounted Dividend Model (DDM) is used to determine the recoverable amounts for the Cash Generating Units Pension Services, Eureko Sigorta (Non-life activities) and Oranta Russia. Cash flow projections for the first three years are based on budgeting and forecasting models endorsed by Achmea's Executive Board. Achmea extrapolates the cash flows up to five years. To reflect the business-specific circumstances a forecast period is sometimes extended. Achmea uses the leveraged cost of capital as the basis for the applied discount rate. Within the DDM techniques the terminal value is determined by applying a perpetual growth rate to the perpetual dividend.

An appraisal value-method is used to determine the recoverable amount for related Turkish activities of the Cash Generating Unit Eureko Sigorta (Life activities) based on the Embedded Value information. A roll forward has been estimated based on management expectations. In addition a Value New Business (VNB) multiplier has been set in accordance with Turkish market outlook.

A multiple approach is used to determine the recoverable amounts for the Cash generating units Non-life Netherlands and Health Netherlands. For both Cash Generating Units the recoverable amount calculations in 2011 exceeded the asset‟s carrying amount by a substantial margin. Therefore Achmea decided to change the method for calculating the recoverable amount to a less extensive method being Fair Value less costs to sell. Fair Value is based on Price/Earning multiples and Price/Tangible Book value multiples and a regression analysis. Several adjustments have been made for earnings in order to increase comparability with peers.

For the impairment test of the goodwill of Independer the detailed calculations made for the acquisition in 2011 were used, including an analysis of the performance of Independer during the financial year 2012 and whether this performance is in line with the expectations in the calculations of 2011.

The most sensitive key assumptions in calculating the value-in-use are:

TERMINAL VALUE DISCOUNT RATE GROWTH DISCOUNT RATE TERMINAL VALUE CASH GENERATING UNIT VALUATION APPROACH 2012 2012 2011 GROWTH 2011

n.a.: not applicable

Where possible, the assumptions are calibrated using external sources. The discount rates are common in the industry and are based on a so- called CAPM model (Capital Asset Pricing Model). This methodology is based on a country specific risk-free rate plus a risk premium. This risk premium is based on the 'equity risk premium' (return on equity investments above risk-free rate) times the beta that represents the specific risk profile of the cash generating unit. The terminal value growths applied are on a gross basis (not adjusted for inflation) and reflect either expected industry averages or expectations of management. Achmea has performed a sensitivity analysis on its key assumptions to calculate the value-in-use.

42 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The surplus, being the positive difference between the value-in-use and carrying value, for Pension Services amounts to €99 million. The recoverable amount is sensitive for negative deviations within major assumptions (discount rate and terminal value growth). An increase in discount rate with 50 basis points would lead to a €61 million lower surplus. A 0.5% lower terminal value growth would lead to a €37 million lower surplus.

The surplus, being the positive difference between the value-in-use and carrying value, for Eureko Sigorta (incl. related Turkish activities) amounts to €237 million. The recoverable amount for Eureko Sigorta (Non-life activities) is sensitive for negative deviations within major assumptions (discount rate and terminal value growth). An increase in discount rate with 50 basis points would lead to a €40 million lower surplus for the Cash Generating Unit Eureko Sigorta (incl. related Turkish activities). A 0.5% lower terminal value growth would lead to a €7 million lower surplus for the Cash Generating Unit Eureko Sigorta (incl. related Turkish activities).

Furthermore, the recoverable amount for Eureko Sigorta (Life activities) is sensitive for changes in the VNB multiplier. A decrease in VNB multiplier with 5 would lead to a €45 million lower surplus for the Cash Generating Unit Eureko Sigorta (incl. related Turkish activities).

The surplus, being the positive difference between the value-in-use and carrying value, for Oranta Russia amounts to €152 million. The recoverable amount is sensitive for negative deviations within major assumptions (discount rate and terminal value growth). An increase in discount rate with 50 basis points would lead to a €31 million lower surplus. A 0.5% lower terminal value growth would lead to a €7 million lower surplus.

In 2011, as a result of the goodwill impairment test, the goodwill of the Life and Pensions business was charged with an impairment loss of €279 million. An important driver behind the impairment loss is the shrinking Dutch life insurance market, which is considered as structural. Other aspects which contributed to the impairment loss are the current economic crisis, the low interest rates, the increase of longevity risk and the competitive market for pension insurances, with too low margins and thus less new business.

Achmea Annual Report 43 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

8. ASSOCIATES

(€ MILLION) DESCRIPTION DATE OF % OWNERSHIP NET ASSET BOOK VALUE BOOK VALUE NAME OF THE COMPANY COUNTRY OF BUSINESS ACQUISITION 2012 VALUE 2012 2012 2011

Although Achmea holds less than 20% of the shares of Garanti Emeklilik ve Hayat A.S., Achmea exercises significant influence by virtue of its strategic interest, close co-operation with Eureko Sigorta and the contractual right to appoint an Executive Board member.

Due to their nature, Associates consist mainly of assets expected to be recovered after more than twelve months.

MOVEMENTS IN ASSOCIATES (€ MILLION) 2012 2011

− − −

The summarised financial statements of Garanti Emeklilik ve Hayat A.S. are included in the table below. As the 2012 financial statements are not yet publicly available, values are based on published financial statements for the financials year 2011 and calculated in accordance with the accounting principles of Garanti Emeklilik ve Hayat A.S. The amounts are translated into Euros at the exchange rate ruling at reporting date. Total revenue and Total profit are translated using the weighted average exchange rate for the year.

(€ MILLION) TOTAL TOTAL 2011 ASSETS LIABILITIES REVENUE PROFIT

44 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

9. PROPERTY FOR OWN USE AND EQUIPMENT

(€ MILLION) 2012 2011

Due to their nature Property for own use and Equipment consist mainly of assets expected to be recovered after more than twelve months.

PROPERTY FOR OWN USE (€ MILLION) TOTAL TOTAL IN DEVELOPMENT IN USE 2012 2011

Achmea Annual Report 45 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The carrying amount of Property for own use is the revalued amount, being its fair value at the date of the revaluation less any accumulated amortisation and impairment losses. The fair value of Property for own use is wholly based on appraisals by independent qualified valuators. The valuation was determined by reference to both observations in the market and various calculation methods, such as the discounted cash flow method. These methods establish the fair value using the rental income of the property. The valuators use a market based discount rate adjusted for age, location and remaining rental contract period. Reflecting the economic environment and market conditions during 2011, which continued throughout 2012, the frequency of property transactions on an arm's length basis has decreased. Appraisals where therefore generally based on the discounted cash flow method. Due to lack of actual market transactions that can be used to validate this appraisal process, the valuation of Property for own use has an increased degree of uncertainty. For 100% of total fair value of Property for own use the appraisal was executed during 2012 of which 100% as at year-end 2012 (2011: 100%).

Part of Property for own use is financed by means of internal loans between the insurance entities and other entities within the Group. These loans are eliminated in full in these Consolidated Financial Statements. Property has been pledged on these internal loans.

EQUIPMENT (€ MILLION) OFFICE TOTAL TOTAL SOFTWARE HARDWARE FURNITURE OTHER 2012 2011

Other equipment includes assets related to operational lease activities by WagenPlan B.V. amounting to €94 million (2011: €86 million).

46 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

10. INVESTMENT PROPERTY

(€ MILLION) 2012 2011

− − − − − −

ACHMEA’S INVESTMENT PROPERTY CONSISTS OF: (€ MILLION) 2012 2011

Investment property consists of commercial and residential property which are stated at fair value. The fair value is based on prices in an active market, adjusted, if necessary, for any difference in nature, location or condition of the specific asset. All properties are appraised each quarter. The valuations are carried out by external independent appraisers who hold recognised and relevant professional qualifications. All valuations are carried out following valuation guidelines common in the industry. The appraisers are rotated every three years so that each property is valued by the same appraiser for a maximum period of three years.

Reflecting the economic environment and market conditions during 2011, which continued throughout 2012, the frequency of property transactions on an arm´s length basis has decreased. Due to lack of actual market transactions that can be used to validate the appraisal process, the valuation of investment property has an increased degree of uncertainty. The fair value of Investment property is determined generally using discounted cash flow (DCF) projections based on estimates of future cash flows and using a discount rate that reflects current market assessments of the uncertainty on the amount and timing of the cash flows.

The assumptions used in applying the DCF-method are supported by the terms of any existing lease and other relevant contracts and by external evidence, such as recent and expected general economic trends and current market rents for similar properties in similar location and condition. Vacancy and rent-free periods are taken into account in the DCF-method. Rental growth rates are based on general economic trends, taking into account specific characteristics of the property being valued.

For the Dutch market, average inflation percentage used amounts to 2.0% in 2012 (2011: 1.6%). Projections for the cash flows in the DCF- method are made for at least 10 years. The used discount rate depends on both the type of property being valued (e.g. commercial and residential property) as well as the specific characteristics of the property being measured. The used discount rates vary between 4.8% and 10.0%.

The common obligations related to investment property (e.g. maintenance, repair, etc.) and any obligation which would restrict the realisability of the income and proceeds on disposal of the property, including rent-free periods, are taken into account when determining the fair value of the investment property.

Investments backing linked liabilities also contains Investment property, where the risk is born by the policy holders.

Achmea Annual Report 47 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

11. INVESTMENTS

INVESTMENTS CLASSIFIED BY NATURE (€ MILLION) AT FAIR VALUE AVAILABLE THROUGH LOANS AND 2012 FOR SALE PROFIT OR LOSS RECEIVABLES TOTAL

(€ MILLION) AT FAIR VALUE AVAILABLE THROUGH LOANS AND 2011 FOR SALE PROFIT OR LOSS RECEIVABLES TOTAL

The investments designated as 'At fair value through profit or loss' amount to €4,783 million (2011: €4,998 million). Derivatives are used for hedging purposes. Achmea holds no financial instruments for trading purposes.

The carrying value of securities lent amounts to €143 million (2011: €299 million). Achmea has a variety of collateral policies in place.

48 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

INVESTMENTS MEASURED AT FAIR VALUE (€ MILLION) CASH COLLATERAL EQUITIES AND DEPOSITS RECEIVED IN OTHER SIMILAR LOANS AND WITH CREDIT SECURITIES FINANCIAL TOTAL TOTAL INVESTMENTS BONDS MORTGAGES INSTITUTIONS DERIVATIVES LENDING INVESTMENTS 2012 2011

− − − − − − − − − − − − − − − − − − − −

− − − − − − − −

EQUITIES AND SIMILAR INVESTMENTS (€ MILLION) 2012 2011

BONDS (€ MILLION) 2012 2011

Government and government related or guaranteed bonds include bonds issued by supranationals and (local) governments as well as sovereign bonds denominated in currencies other than the domestic currencies. Furthermore it includes government owned or sponsored entities and government guaranteed (corporate) bond issues.

Corporate bonds include investment grade bonds, that are relatively safe, having a high bond rating and high yield bonds, having a lower rating than investment grade. These corporate bonds are not guaranteed by governments.

Achmea Annual Report 49 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

GOVERNMENT AND GOVERNMENT RELATED OR GUARANTEED BONDS (€ MILLION) AT FAIR VALUE AVAILABLE THROUGH FOR SALE PROFIT OR LOSS 2012 2011

Financial markets remained volatile during 2012 due to ongoing uncertainty regarding the sovereign debt situation of some eurozone countries. Due to the earlier adopted measures to reduce exposure in GIIPS countries, Achmea's exposure remained limited. For more details regarding Achmea's risk management policies reference is made to Note 50 Risk management.

The table below provides an overview of Achmea's exposure to government bonds of GIIPS countries based on their fair value.

GIIPS EXPOSURE GOVERNMENT BONDS (€ MILLION) AT FAIR VALUE AVAILABLE THROUGH FOR SALE PROFIT OR LOSS 2012 2011

In March 2012, Achmea participated with all its eligible bonds i.e. all Greek Government bonds with a notional amount €145 million in the Greek Private Sector Involvement ('PSI'). In this programme, Greek government bonds were exchanged into new listed Greek government bonds, listed European Financial Stability Facility ('EFSF') notes and listed GDP-linked securities issued by the Greek government.

Furthermore, Achmea also received listed short-term EFSF notes as payment for accrued interest. In addition, Achmea participated in another exchange ('buy back') programme in December 2012, in which investors were invited by the Greek Government to exchange their earlier acquired Greek Government bonds into short term EFSF-notes. A notional amount of €19 million out of a total eligible amount of €46 million has effectively been exchanged, resulting in additional €2 million of profit.

All exchanged bonds were derecognised and the new instruments were recognised at their fair value as 'Available for sale' investments, except for the GDP-linked securities which are classified as derivatives. Both exchanges resulted in a profit before tax of €4 million, being the difference between fair value of the exchanged bonds and the fair value of the new instruments at the time of the exchange.

Besides the above mentioned Greek government bond exchange and some minor transactions with Italian government bonds, no government bond of GIIPS countries have been acquired or sold, in 2012.

LOANS AND MORTGAGES (€ MILLION) 2012 2011

50 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

DEPOSITS WITH CREDIT INSTITUTIONS (€ MILLION) 2012 2011

Deposits with credit institutions subject to restrictions amounted to €153 million (2011: €191 million). These restrictions relate to secure the policyholders for our obligations to them in case the company is going to discontinue its operation for any reason.

DERIVATIVES (€ MILLION) ASSETS LIABILITIES 2012

−

ASSETS LIABILITIES 2011

At 31 December 2012, interest rate derivatives liabilities related to the Banking activities amount to €1,389 million (2011: €1,194 million). Interest rate derivatives liabilities amounting to €370 million (2011: €258 million) are related to Life operations. These derivatives have contractual remaining time to maturity of more than 5 years. For more details on the derivative instruments referance is made to Note 50 Risk Management.

ANALYSIS BY ESTIMATED TIME TO MATURITY OF UNDISCOUNTED CASHFLOWS OF DERIVATIVES (LIABILITIES) (€ MILLION) 2012 WITHIN 1 YEAR 1-3 YEARS 3-5 YEARS OVER 5 YEARS TOTAL

2011 WITHIN 1 YEAR 1-3 YEARS 3-5 YEARS OVER 5 YEARS TOTAL

The undiscounted contractual cashflows of derivative liabilities held for risk management are excluding the cashflows of the back to back swaps. The fair value of the back to back swaps amounts to €229 million at 31 December 2012 (31 December 2011: €184 million).

INVESTMENTS RELATED TO CASH COLLATERAL RECEIVED IN SECURITIES LENDING Based on a securities lending programme, Achmea lends securities to borrowers, who in turn pay cash collateral. This cash collateral is invested in shares of money market funds. These funds have been established for the reinvestments of such cash collateral. The investment objective of the funds is to provide investors with as high a level of income as is consistent with the preservation of capital and the maintenance of adequate liquidity to meet the anticipated needs of the investor. Achmea bears the full economic risks and rewards of the investments in these funds. The investments in the money market funds are subject to a risk of change in value. The funds' investments have a S&P rating of AAA.

Achmea Annual Report 51 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

No new business is conducted under this securities lending programme because of Achmea's de-risking programme initiated in 2009. The remaining securities in the money market fund are expected to expire in 2018 and accordingly the programme will end at that stage.

The investments in the money market funds are not at free disposal of Achmea. The investments in these funds can only be used to repay the collateral provided by the borrower for the securities lending transactions. The repayment obligation with respect to the collateral provided is included in other Liabilities. The fair value of the accepted collateral related to securities which were lent amounted to €143 million as at 31 December 2012 (2011: €299 million).

ANALYSIS OF FIXED-INCOME INVESTMENTS CARRIED AT FAIR VALUE BY EXPECTED REMAINING TIME TO MATURITY (€ MILLION) DEPOSITS OTHER LOANS AND WITH CREDIT FINANCIAL 2012 BONDS MORTGAGES INSTITUTIONS INVESTMENTS TOTAL

DEPOSITS OTHER LOANS AND WITH CREDIT FINANCIAL 2011 BONDS MORTGAGES INSTITUTIONS INVESTMENTS TOTAL

IMPAIRMENTS (€ MILLION) EQUITIES AND SIMILAR INVESTMENTS BONDS OTHERS 2012 2011 − − − −

Impairment losses in 2012 are mainly related to the decrease on the stock exchange rate of -2%.

The nominal value of the impaired bonds amounts to €37 million (2011: €222 million). For 2012, interest income related to the impaired part of Bonds and Loans and mortgages was €1 million (2011: €8 million). Impairment losses are included in Realised and unrealised gains and losses.

INVESTMENTS MEASURED AT AMORTISED COST (€ MILLION) 2012 2011

− −

−

52 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Investments measured at amortised cost are mainly savings accounts held at Rabobank Group, related to life insurance policies in force. The fair value of the investments measured at amortised cost at year-end amounted to €3,959 million (2011: €3,779 million).

ANALYSIS OF FIXED-INCOME INVESTMENTS CARRIED AT AMORTISED COST BY REMAINING TIME TO MATURITY (€ MILLION) 2012 2011

12. INVESTMENTS BACKING LINKED LIABILITIES

Investments backing linked liabilities comprise segregated investment contracts, deposits for group life contracts with full profit sharing, unit-linked life insurance policies, investment contracts and investments covering obligations under policies where the benefits are index- linked.

Investments backing linked liabilities are separated from other investments and are invested in accordance with the requirements towards holders of life insurance or investment contracts. Policyholders and holders of investment contracts are entitled to all gains recorded and to the total amount of the investments shown under this heading, but they also have to carry any losses. For this reason insurance liabilities on behalf of policyholders and investment contracts are related to this account. These investments are classified as 'At fair value through profit or loss'.

INVESTMENTS BACKING LINKED LIABILITIES (€ MILLION) BONDS AND EQUITIES AND OTHER CASH AND INVESTMENT SIMILAR FIXED-INCOME OTHER FINANCIAL TOTAL TOTAL PROPERTY INVESTMENTS INVESTMENTS DERIVATIVES INVESTMENTS 2012 2011

− − − − − − −

− −

− − − −

Investments backing linked liabilities are managed on behalf of policyholders on a fair value basis. Although individual instruments may (or may not) have a maturity depending on their nature, this does not impact the liquidity position of Achmea. Changes due to reclassification are related to presentation changes between investments and investment backing linked liabilities.

Achmea Annual Report 53 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

13. BANKING CREDIT PORTFOLIO

BANKING CREDIT PORTFOLIO CLASSIFIED BY NATURE (€ MILLION) AT FAIR VALUE LOANS AND THROUGH PROFIT 2012 RECEIVABLES OR LOSS TOTAL

AT FAIR VALUE LOANS AND THROUGH PROFIT 2011 RECEIVABLES OR LOSS TOTAL

BANKING CREDIT PORTFOLIO (€ MILLION) 2012 2011

Mandatory reserve deposits at Central Banks amounting to €427 million (2011: €452 million), as included in loans and advances to banks, are not available for use in day to day banking operations. Balances with Central Banks are non-interest bearing.

54 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

BANKING CREDIT PORTFOLIO MEASURED AT AMORTISED COST (€ MILLION) CREDIT TOTAL TOTAL INSTITUTIONS LOANS 2012 2011

− − − −

− − − −

Comparative figures have been adjusted due to reclassifications.

The fair value of the banking credit portfolio measured at amortised cost at year-end is €16,181 million (2011: €16,967 million).

RESULTS ON HEDGE ACCOUNTING (€ MILLION) TOTAL TOTAL GAINS LOSSES 2012 2011

−

The fair value of the derivatives designated as hedging instruments amounts to €988 million (2011: €964 million).

In accordance with hedge accounting policies, Achmea designates the hedge relationship per month. The change in fair value of the banking credit portfolio that is determined to be the hedged item is recognised as part of the banking credit portfolio and is subsequently amortised to profit or loss over the remaining life of the hedging instrument. Amortisation is based on the effective interest rate method.

As at 31 December 2012, the carrying amount of the loans is affected by impairment losses amounting to €313 million (2011: €157 million). The carrying amount is reduced through use of an allowance account. The impairment loss is mainly a result of individual assessments of the expected cash flows in relation to the loans.

For 2012, the interest income related to impaired financial instruments is €10 million (2011: €4 million).

Achmea Annual Report 55 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

BANKING CREDIT PORTFOLIO MEASURED AT FAIR VALUE (€ MILLION) 2012 2011

− − −

The fair value of the banking portfolio measured at fair value is subject to changes in creditworthiness of the issuer. The impact on the fair values of the banking credit portfolio is as follows:

FAIR VALUE CHANGE RELATED TO CHANGES IN CREDIT RISK COUNTERPARTY (€ MILLION) 2012 2011

ANALYSIS OF BANKING CREDIT PORTFOLIO (EXCLUDING ALLOWANCE ACCOUNT) BY EXPECTED REMAINING TIME TO MATURITY (€ MILLION) CREDIT TOTAL CREDIT TOTAL INSTITUTIONS LOANS 2012 INSTITUTIONS LOANS 2011

Comparative figures have been adjusted due to reclassifications.

To finance its banking activities, Achmea has issued several funding instrument secured by pledges on (receivables from) Loans part of the Banking credit portfolio. Due to these pledges part of the Banking credit portfolio is not freely disposable. These pledges can be analysed as follows:

(€ MILLION) 2012 2011

As part of the pledges by means of trust arrangements, Achmea Hypotheekbank (a fully owned subsidiary of Achmea) periodically pledges mortgage receivables to a Trustee as security for designated liabilities. In the event of default by Achmea Hypotheekbank, investors can recover the debt from the pledged mortgage receivables.

Third-party pledges on loans are set up by means of covered bond programme, in which Achmea Hypotheekbank acts as originator and issuer under the programme. The payment of the principal of interest on the bonds issued is guaranteed by a bankruptcy remote 'Special Purpose Vehicle' (SPV). The guarantee provided by this SPV is supported by mortgage receivables pledged by Achmea Hypotheekbank to the SPV. The outstanding amount of these transferred mortgage receivables will at all times be at least 33.3% higher than the bonds issued under the programme. In the event of default by Achmea Hypotheekbank, an investor has recourse on the bank and the underlying mortgage portfolio.

56 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The liabilities related to these pledges are included in note 26 Loans and borrowings, as part of Secured bank loans. The pledges by trust arrangements and the covered bond programme are not classified as transferred assets as mentioned in IFRS paragraph 7.42.

Achmea Hypotheekbank uses securitisation as a funding source. In all these securitisation transactions, Achmea Hypotheekbank assigns a portfolio of mortgage receivables to a special-purpose vehicle (SPV) which issues Notes on the capital markets. With the proceeds of the Notes the SPV can finance the assigned mortgage receivables and with the received interest on the mortgage receivables the SPV can pay the interest on the Notes.

The liabilities related to these securitisations are included in 26 Loans and borrowings. The table below provides an overview of both the outstanding amount and the fair value of the Loans and advances to customers and the fair value of the related debt securities part of Debt securities issued. The assets transferred to the SPV‟s are classified as derecognised assets with ongoing exposure as mentioned in IFRS paragraph 7.42e.

(€ MILLION)

− −

Achmea Annual Report 57 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

14. DEFERRED TAX ASSETS AND LIABILITIES

The movements in deferred tax assets and liabilities during the year can be specified as follows:

(€ MILLION) BALANCE AT RECOGNISED RECOGNISED OTHER BALANCE AT 1 JANUARY 2012 IN INCOME IN EQUITY MOVEMENTS 31 DECEMBER 2012

(€ MILLION) BALANCE AT RECOGNISED RECOGNISED OTHER BALANCE AT 1 JANUARY 2011 IN INCOME IN EQUITY MOVEMENTS 31 DECEMBER 2011

The tax rates used in calculating deferred tax assets and liabilities differ per jurisdiction, and in 2012 and 2011 ranged from 12.5% to 37.0%. Changes in tax rates substantively enacted as at 31 December 2012 are taken into account.

The other movements are primarily related to changes from deferred to current tax positions.

An amount of €367 million (2011: €380 million) of the Deferred tax assets and liabilities is expected to be recovered more than twelve months after reporting date.

58 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Deferred tax assets amounting to €35 million (2011: €26 million), have not been recognised in respect of taxable losses of previous years. For these losses it is not probable that future taxable profits will be available, against which the temporary difference can be utilised. The unrecognised deferred tax assets do not expire under current tax legislation.

In the measurement of the current income tax position, uncertainties regarding collectability have been taken into account.

15. DEFERRED ACQUISITION COSTS

(€ MILLION) INSURANCE INVESTMENT 2012 CONTRACTS CONTRACTS TOTAL

− − −

− −

(€ MILLION) INSURANCE INSURANCE 2011 CONTRACTS CONTRACTS TOTAL

The changes due to reclassification relates to Deferred acquisition costs in 2012 related to the foreign Non-life and Health business, which has been reclassified into Receivables and accruals due to their short-term nature.

The changes due to reclassification in 2011 relates to Dutch Non-life and Health business, which has been reclassified into Receivables and accruals due to their short-term nature.

An amount of €141 million (2011: €178 million) of the Deferred acquisition costs is expected to be recovered more than twelve months after reporting date.

Achmea Annual Report 59 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

16. RECEIVABLES AND ACCRUALS

(€ MILLION) 2012 2011

An amount of €2,000 million (2011: €2,278 million) of the Receivables is expected to be recovered after twelve months after reporting date.

Impairment losses recognised in 2012 related to Receivables amounted to €11 million (2011: €1 million) and are included in Other expenses.

17. CASH AND CASH EQUIVALENTS

(€ MILLION) 2012 2011

Cash and cash equivalents subject to restrictions amounted to €146 million (2011: €41 million). With respect to our banking activities, the restrictions are related to the minimum reserve to be maintained at De Nederlandsche Bank N.V. and amounted to €16 million (2011: €40 million). Other restrictions are concerned with cash and cash equivalents held for policyholders, amounting to €129 million (2011: nihil) and cash collateral for bank guarantees, amounting to €1 million (2011: €1 million).

60 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

18. EQUITY ATTRIBUTABLE TO HOLDERS OF EQUITY INSTRUMENTS OF THE COMPANY

The movements in Equity attributable to holders of equity instruments of the company are specified in the Consolidated Statement of Changes in Total equity.

SHARE CAPITAL AND SHARE PREMIUM NUMBER OF NOMINAL VALUE ORDINARY NOMINAL VALUE NUMBER OF PREFERENCE NUMBER OF NOMINAL VALUE SHARES ORDINARY PREFERENCE SHARES A SHARES A SHARES SHARES SHARES (PAR VALUE € 1 (PAR VALUE € 1 (PAR VALUE € 1 PER SHARE) (€ MILLION) PER SHARE) (€ MILLION) PER SHARE) (€ MILLION)

Share rights, preferences and restrictions Stichting Administratiekantoor Achmea is the holder of the A share. Special rights adhere to the A share. The majority of the decisions of Achmea's General Meeting of Shareholders can only be made after approval of the holder of the A share.

The holders of ordinary shares are entitled to receive dividends when declared and are entitled to one vote per share at Achmea's General Meeting of Shareholders.

The holders of preference shares are entitled to cumulative dividend and one vote per share at the General Meeting of Shareholders. Dividends paid are 7.15% per year on the share capital and share premium paid for those shares, but payment is subject to the approval of the General Meeting of Shareholders. Terms on the percentage will be reviewed every ten years. The first review will take place before 1 January 2014.

The preference shares have been issued to Achmea Tussenholding B.V. which exercises the voting rights attached to the preference shares. Achmea Tussenholding B.V. through Stichting Administratiekantoor Achmea Tussenholding issues certificates of ordinary shares to the ultimate investors. Certificates of ordinary shares, amounting to €45 million, held by Achmea B.V. are presented as Own shares within Total equity.

A list of Achmea shareholders as at 31 December 2012 is presented in Other information, Achmea shareholders at 31 December 2012.

Own shares Shares issued by Achmea B.V. and purchased by Achmea B.V. amount to €235 million and are presented as Own shares, which consisted of 10,335,282 ordinary shares (amounting to €190 million) and 11,486,592 certificates of ordinary shares (amounting to €45 million). On 11 April 2012, Achmea transferred 597,460 ordinary shares to Vereniging Achmea, related to an acquisition in 2011 financed by an issue of shares in 2011 (amounting to -€10 million).

Legal reserves According to legal requirements in the Netherlands, a legal reserve has been set up for the non-distributable profits related to associates, recognised internally developed software and Health subsidiaries that are subject to regulatory requirements.

An amount of €620 million (2011: €548 million) of Total equity contributed by subsidiaries at year-end 2012 was subject to claims under provisions in the articles of association of a number of subsidiaries, stipulating that, in the event of liquidation, the equity of these companies

Achmea Annual Report 61 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements must be used for the benefit of public health. In as far as this amount is not included in the revaluation reserve, it has been included in the legal reserves.

Amounts presented within the legal reserves cannot be distributed to shareholders.

Revaluation reserve Based on the accounting principles used by Achmea, a revaluation reserve is formed when appropriate. Furthermore, based on Dutch regulations, Achmea should form a legal reserve for all positive fair value changes of non-financial assets (e.g. investment property), for which the unrealised fair value changes are included in the income statement. This part of the reserve may not be negative. This reserve is formed by transferring the required amounts from Retained earnings to the Revaluation reserve. In 2012, an amount of €10 million (2011: €22 million) is transferred from the Revaluation reserve to the Retained earnings.

Part of the Revaluation reserve is related to property for own use. The revaluation surplus for property for own use decreased in 2012 from €29 million to €13 million. The majority of the remainder of the revaluation reserve is related to available for sale investments.

The Revaluation reserve contains an amount of €152 million relating to unrealised losses net of deferred taxes on assets carried at fair value. In determining the non-distributable revaluation reserve under Dutch regulations these losses cannot be deducted. Consequently, in relation to the Revaluation reserve an amount of €152 million cannot be distributed to shareholders.

Exchange difference reserve Assets and liabilities of foreign subsidiaries, with a functional currency other than the euro, are translated into euros at the exchange rates at reporting date. The income and expenses of such subsidiaries are translated at the weighted average exchange rates for the reporting period. Translation differences arising from the application of reporting date exchange rates to the opening balance of the net assets and goodwill of such subsidiaries and to the results for the reporting period are recognised in the Exchange difference reserve.

Amounts presented within the Exchange difference reserve cannot be distributed to shareholders.

Hedging reserve The amounts presented within the Hedging reserve cannot be distributed to shareholders. In 2012 and 2011 the Hedging reserve does not contain amounts related to unrealised losses on assets carried at fair value. In determining the non-distributable amounts under Dutch regulations these losses cannot be deducted. Consequently, in relation to the Hedging reserve an amount of €7 million (2011: €7 million) cannot be distributed to shareholders.

Retained earnings Results within the Dutch Health Insurance business are reported as non-taxable results, based on the current tax laws. The tax exemption is applicable in as far as these results are not distributed. If results are fully or partly distributed, the annual results of the Dutch Health Insurance business will no longer be tax exempted. The annual results will then be taxable against a tax rate of 25%.

The Appropriation of results is presented in Other information, Statutory requirements for appropriation of results. According to this proposal €167 million of dividend will be distributed to the holders of ordinary shares related to the financial year 2012.

Other equity instruments In May 2008, Achmea B.V. issued €225 million of Perpetual Capital Securities ('Capital Securities'), with a coupon of 8.375% per annum. The coupon (in the amount of €83.75 per Capital Security of €1,000 par) will be paid annually on 23 May. Achmea B.V. has the right to call the issue at par on 23 May 2013 or annually thereafter. The Capital Securities can also be called earlier by Achmea B.V. in specific circumstances, as mentioned in the Base Prospectus. The Capital Securities qualify as hybrid Tier-1 capital for regulatory solvency purposes.

On 1 November 2006, Achmea B.V. issued €600 million of Perpetual Capital Securities with a coupon of 6.0%, payable annually in arrears. Achmea has the option to redeem the Perpetual Capital Securities annually on the coupon payment date, starting on 1 November 2012. The terms are designed to allow the issue to be part of Achmea‟s regulatory capital under anticipated Dutch regulatory rules, with a 'Tier-1' equivalent treatment.

On 24 June 2005, Achmea B.V. issued €500 million of Perpetual Capital Securities with an initial coupon of 5.125%, payable annually in arrears until the first call date in June 2015. If the issue is not called in 2015, the coupon will reset quarterly at an annual margin of 280 base-

62 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements points over the 3-month EURIBOR. The terms are designed to allow the issue to be part of Achmea‟s regulatory capital under anticipated Dutch regulatory rules, with a 'Tier-1' equivalent treatment.

Coupon payments on Other equity instruments are at the discretion of Achmea and subject to other limitations as described in the prospectus and will be charged to Retained earnings, part of Total equity. The related tax is included within Other movements of Retained earnings (€20 million), part of Total equity.

19. NON-CONTROLLING INTEREST

(€ MILLION) 2012 2011

− −

In determining the Comprehensive income attributable to the Non-controlling interest, specific profit sharing rights relating to the different classes of shares are taken into account.

Net profit attributable to the non-controlling interest is €1 million (2011: €1 million).

Achmea Annual Report 63 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

20. INSURANCE LIABILITIES

(€ MILLION) 2012 2012 2011 2011 GROSS REINSURANCE GROSS REINSURANCE

The table below shows the insurance liabilities analysed by estimated time to maturity. The Life insurance and Income Protection contracts are analysed based on the discounted cash in- and outflows related to the insurance contracts; Property & Casualty and Health insurance contracts are analysed based on undiscounted cash flows.

ANALYSIS BY ESTIMATED TIME TO MATURITY OF INSURANCE LIABILITY (€ MILLION) 2012 WITHIN 1 YEAR 1-5 YEARS 5-15 YEARS OVER 15 YEARS TOTAL

2011 WITHIN 1 YEAR 1-5 YEARS 5-15 YEARS OVER 15 YEARS TOTAL

64 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

MOVEMENT TABLE PROVISION FOR UNEARNED PREMIUMS NON-LIFE (€ MILLION) 2012 2012 2011 2011 GROSS REINSURANCE GROSS REINSURANCE

− − − − − −

PROVISION FOR PREMIUM DEFICIENCY NON-LIFE (€ MILLION) 2012 2012 2011 2011 GROSS REINSURANCE GROSS REINSURANCE

− − −

MOVEMENT TABLE OF OUTSTANDING CLAIMS (INCLUDING IBNR) NON-LIFE (€ MILLION) 2012 2012 2011 2011 GROSS REINSURANCE GROSS REINSURANCE

− − − −

− − − − − −

Achmea Annual Report 65 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Achmea chiefly manages the insurance risk of the insurance liability before reinsurance and therefore the claim development table of both Non-life and Health is presented before reinsurance.

CLAIMS DEVELOPMENT TABLE FOR NON-LIFE (€ MILLION) (BEFORE REINSURANCE) 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 TOTAL

− − − − − − − − − − −

−

The claims development table for Non-life is presented before reinsurance only, as a claims development table after reinsurance would be in line with the table presented above.

PROFIT SHARING AND BONUSES (€ MILLION) 2012 2011

− −

MOVEMENT TABLE PROVISION FOR UNEARNED PREMIUMS HEALTH (€ MILLION) 2012 2012 2011 2011 GROSS REINSURANCE GROSS REINSURANCE

− − − −

PROVISION FOR PREMIUM DEFICIENCY HEALTH (€ MILLION) 2012 2011 GROSS GROSS

−

66 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

MOVEMENT TABLE OF OUTSTANDING CLAIMS (INCLUDING IBNR) HEALTH (€ MILLION) 2012 2012 2011 2011 GROSS REINSURANCE GROSS REINSURANCE

− −

− −

− −

− − − −

As from 1 January 2012, the reinsurance, which is mainly related to High Cost Compensation (HKC: Hoge Kosten Compensatie) in the Dutch health insurance system is replaced by a Perennial High Cost arrangement (MHK: Meerjarige Hoge Kosten) which, in contrary to the HKC, is based on ex-ante compensation. The HKC system will run off over the future financial year from 2012. For more information on the changes in the Health Insurance system reference is made to note 50 Risk Management.

The balance of €48 million (2011: €40 million) consists of a receivable on the Health Care Insurance Board (CVZ) amounting to €2,383 million (2011: €2,533 million) and a liability to CVZ amounting to €2,335 million (2011: €2,493 million). The composition of the receivable and liability is based on premiums, claims and other movements by underwriting year.

CLAIMS DEVELOPMENT TABLE FOR HEALTH (€ MILLION) (BEFORE REINSURANCE) 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 TOTAL

− − − − − − − − − − −

Achmea Annual Report 67 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The claims development table for Health is presented before reinsurance only, as a claims development table after reinsurance would be in line with the table presented above.

MOVEMENT TABLE FOR PROVISION FOR LIFE POLICY LIABILITIES (€ MILLION) 2012 2012 2011 2011 GROSS REINSURANCE GROSS REINSURANCE

− − − −

− − − − −

−

−

− − − −

−

− − − −

The discount rate used in determining the life policy liabilities whose cash flows are based on locked assumptions related to Dutch activities ranges between 3% and 4%. Life policy liabilities related to Dutch activities whose cash flows are discounted using market based interest rates are based on the Euro swap curve, including an illiquidity premium depending on the profit sharing features of the insurance contract, which is extrapolated by means of an ultimate forward rate (UFR). The life policy liabilities for foreign operating companies are generally calculated based on discounting at the interest rate guaranteed for the product or in some cases based on projected returns on related investments.

The provision for non-participating life policy liabilities includes an amount of €2.7 billion (2011: €3.0 billion) that is calculated with current discount rates. Furthermore, €2.0 billion (2011: €1.8 billion) is based on discount rates of projected returns of related investments.

Changes due to reclassification are mainly related to presentation changes between insurance liabilities where policyholders bear investment risks and insurance liabilities classified as held for sale, to product and presentation changes between insurance liabilities, insurance liabilities where policyholders bear investment risks and investment contracts.

68 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

DEFERRED INTEREST SURPLUS REBATES (€ MILLION) 2012 2011

− − −

PROFIT SHARING AND BONUSES (€ MILLION) 2012 2011

Net movements mainly relate to vested rights that have not yet been credited to policyholder accounts related to fair value changes in investments.

21. INSURANCE LIABILITIES WHERE POLICYHOLDERS BEAR INVESTMENT RISKS

The insurance liabilities where policyholders bear investment risks are linked to the Investments backing linked liabilities.

MOVEMENT TABLE INSURANCE LIABILITIES WHERE POLICYHOLDERS BEAR INVESTMENT RISKS (€ MILLION) 2012 2011

− −

− −

−

Changes due to reclassification are related to presentation changes between insurance liabilities where policyholders bear investment risks and life policy liabilities.

The table below shows the insurance liabilities analysed by estimated time to maturity. The Life insurance and Income Protection contracts are analysed based on the discounted cash in- and outflows related to the insurance contracts; Property & Casualty and Health insurance contracts are analysed based on undiscounted cash flows.

ANALYSIS BY ESTIMATED TIME TO MATURITY (€ MILLION) WITHIN 1-5 5-15 OVER 15 1 YEAR YEARS YEARS YEARS TOTAL

Achmea Annual Report 69 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

22. INVESTMENT CONTRACTS

Financial contracts with insignificant insurance risk are presented as investment contracts. The linked investments are presented as part of Investments backing linked liabilities.

MOVEMENT TABLE INVESTMENT CONTRACTS (€ MILLION) 2012 2011

− − − −

An amount of €1,731 million (2011: €1,839 million) of the Investment contracts is expected to be settled more than twelve months after reporting date.

23. POST-EMPLOYMENT BENEFITS

(€ MILLION) 2012 THE NETHERLANDS OTHER COUNTRIES TOTAL

− − −

− −

(€ MILLION) 2011 THE NETHERLANDS OTHER COUNTRIES TOTAL

− − −

− −

The non-qualifying plan assets consist of insurance policies issued by Achmea group companies.

The pension plan for Dutch employees is executed by Stichting Pensioenfonds Achmea (Achmea Pension fund Foundation). The pension fund entered into a reinsurance contract (guarantee contract) combined with a segregated investment contract with Achmea's Dutch life insurance company. The investments and insurance liabilities of the reinsurance contract are recorded as investments backing linked liabilities and insurance liabilities where policyholders bear investment risks. Achmea does not have control over the Achmea Pension fund Foundation.

Achmea maintains defined benefit retirement plans in The Netherlands, Ireland and Slovakia. These plans generally cover all employees and provide benefits that are related to the remuneration (mainly based on average remuneration) and service of employees upon retirement. Benefits related to medical costs are not included in these plans.

Annual contributions are paid to the plans at a rate necessary to adequately finance the accrued liabilities of the plans calculated in accordance with local legal requirements. Plans comply with applicable local regulations concerning investments and funding levels.

70 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Certain group companies sponsor defined contribution pension plans. The assets of all Achmea‟s defined contribution plans are held in independently managed funds. Contributions are generally determined as a percentage of pay. The amount incurred in 2012 was €12 million (2011: €13 million).

Post-employment benefits are essentially of a long-term nature.

MOVEMENT TABLE POST-EMPLOYMENT BENEFITS (€ MILLION) THE OTHER TOTAL TOTAL NETHERLANDS COUNTRIES 2012 2011 −

− − − −

− − − −

EXPENSE RECOGNISED IN THE INCOME STATEMENT (€ MILLION) THE OTHER TOTAL TOTAL NETHERLANDS COUNTRIES 2012 2011

− − − − − − − − −

MOVEMENT TABLE QUALIFYING PLAN ASSETS (€ MILLION) 2012 2011

− −

−

Achmea Annual Report 71 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The qualifying plan assets comprise the following investment categories:

QUALIFYING PLAN ASSETS (%) 2012 2011

ACTUAL RETURN ON PLAN ASSETS (%) THE OTHER NETHERLANDS COUNTRIES

−

MOVEMENT TABLE DEFINED BENEFIT OBLIGATION (€ MILLION) 2012 2011

− −

− − −

As from 2010 the AG prognosetafel 2010-2060 has been applied in determing defined benefit obligations in the Netherlands.

The rate used to discount the defined benefit obligation is determined by reference to market yields on high quality corporate bonds. Achmea applies the Towers Watson Rate:Link curve extrapolated by means of a constant forward rate. Achmea has set additional criteria related to liquidity of the last liquid point within this Rate:Link curve. If the number of market observations for the last liquid point is too small, as is the case in 2012, these observations will be combined with market observations for shorter maturities.

At each reporting date, Achmea assesses the appropriateness of the methodology used for determining the discount rate. The discount rate obtained by the methodology described above is compared with a yield curve derived on the basis of financial instruments that are comparable to but do not exactly meet the definition of high quality corporate bonds. Based on this assessment, no adjustments have been made to the discount rate as at 31 December 2012.

Determination of expected return on plan assets An important element in determining the liability related to Post-employment benefits under the current IAS 19 is the assumption for returns on plan assets. These returns are updated at least annually, taking into consideration the pension funds asset allocation, the historical returns and the current economic environment. Changes in assumptions used for the expected return on plan assets could impact pension expenses recognised in the Income Statement, the funded status of the plans and the need for future cash contributions.

72 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

According to the amendments in IAS 19 the return on plan assets is based on the discount rate used to calculate the Defined Benefit Obligation. Therefore, the method as described above is only relevant for financial periods ending 31 December 2012.

PRINCIPAL ACTUARIAL ASSUMPTIONS AT REPORTING DATE (EXPRESSED AS WEIGHTED AVERAGE ASSUMPTIONS) (%) 2012 THE NETHERLANDS OTHER COUNTRIES

2011 THE NETHERLANDS OTHER COUNTRIES

HISTORICAL INFORMATION (€ MILLION) 2012 2011 2010 2009 2008

− − − − − − − −

Achmea expects to pay €307 million in contributions to defined benefit plans in 2013.

Achmea Annual Report 73 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

24. OTHER PROVISIONS

(€ MILLION) EMPLOYEE BENEFITS (EXCLUDING POST- LEGAL ONEROUS EMPLOYMENT 2012 RESTRUCTURING CLAIMS CONTRACTS BENEFITS) OTHER TOTAL

− − −

− − − − − − − − − −

(€ MILLION) EMPLOYEE BENEFITS (EXCLUDING POST- LEGAL ONEROUS EMPLOYMENT 2011 RESTRUCTURING CLAIMS CONTRACTS BENEFITS) OTHER TOTAL

− − − − − − − − − − − − − − − − − −

Changes due to reclassification in 2012 and 2011 are mainly related to liabilities classified as 'held for sale'.

Restructuring In 2012, provisions were made due to the restructuring costs arising from business process redesign programs and to the disposal of Achmea Vitale.

74 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Legal claims Legal claims include liabilities related to legal claims and possible compensations in relation to insurance and non-insurance activities of Achmea. Due to the nature of these liabilities, the expected maturity is uncertain, but the main part is expected to have a maturity of more than twelve months. The value of Legal claims is determined based on management judgement, external professional assessment and experience.

Onerous contracts Onerous contracts mainly include liabilities related to rented unused office premises and other premises and IT-related contracts. These liabilities have different expected settlement dates, but the main part is expected to have a maturity of more than twelve months. The value of Onerous contracts is determined based on contractual agreements, taking into account any economic benefits expected to be received under the contract.

Employee benefits (excluding post-employee benefits) Employee benefits provisions include liabilities related to employee benefits, including provisions for long-service benefits. These liabilities have different expected settlement dates, but the main part is expected to have a maturity of more than twelve months. The value of Employee benefits provisions is determined based on management judgement, external professional assessment and experience.

Other Other provisions consist of liabilities related to the activities of health insurance and various other minor liabilities. Furthermore liabilities related to the Equity participation plan which was settled in October 2011 is included in other. These liabilities have different expected settlement dates, but the main part is expected to have a maturity of more than twelve months. The value of Other provisions is determined based on management judgement, external professional assessment and experience.

25. BANKING CUSTOMER ACCOUNTS

CLASSIFIED BY NATURE (€ MILLION) 2012 2011

− −

The fair value of Banking customer accounts measured at 'Amortised cost' at year-end is €7,344 million (2011: €5,519 million). The fair value measurement is based mainly on inputs from observable market data.

ANALYSIS BY CONTRACTUAL REMAINING TIME TO MATURITY (INCLUDING ACCRUED INTEREST) (€ MILLION) BANKING BANKING CUSTOMER INTEREST TOTAL CUSTOMER INTEREST TOTAL ACCOUNTS PAYMENTS 2012 ACCOUNTS PAYMENTS 2011

Achmea Annual Report 75 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

26. LOANS AND BORROWINGS

LOANS AND BORROWINGS CLASSIFIED BY NATURE (€ MILLION) LOANS AT LOANS AT 2012 FAIR VALUE AMORTISED COST TOTAL

LOANS AT LOANS AT 2011 FAIR VALUE AMORTISED COST TOTAL

The fair value of loans and borrowings measured at amortised cost at year-end is €9,140 million (2011: €11,187 million). The nominal amount of loans measured at fair value is €18 million (2011: €3 million).

MOVEMENT TABLE LOANS AND BORROWINGS (€ MILLION) DEPOSITS FROM SECURED CREDIT BANK UNSECURED SUBORDINATED TOTAL TOTAL INSTITUTIONS LOANS LOANS LOANS OTHER 2012 2011

− − − − − − −

− − − − −

As at 31 December 2012, total loans outstanding to finance the banking activities were €7,918 million (2011: €10,203 million).

76 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

ANALYSIS BY CONTRACTUAL REMAINING TIME TO MATURITY (€ MILLION) LOANS AND TOTAL LOANS AND TOTAL BORROWINGS INTEREST 2012 BORROWINGS INTEREST 2011

Deposits from credit institutions The banking activities of Achmea use the European Medium Term Notes (EMTN) programme, the programme for the Issuance of Dutch State guaranteed notes, the ECB's Long Term Refinancing Operations (LTRO) and savings to fund part of its lending. Deposits from banks contains deposits from both central banks (ECB) as other commercial banks.

In 2012 the banking activities of Achmea has entered into the ECB‟s LTRO facility and obtained an allotment of in total €0.9 billion.

Secured bank loans The banking activities of Achmea are also funded by loans secured by pledges on mortgage receivables. Secured bank loans include debentures issued by Achmea Hypotheekbank N.V. under its €10 billion Secured Debt Issuance Programme, its €10 billion Covered Bond Programme, and various Residential Mortgage Backed Securities issued by special purpose entities controlled by Achmea Hypotheekbank N.V. These debentures are in various base currencies and are collateralized by residential mortgage loans. The carrying amount of these residential mortgage loans is €8.6 billion (2011: €10.7 billion).

UNSECURED LOANS AND BORROWINGS (€ MILLION) 2012 2011

The unsecured loans and borrowings include a five-year liability of $3.25 billion (€2.4 billion) maturing in November 2014, which was raised with support of the 2008 Credit Guarantee Scheme of the Dutch government. Achmea used the scheme because of the weak liquidity on the capital markets. Participation in the scheme is contingent upon meeting a few standard requirements related to strategy, liquidity profile and capitalisation. Achmea's subsidiary Achmea Hypotheekbank N.V. is required to pay a guarantee fee. For the fixed part of the loan, the fee has been included in the amortised cost of the liability while the variable part is expensed when incurred. Furthermore, Achmea B.V. has provided the Dutch government with indemnity for amounts due to it by Achmea Hypotheekbank N.V. as a result of this scheme. At the end of 2012, Achmea Hypotheekbank N.V. purchased up to $1.8 billion (2011: $0.9 billion) of its outstanding US dollar fixed tranche of the State Guaranteed Notes, which have subsequently been cancelled.

In the 4th quarter of 2012, Achmea Hypotheekbank N.V. issued its first senior unsecured bond for an amount of €0.5 billion. These senior unsecured notes have a maturity of 3.25 years.

The syndicated credit facility of Achmea B.V. has a maximum size of €680 million which matures in June 2013. At the end of 2012, Achmea B.V. renewed the committed credit lines which will mature in 2017. At year-end 2012, the committed credit lines (€750 million) were undrawn. In June 2009, Achmea B.V. issued €750 million notes (at 7.375%) under its €2.5 billion programme for the issuance of debt instruments. These notes will mature in June 2014.

Subordinated loans The subordinated loans are subordinated to all other current and future liabilities and they are all equal in rank. The average interest rate for 2012 was 6.1% (2011: 5.8%).

Achmea Annual Report 77 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

27. OTHER LIABILITIES

(€ MILLION) 2012 2011

An amount of €200 million (2011: €299 million) of the Other liabilities is expected to be settled more than twelve months after reporting date.

28. OPERATING LEASES

The future rental commitments linked to operational lease contracts are as follows:

OPERATING LEASES AND RENTAL CONTRACTS (€ MILLION) 2012 2011

In 2012, €10 million is recognised as an expense in the Income Statement in respect of operating leases (2011: €3 million). The income from subleases is €1 million in 2012 (2011: negligible).

78 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

29. CONTINGENCIES

Legal procedures Achmea B.V. and companies forming part of Achmea are involved in lawsuits and arbitration proceedings. These actions relate to claims instituted by and against these companies arising from ordinary operations and mergers, including the activities carried out in their capacity as insurers, credit providers, service providers, employers, investors and tax payers. Although it is not possible to predict or define the outcome of pending or imminent legal proceedings, the Executive Board believes that it is unlikely that the outcome of the actions will have a material, negative impact on the financial position of Achmea B.V.

CONTINGENT LIABILITIES (€ MILLION) 2012 2011

The Netherlands-based insurance companies of Achmea have given guarantees to the Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden N.V. up to a maximum of €89 million (2011: €89 million). Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden N.V. is a company in which the participating insurance companies pool the claims and risks related to terrorism.

Contingencies related to shares subject to repurchase agreement Pursuant to certain share repurchase agreements, several shareholders of Achmea B.V. have the right to sell their shares on market-based conditions during a certain timeframe to certain third parties which are not related to Achmea B.V. When an option is exercised, Achmea B.V. has the subsequent right to purchase these shares or to enter into a derivative transaction with the purchasing third party. Pursuant to this transaction Achmea B.V. will pay the purchaser an upfront premium equal to the settlement amount due by the purchaser to the selling shareholder under the related option. During the life of the derivative transaction, which has no fixed maturity, Achmea B.V. will receive all dividends distributed to the third party in return for a fixed fee. Upon unwinding of the derivative transaction, Achmea B.V. will receive from the purchaser the upfront premium paid plus part of the change in value of the Achmea B.V. shares held by the third party during the life of the derivative transaction.

NUMBER OF OUTSTANDING OPTIONS OUTSTANDING OUTSTANDING AS AS AT AT 31 DECEMBER 31 DECEMBER 2012 2011

The exercise price of the options is Achmea's share price as determined by the Achmea Valuation Model. The last valuation was performed in 2011 and at that time Achmea's share price was determined at €16.62.

CONTINGENT ASSETS Conflict between the Slovak Republic and Achmea

In contradiction to an agreement for encouraging investments between The Slovak Republic and The Netherlands, The Slovak Republic has enforced a ban on profit on the Slovak health insurers, including Achmea‟s Slovak subsidiary Union, in the period between 2007 and august 2011. Due to this enforcement Achmea set its activities in its Slovak subsidiary in hibernation during this period. Achmea sought compensation for the incurred losses via an international arbitral tribunal. In December 2012 the arbitral tribunal decided in favour of Achmea. According to this decision The Slovak Republic is required to compensate Achmea with an amount of approximately €25 million for damages incurred due to the enforcement of the ban on profit. Given the public announcement of the Slovak Government that it disagrees

Achmea Annual Report 79 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements with the decision of the arbitral tribunal, Achmea considers the receivable amount is not sufficiently certain in order to recognise it as an asset.

30. RELATED PARTY TRANSACTIONS

Identity of related party transactions Parties are considered to be related if one party has the ability to control (e.g. subsidiaries) or exercise significant influence over the other party in making financial or operating decisions. Achmea also considers its defined benefit plan (Stichting Pensioenfonds Achmea) as a related party. Members of the Executive and Supervisory Board and their close family members are also considered related parties to Achmea. Achmea has various types of ordinary transactions course relations (particularly in the area of insurance, banking and asset management), in the normal course of business, with related companies and parties. Besides this, the related party transactions comprise of transactions with associates, joint ventures, key management personnel and close family members of related parties. The transactions with those parties are not considered material to Achmea, either individually or in the aggregate. A list of subsidiaries is presented in Other information.

Entities controlled by the Executive Board and Supervisory Board Achmea could enter into economic transactions with entities controlled by its Executive Board or Supervisory Board members or their close family members. There are no such transactions or related parties in 2012 and 2011.

Remuneration of the Executive Board and the Supervisory Board The remuneration of the Executive Board is related to the content and responsibilities of their respective positions. The various positions are weight on aspects such as impact and responsibilities of the position, complexity of the administrative context in which they operate and the necessary knowledge.

In 2012, Achmea adjusted the remuneration package of the Executive Board downward. The adjustment includes a reduction in variable income (part of the short-term employee benefits), of which a limited portion is offset in fixed numeration, and a downward adjustment of the pension scheme and the car leasing scheme. This adjustment of the remuneration is consistent with the cooperative identity and vision of Achmea, and in line with current legislation and regulations.

In addition to their salaries, Achmea makes contributions to defined benefit plans that provide pension benefits for members of the Executive Board upon retirement. As of 2012 these plans are based on an average salary (2011: final salary). For the determination of the defined benefit liability Achmea uses similar assumptions and methods as used for the other defined benefit plans as disclosed in Note 23 Post- employment benefits.

TOTAL REMUNERATION OF THE EXECUTIVE BOARD (ACTIVE AND FORMER MEMBERS, AVERAGE ACTIVE MEMBERS 4.5) (€ MILLION) 2012 2011

The granting of awards of variable remuneration, part of Short- and Long- term employee benefits, are subject to a recommendation of the Remuneration Committee in the year after the performance. Awards of variable remuneration in any specific year therefore apply to performance in the previous year. No short-term employee benefits are awarded related to the performance in 2012 and 2011. The variable remuneration relates to 2010 (including 3% interest).

80 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Part of the variable remuneration is subject to claw back and is payable more than 12 month after the bonus is granted. These bonuses are included as part of the Long-term employee benefits. The Long-term employee benefits relate to 2010 and a portion of these benefits, €1.2 million, is reserved and will be paid out in later years (with a claw-back clause and 3% interest).

Other Short-term employee benefits are related to a retention reward for the Chairman and the Vice-Chairman of the Executive Board agreed upon in 2009. According to this agreement, after a three year commitment to the Group, a retention reward could be granted in 2012. In 2012, after a positive advice from the Remuneration Committee, the Supervisory Board decided to grand this retention reward.

Termination benefits relates to a member of the Executive Board that stepped down in 2012.

Based on „Wet uitwerking fiscale maatregelen Begrotingsakkoord 2013‟, concerning fiscal measures related to the government budget of 2013, Achmea as an employer has to pay a one-time crisis levy in 2013 that is calculated as 16% of the wages earned in 2012 to the extent that wage was higher than € 150,000. The total amount of crisis levy was €0.7 million for all board members. The amount of crisis levy is not included in the total remuneration of the Executive Board.

Loans provided to Executive Board members amounted to €4 million (2011: €4 million). The weighted average interest rate of these loans is 4.6% (2011: 4.6%). These loans are recorded as part of the Banking credit portfolio and Receivables and accruals.

NUMBER OF EXECUTIVE BOARD MEMBERS 2012 2011

In the table below the average remuneration of an Executive Board member is presented. The average remuneration is calculated based on regular remunerations, excluding termination benefits, other short-term employee benefits and other non-current benefits.

AVERAGE REGULAR REMUNERATION OF AN ACTIVE EXECUTIVE BOARD MEMBER (EXCLUDING OTHER SHORT-TERM AND NON-CURRENT EMPLOYEE BENEFITS) (€ MILLION) 2012 2011

AVERAGE REGULAR REMUNERATION OF AN ACTIVE EXECUTIVE BOARD MEMBER IN 2012 (EXCLUDING OTHER SHORT- TERM AND NON-CURRENT EMPLOYEE BENEFITS) (€ MILLION)

Adjusted for comparison reasons

The Supervisory Board members received a total remuneration of €1.0 million (2011: €1.1 million). The Supervisory Board members are not entitled to any bonuses.

Rabobank For its operations, Achmea uses various regular banking services of the Rabobank Group. All services and transactions with Rabobank are at arm‟s-length and based on regular market rates.

Achmea Annual Report 81 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Distribution channel

Local Rabobanks are a major distribution channel for Achmea's Dutch insurance products. For the distribution of insurance products Achmea has paid commissions of €243 million to local Rabobanks over 2012 (2011: €268 million). Affiliated members ('aangesloten leden') of the Rabobank are granted a 10% discount on the basic health insurance premiums and a discount between a scale from 10% till 25% for premiums for the supplementary health insurance.

Asset management

Management of Achmea's Dutch investments is partly outsourced to Robeco, an asset manager within the Rabobank Group. For the rendering of these services Achmea has paid fees in 2012 amounting to €8 million (2011: €8 million).

Facility services

Amongst others, Achmea in The Netherlands obtains ICT services from Rabofacet, the facility service unit within the Rabobank Group. For these services Achmea paid fees in 2012 amounting to €2 million (2011: €2 million).

Insurance services delivered to Rabobank

Rabobank has insured several risks with Achmea, including a group Health insurance contract with Zilveren Kruis Achmea. The premiums related to this insurance coverage over 2012 are €82 million (2011: €80 million).

Balances and Commitments as of 31 December 2012 with Rabobank Group

Balances with Rabobank Group comprise commodity notes (Note 11), saving accounts that are backing liabilities for policyholders (Note 12) and a credit facility that is reported as Loans and borrowings (Note 26).

Business combination Achmea – FBA Holding B.V.

On 31 december 2012 Achmea signed an agreement to effectively obtain control of FBA Holding B.V. and its subsidiaries FBA Friesland B.V., Friesland Bank Assuradeuren B.V. and Friesland Bank Assurantiën B.V. at that date. Achmea acquired 100% of the ordinary shares of FBA Holding B.V. from Friesland Bank N.V., a group company of Rabobank.

Stichting Pensioenfonds Achmea The pension plan for Dutch employees is executed by Stichting Pensioenfonds Achmea (Achmea Pension fund Foundation). The pension fund entered into a reinsurance contract (guarantee contract) combined with a segregated investment contract with Achmea's Dutch life insurance company. Achmea does not have control over Stichting Pensioenfonds Achmea, but considers it as a related party. All transactions with Stichting Pensioenfonds Achmea are at arm‟s-length and based on regular market rates. For the post-employment benefit plans reference is made to Note 23 Post-employment benefits.

Stichting Achmea Foundation Achmea has obliged itself for an indefinite time to fund yearly 0.5% of its net profit to Stichting Achmea Foundation (Achmea Foundation). Achmea Foundation employees these funds to finance projects around the world for sustainable improvement of economic and/or social environment of groups of help-needed in the society. Achmea Foundation rents office and personnel for free from Achmea.

82 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

31. GROSS WRITTEN PREMIUMS NON LIFE

(€ MILLION) 2012 2011

32. GROSS WRITTEN PREMIUMS HEALTH

(€ MILLION) 2012 2011

33. GROSS WRITTEN PREMIUMS LIFE

(€ MILLION) 2012 2011

GROSS WRITTEN PREMIUMS LIFE (€ MILLION) SINGLE ANNUAL TOTAL TOTAL PREMIUM PREMIUM 2012 2011

Achmea Annual Report 83 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

34. INCOME FROM ASSOCIATES

(€ MILLION) 2012 2011

−

35. INVESTMENT INCOME

INCOME FROM INVESTMENTS BASED ON THE ACCOUNTING TREATMENT OF INVESTMENTS (€ MILLION) 2012 2011

− − − −

Direct operating expenses investment property related to investment property that generated rental income during 2012 amounted to €30 million and related to investment property that did not generate income during 2012 amounted to €1 million.

INCOME FROM INVESTMENTS BASED ON THE NATURE OF INVESTMENTS (€ MILLION) 2012 2011

−

INCOME FROM INVESTMENTS BASED ON THE NATURE OF THE INCOME (€ MILLION) 2012 2011

Interest income is excluding accrued interest on impaired loans.

84 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

36. REALISED AND UNREALISED GAINS AND LOSSES

(€ MILLION) 2012 2011

− −

− − −

Realised and unrealised gains and losses arising from Investment property is divided in Residential (14%), Retail (17%), Offices (63%) and Other (6%).

Realised and unrealised gains and losses arising from financial assets designated at initial recognition as 'At fair value through profit or loss' amounted to €185 million (2011: €826 million). Realised and unrealised gains and losses arising from financial assets and financial liabilities, which are attributable to banking operations are presented under Banking income (Note 38).

A total of €-88 million (2011: €586 million) of the unrealised results from fair value changes is related to investments which are measured using a valuation technique. These are mainly related to investment property, unlisted derivatives and equities.

37. INCOME FROM INVESTMENTS BACKING LINKED LIABILITIES

(€ MILLION) 2012 2011

− − −

− −

Realised and unrealised gains and losses arising from financial assets designated at initial recognition as 'At fair value through profit or loss' amounted to €146 million (2011: €-56 million).

Direct income from Bonds and other fixed-income investments includes interest income related to savings accounts.

Achmea Annual Report 85 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

38. BANKING INCOME

(€ MILLION) 2012 2011

−

39. FEE AND COMMISSION INCOME, AND INCOME FROM SERVICE CONTRACTS

(€ MILLION) 2012 2011

40. OTHER INCOME

(€ MILLION) 2012 2011 −

− −

The negative goodwill related to the business combination with De Friesland Zorgverzekeraar, accounted for as bargain purchase in 2011, amounted to €71 million and is included in Other income in 2011.

86 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

41. CLAIMS AND MOVEMENTS IN INSURANCE LIABILITIES

(€ MILLION) 2012 2012 2011 2011 GROSS REINSURANCE GROSS REINSURANCE

− −

− −

− −

− −

− −

42. PROFIT SHARING AND BONUSES

(€ MILLION) 2012 2011

−

43. FAIR VAULE CHANGES AND BENEFITS CREDITED TO INVESTMENT CONTRACTS

(€ MILLION) 2012 2011 − − − −

Achmea Annual Report 87 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

44. OPERATING EXPENSES

(€ MILLION) 2012 2011

− −

NUMBER OF EMPLOYEES (AT THE END OF THE YEAR, BASED ON FTE)

EUREKO ORANTA INTERAMERICAN ACHMEA SIGORTA RUSSIA GREECE FRIENDS FIRST OTHER TOTAL 2012 TOTAL 2011

The number of employees mentioned above also includes employees with temporary contracts. A FTE is based on a labour week of 38 hours.

As per 31 December 2012, the number of employees includes 191 FTEs for the acquisitions of Independer.nl and De Friesland Bank Assurantiën. The number of employees also takes into account the outflow of 682 FTEs through the sale of Achmea Vitale.

Included in General expenses are expenses related to the audit firm performing the audit of the annual accounts of Achmea B.V. and its subsidiaries which are summarised as follows:

EXPENSES RELATED TO THE AUDIT: (€ MILLION) 2012 2011

The above mentioned expenses include VAT.

As from 2011 PricewaterhouseCoopers Accountants N.V. is appointed as independent auditor of Achmea. Expenses related to audit firms other than PricewaterhouseCoopers Accountants N.V. are as follows: audit related services €1 million (2011: €2 million), other services €13 million (2011: €18 million) mainly relating to advisory and consulting services.

88 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

45. BANKING EXPENSES

(€ MILLION) 2012 2011

Staff costs and other operating expenses related to banking activities are included in Operating expenses (Note 44).

46. OTHER EXPENSES

(€ MILLION) 2012 2011

Impairment losses recognised in 2012 related to Receivables amounted to €11 million (2011: €1 million) and are included in Other expenses.

Achmea Annual Report 89 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

47. INCOME TAX EXPENSES

RECONCILIATION OF EFFECTIVE TAX AMOUNT (€ MILLION) 2012 2011 −

−

− −

− − − − − − − −

The effective tax rate in 2012 amounts to -10.0% (2011: 15.9%).

INCOME TAX EXPENSES (€ MILLION) 2012 2011

− − − − − −

− −

48. OTHER COMPREHENSIVE INCOME

(€ MILLION) 2012 2011 OTHER OTHER COMPREHENSIVE NET OTHER COMPREHENSIVE NET OTHER INCOME BEFORE INCOME TAX COMPREHENSIVE INCOME BEFORE INCOME TAX COMPREHENSIVE TAX EXPENSE INCOME TAX EXPENSE INCOME

− − − − − −

− − − − − − − −

− − − −

− − − − − −

90 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

49. EARNINGS PER SHARE

NET PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS (€ MILLION) CONTINUING DISCONTINUED TOTAL CONTINUING DISCONTINUED TOTAL OPERATIONS OPERATIONS 2012 OPERATIONS OPERATIONS 2011 − −

− − − − − − − −

− −

WEIGHTED AVERAGE NUMBER OF ORDINARY SHARES 2012 2011

−

EARNINGS PER SHARE (€) 2012 2011 −

−

Earnings per share are calculated as the quotient of Net profit attributable to ordinary shareholders and the weighted average number of ordinary shares.

The diluted earnings per share equal the earnings per share from continuing operations.

Achmea Annual Report 91 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

50. RISK MANAGEMENT

INTRODUCTION

Taking and managing risks is Achmea‟s basis for generating sustainable business. Risk management implies the ability to identify, assess, mitigate and control risks. The focus of risk management is not solely on the risks as such, but also on value creation by optimising the balance between risk and return and the active selection of profitable risks. In the long term, sound risk management secures Achmea‟s continuity and solvency.

In the following sections we outline Achmea‟s approach to risk management, starting with the main developments in 2012 and followed by a description of Achmea‟s risk governance framework and risk categories. Each risk category consists of a description of the risk and risk management approach towards that risk. The risk categories, from Achmea‟s perspective, are insurance risk, market risk, counterparty default risk, liquidity risk and operational risk.

Achmea adheres closely and consistently to its strategy of keeping a prudent low-risk profile as described in our risk appetite. Risk management, underpinned by Achmea‟s risk appetite and integrated risk management framework, covers the full range of risk categories applicable to our business.

MAIN DEVELOPMENTS RISK MANAGEMENT

Later in this risk management section we will elaborate on developments in policies and operations. Below are the highlights.

To improve efficiency and performance, operational and supporting processes are evaluated by Group-wide performance and cost reduction programs. The simplification of the organisational model by forming product and distribution divisions supports these goals. For life and pensions in particular, the closed book focus contributes to this target.

Achmea monitors developments in GIIPS (Greece, Ireland, Italy, Portugal and Spain) countries on a continuous basis. Based on risk of losses, we have gradually lowered our exposure in those countries over the past few years, and a limited exposure remained in 2012. The developments in GIIPS countries are an important and recurring point of attention in the Finance and Risk Committee (FRC) meetings.

Starting in the first quarter of 2012, Achmea shifted a part of its Dutch, German and French government bonds to low-risk credits issued by investment grade companies with low leverage and a low probability of default. This shift originated from the notion that government bond investments cannot be considered risk free, either from the perspective of a potential default or from the perspective of mark-to-market risk (i.e. the value of the investments does not always precisely follow the value of the insurance liabilities). The low-risk credit portfolio provides an additional return potential which is needed to match the liabilities and sustain a strong solvency position.

During 2012, the monetary crisis and financial crisis progressed and – from a general point of view – had a negative effect on the credit worthiness of sovereign and financial institutions. Consequently, Achmea has managed its overall exposure profile to acceptable levels, to compensate for these increased risks. However, forthcoming risk reductions from regulations could lead to higher capital and liquidity requirements. Because of increasing costs, more capital and liquidity will be kept in the financial system. The further negative effect on availability of capital and liquidity could potentially result in further increased counterparty risks for financial institutions from households, corporations and sovereigns. Therefore, Achmea remained on high alert for counterparty risk throughout 2012 and is expected to continue to do so in 2013.

The implementation of Solvency II is on track. The governance framework is becoming increasingly consistent. Policies are (re)written according to a commonly applied cycle of phases. Achmea has joined a pilot scheme of the Dutch Central Bank (DNB) regarding ORSA reporting, in which emphasis was put on the process of development of the report and the cooperation of Achmea‟s management. A great deal of effort has been given to the development of a partial internal model. Achmea participates in the pre-application process on internal models with the DNB. The aim is to use these (partial) internal models when SII becomes applicable.

At the end of 2011 it became clear that the Werkhervatting Gedeeltelijk Arbeidsgeschikten (WGA) insurance – an income protection product for companies that exited public insurance coverage – was developing unfavourably, and measures were taken. Liabilities were increased and premium rates were adjusted. In 2012, the portfolio was closely monitored and new public information became available. This led to additional measures being taken during the year.

92 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

A RISK GOVERNANCE FRAMEWORK

RISK STRATEGY

At Achmea, the realisation of sustainable value creation in financial management is key. Adequate risk management is an integral part of this financial management.

As a starting point for effective risk management within the company, principles are set regarding risk management in the organisation that are uniform and integrally complied. This includes principles regarding the risk attitude, risk culture and the establishment of risk management. These principles apply to all levels within the organisation and across all business units.

Achmea has defined a bold goal, to be „The most trusted insurer‟. Subsequently, the Executive Board has set Critical Success Factors and control variables derived from the strategic objectives of the company. The control variables are discussed in the description of the various Risks. To achieve our strategic objectives, the risk attitude targets are defined in the areas of capital position, prudent risk policy and liquidity position. Furthermore, Achmea is primarily an insurance company, and therefore wants to use most of its (economic) capital for insurance risk. Achmea is committed to providing a socially responsible return that matches its cooperative identity and strives for a stable development of value. Achmea offers secure and transparent solutions to customers that continually fit customers‟ needs at a fair price.

The risk appetite of Achmea encompasses the above mentioned principles. This risk appetite is reviewed at least once per year by the Executive Board and then submitted to the Supervisory Board for approval. Any material changes to the risk appetite will also be submitted to the Supervisory Board for approval.

Culture plays a vital role in effective risk management. Behaviour and compliance with agreements characterise this risk culture and determine the effectiveness of risk management. Assumptions regarding the establishment also include the 'Three Lines of Defence' model and the choice for an integrated approach to risk management as explained in the following paragraphs.

THREE LINES OF DEFENCE GOVERNANCE

Achmea's governance structure is based on the „Three Lines of Defence‟ model. This model specifies three lines of defence for controlling risks.

1. Achmea's line organisation, the first line of defence, is primarily responsible for risk management. This includes the Executive Board, line management of the business units and Finance, but also includes the executive risk committees at Group and business unit level as they are mandated by the Executive Board or other business units‟ boards, and take decisions regarding risk positions. 2. Achmea's second line of defence, the risk management, actuarial and compliance function supports Achmea by challenging line management in an active way in its efforts to achieve the business objectives and enable them to make a conscious decision of the risks, costs and the benefits of measures to manage risk. This is done by giving guidance to the activities, facilitating risk management processes and by acting as a sparring partner on effective risk management. 3. Achmea's third line of defence, the internal audit function, is an independent function that provides extra security to the Executive Board and the Supervisory Board / Audit & Risk Committee (ARC) of Achmea – and thus to line management – on the quality of the internal management and the establishment and operation of the risk management system. At Achmea this role is performed by Internal Audit.

LINE OF DEFENCE (LOD) DEPARTMENT / FUNCTION

Achmea Annual Report 93 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

RISK COMMITTEES

Achmea has both risk committees at Group level and within the business units.

Risk Committees at Group level Achmea has two specific risk committees at Group level: the Audit & Risk Committee of the Supervisory Board and the Finance & Risk Committee (FRC) as the executive committee of the Executive Board.

The Supervisory Board supervises the Executive Board on the effectuated policy and associated risks. Therefore, the Supervisory Board discusses the risk profile of Achmea and assesses at a strategic level whether allocation of capital and liquidity requirement are in line with the approved risk appetite.

The Audit & Risk Committee advises the Supervisory Board on financial, administrative and organisational compliance matters, as well as the risk profile and risk management.

The FRC is the platform for the Executive Board and for management of (financial and risk) staff departments and finance directors of several business units to discuss and decide on the issues related to finance and risk management at Group level. Part of the FRC is the Model Approval Committee, with delegated responsibility for approving the risk model.

Finance & Risk committees in the business units In accordance with the FRC at Group level, there are committees within the business units that discuss risks within the organisation. In relation to the banking activities there are several committees that have specific risk management responsibilities, including the Asset and Liability Committee, Credit Committee, Pricing Committee and the Operational Risk Committee.

INTEGRATED APPROACH

The Integrated Risk Management Framework (IRMF) of Achmea describes the risk management system of Achmea. The IRMF risk management consists of seven components. Furthermore, for a uniform approach to the management of risks within Achmea, an unambiguous risk management process is defined.

Risk management components Risk management process

1 Organizational structure

2 Risk classification

3 Risk appetite

4 Policies & procedures Risk process & Information for decision making 5 Tools and techniques

6 Systems & data

7 People, culture and awareness

The risk management system is designed and maintained on the basis of this structure. The IRMF ensures consistency with respect to the risk management function, the compliance function, the actuarial function and internal control, thereby ensuring an efficient and unambiguous risk approach. The risk management system of Achmea using the components of the IRMF is outlined in the following sub-sections.

94 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

RISK MANAGEMENT COMPONENTS

Organisational structure The risk management organisation, the risk governance as described above, together with the risk strategy is defined in the Risk Charter of Achmea. This charter is reviewed at least annually, and more often if considered necessary, and re-established by the Executive Board.

Risk classification Risk classification provides a detailed list of the Achmea-identified risk types which are mutually exclusive, and which Achmea is possibly exposed to. Additionally, risk classification enables clear communication, aggregation and reporting of risks throughout the organisation. Achmea recognises the risk classification of the main types of risk: insurance (consisting of life, non-life, disability and health), market, counterparty, liquidity and operational. For each of these risk types, based on the risk management process, we explain how these risks are controlled within Achmea.

Risk appetite Risk appetite is defined as the maximum risk that Achmea is willing to accept in performing its chosen business strategy. Then the Risk Appetite Statements are translated through Key Risk Indicators (KRIs), risk tolerances and risk limits. Risk tolerances are limits that give a clear direction to management of the risk levels Achmea is willing to be exposed to. Risk limits are used in daily business practices to indicate how much risk we are willing to take.

Achmea's risk appetite and tolerance at Group level are derived from the assumptions regarding the strategic objectives as described in the risk strategy. They include the attitude towards risk and are an indication of not only the willingness to accept either a high or a low level of risk, but also the ability to take risks.

Achmea‟s Risk Appetite Statements state that the available capital is at least equal to an economic capital level at 99.95% confidence level at Group level. These involve preconditions for the minimum capital that needs to be held. A prerequisite is a minimum amount of capital sufficient for an S&P AA rating. Another precondition is a minimum of 100% of the Solvency Capital Requirement (SCR) according to Solvency II plus a buffer per legal entity.

Considering these capital conditions, Achmea‟s capital level is set higher than the minimum Dutch supervisory target of 99.5%, resulting in Achmea having a higher capital position than other insurers who follow the minimum target. Such capital position is in line with Achmea‟s prudent risk policy which is developed, implemented and monitored as part of the Risk Management Framework. Achmea is well diversified in business lines and, when calculating economic capital, the effect of diversification is taken into account.

The amount of capital is calculated based on models. Achmea has identified risk mitigation measures to avoid model risks. Achmea maintains sufficient liquidity in moderate stress scenarios at both Group and business unit level to always meet its liquidity requirement. There is a limit to the total hedgeable market risk relative to the market value of equity. Achmea does not want exposure to risks where no structural results are achieved.

Achmea aims for a structural target return for the market risk that matches the risk profile, its cooperative background and dividend wishes of its shareholders. Services and products have, through the use of volume efficiency and a low cost structure compared to the market, a sufficient quality level. With regard to the operational efficiency (VNB, COR) Achmea aims to outperform the market. Achmea optimises its risk profile so that it contributes to a pricing strategy that is at least around market average.

Policies and Procedures Group-wide policy ensures that for each risk type the risk management throughout the organisation is consistently implemented in line with the steps in the risk management process. In addition, they give consistency and completeness in the analysis and management of all risk types, enabling an aggregated risk profile for Achmea to be reported.

As part of the risk integration and Solvency II implementation, the various policy documents were further tightened in 2012. These included the Risk Management Policy, ORSA policy, Model Validation Policy and the Product Approval Policy. In each policy the main principles, roles and responsibilities are consistently described. With procedures and guidelines, a further interpretation is given to operational matters.

The integral approach of Achmea is described in the risk management policy. This is further elaborated in various underlying policies that further describe a specific area of risk management. There are policies available for all major risk types, in which the overall risk

Achmea Annual Report 95 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements management process is defined according to how the risk is assessed, what control measures are used, how the risk is periodically monitored and how the risk is reported.

In addition to specific components of the risk management system, policies are available that include Risk Self Assessment, Scenarios and Stress Testing, Model Management and Model Validation.

For the development and maintenance of the policy, a management cycle is developed to monitor the quality and consistency. The policy shall be reviewed at least annually and adjusted for any substantial change in the external environment or the area that is involved. Policy is clearly communicated and is well known throughout the organisation.

Tools and Techniques Achmea uses multiple tools and techniques (such as risk assessments, control testing, stress testing, sensitivity analyses and modelling) that for each risk type give concrete and practical support to execute the risk management process. By applying tools and techniques, uniform and enterprise-wide, uniformity is obtained, risks are reported on an aggregated level and a high level of quality standards is maintained.

Qualitative and quantitative methods are used to identify and assess risks.

For the qualitative assessment, the Risk Self-Assessments (RSA) methodology is used. Here the Executive Board and management, based on an identification of existing management measures, make an assessment of the likelihood and impact of the risk: the net risk exposure. The net risk exposure is the risk, shown in a number or risk classification, remaining after the control measures. Assessing risks on the basis of the RSA method thus results in a picture of the overall risk. By assessing the net risk exposure to the risk appetite, we determine whether any adjustment is required.

A quantitative assessment is performed by modelling the risks. Achmea has its own economic capital model that allows a quantitative estimate of the risk profile. The results of this model are used in Asset & Liability Management (ALM), reinsurance strategy, pricing, performance management and capital management. As part of the introduction of Solvency II, Achmea is developing a partial internal model that will eventually replace our economic capital model.

Economic capital at Group level is defined as the amount of required capital to assure fulfilment of the liabilities. The confidence level for the legal entities of Achmea is 99.5% over a one-year period without diversification benefits between the legal entities of Achmea Group. An additional calculation is made on a confidence level of 99,95% with diversification benefits between legal entities, in order to monitor the alignment with the required capital defined in our Risk Appetite. In this economic capital model all potential losses, including adverse revaluation of assets and liabilities, are assessed. Risks per business line are determined using internal, often stochastic, models.

To assess the impact of exceptional but realistic events and adverse developments in market conditions on solvency, liquidity and funding, scenarios and stress tests are used. Scenarios and stress tests (including worst case, adverse scenarios and reverse stress tests) provide insight into what happens under extreme circumstances or in the event of the simultaneous occurrence of a combination of factors.

In our Life business, Achmea uses a KPI based on the return on profit at risk (RoPAR) for new business, where return is based on Market Consistent Embedded Value (MCEV) metrics (taking into account lifetime profits of the policy) and PAR is derived from the economic capital models.

For non-life steering, economic results are available for each line of business. Premium rates are set using information on a best estimate of the expected losses and expenses. For new products a profit test based on economic results is carried out.

Systems and data Systems support the capture, storage and analysis of quantitative and qualitative risk data, and thus the reliability and consistency of recording. The aim is to ensure that the data that is used in the risk process and risk reporting is suitable, complete and correct. For this Achmea has put data governance in place. The Achmea Data Governance Framework consists of six layers including measures to demonstrate the quality of data. This involves successively: data ownership, data management, data definitions, process control, data supply chain and data monitoring.

People, culture and awareness People, culture and consciousness relate to the aspects that people have and benefit to adequate risk management. The required knowledge and skills are described in competency profiles. Training programs ensure that the correct levels are achieved. By inserting risk management

96 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements activities in the performance management cycle and by developing appropriate communication plans, cultural changes are realised in which risk awareness is established at an adequate level.

RISK MANAGEMENT PROCESS

The risk management process and reporting structure support the necessary steps to continuously identify, assess, manage, monitor and report the risks of all risk types.

Achmea distinguishes five steps in the risk management process. Risk identification is, based on the strategy and objectives, about identifying the potential risks that the realisation of the strategy and objectives may hinder. Risk assessment is to analyse, evaluate and possibly quantify the (cause of) risks. The risk response – determining the measures to handle the risk – includes the following options: risk avoidance (stop activities), risk acceptance (no action), risk management (control measures / controls) or risk sharing (reinsurance). The implementation step follows the actual design, implementation and embedding of the measures. Finally, these steps are monitored and are reported on quality and progress.

Risks are identified and assessed on the basis of the above-mentioned methods and techniques. For the management of risks, Achmea makes use of different management measures including hard and soft controls for operational risk, underwriting guidelines and reinsurance to the insurance risks and derivatives in market risks.

To manage the risks in the execution of processes the Achmea Control Framework is developed whereby generic standard frameworks are present for Financial Reporting, Compliance, Business, Entity level controls and IT Risks.

The risk profile of Achmea is periodically monitored. When monitoring risks, line management periodically verifies whether the risk is still within the set risk limits. Quarterly Reports are available for the financial risk, operational risk and compliance and product development. Specifically Risk & Compliance quarterly gives an overview of all these risks, prepared for the Executive Board and the Audit & Risk Committee. Finally, the audit function reports on the basis of audit reports and the management letter.

The sections for each risk type discuss the risk management of the risk of type according to the steps of the risk management process.

ACHMEA’S RISK PROFILE

Achmea is exposed to insurance risk, market risk, counterparty default risk, liquidity risk and operational risk. In terms of economic capital, Achmea‟s largest exposures are related to market risk and insurance risk.

The main financial risk types within our banking activities are interest-rate risk, counterparty default risk and liquidity risk, also disclosed separately within those sections. Operational risk and compliance for the banking activities of Achmea are integrated part of the Group operational risk and compliance risk management and are not disclosed separately in those sections.

B INSURANCE RISK POLICY

Insurance of policyholders‟ risk is the main business activity of Achmea. Insurance risk at Achmea is defined as the risk of a change in value of portfolio due to a deviation of the actual claims payments from the expected claims payments and encompasses life risk, non-life risk, disability risk and health risk. Catastrophe risk and concentration risk, if present, are included separately in the risk types mentioned.

INSURANCE RISK DESCRIPTION

Achmea Annual Report 97 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Achmea manages the insurance risk position primarily through controlling the risks taken by underwriting procedures and reinsurance. Furthermore, the status of the liabilities assumed is monitored by liability adequacy testing and claims management.

INSURANCE RISK LIFE RISK NON-LIFE RISK DISABILITY RISK HEALTH RISK √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √

The Insurance risk at Achmea is split in sub risk types as follows:

ACHMEA SUB RISK TYPES

In the elaboration of policies for the management of Insurance risk the Product Life Cycle (PLC) is used. This is a cycle that, for the four types of insurance risk (life, non-life, disability and health), in principle, is equal.

The risk management process is central for each step of the PLC. Principles relating to insurance risk are described below.

GENERAL PRINCIPLES FOR INSURANCE RISK

Risk identification In addition to available reports and analyses, Achmea uses Risk Self Assessments (RSA) for all parts of the product life cycle to identify Insurance risk. This involves business units regularly performing risk self assessments on strategic, tactical and operational level based on their direct experience.

98 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Instruments for risk assessment The umbrella Risk Appetite supplies a guideline for insurance risk in terms of what Achmea deems acceptable. This consists of a number of Risk Appetite Statements that are further elaborated into a number of Key Risk Indicators.

The RSA methodology is used for the qualitative assessment. A quantitative assessment is performed by modelling the risks.

After completion of the business plan all risks are quantified using the partial internal model. When drawing up the business plan, capital projections derived from the most recent run of the (partial) internal model are used to check whether the risks remain acceptable.

Scenario and stress tests are used to assess the impact of exceptional but realistic events and of negative developments in market circumstances on the solvency, liquidity and funding positions. Scenario analysis assists management in focussing on the greatest risks and supports decision-making, especially regarding costs and revenues from measures such as the way in which capital should be held.

BUSINESS PLANNING

The business plan sets out the plans for developing the portfolio over the next three years. It lays down key details in terms of identifying the new markets and products that are to be initiated, the products to be adjusted or terminated, measures for acceptance, reinsurance, loss handling, premium adjustment and setting forecasts for developments in premium income and forecast numbers for release and lapse.

When drawing up the business plan, capital planning is used to calculate the capital required based on extrapolating the amounts of capital required that have been calculated using the (partial) internal year one model. After completion of the business plan, the amounts of capital required are recalculated using a complete run of the partial internal model as of the close of the year with the main input being the new business plan.

The forecast result is calculated on the basis of the Economic Result (for non-life, disability and health products) and the course of the MCEV (for life products). The partial internal model serves once again as the basis for the capital requirement. The values of the Key Risk Indicators (KRIs) are measured for the Risk Appetite.

PRODUCT DEVELOPMENT

For the introduction of new insurance products, Achmea has formulated a product approval policy. Part of this procedure involves requirements that need to be complied with, including gaining explicit approvals.

In the product development process the target group and the client needs are used to determine the coverage, the conditions, the price and the underwriting criteria. These are used to calculate the anticipated loss burden (e.g., the amount of the loss, timing and other assumptions relevant to claims) and the possible deviations from this forecast. This loss burden establishes the risk premiums. For the financial expectations and to quantify the risks, a profit test is performed.

Achmea aims at a balance between risk, return, required capital and the interests of the customer. All new products are reported quarterly to the Finance & Risk Committee, including the opinions of the staff. Major renewals or product introductions are approved by the Executive Board or the management of the division.

During the product development process the (partial) internal model is, where possible, used to estimate the risks. The required return on capital is a major element used for determining the rates for new products.

Certain risks can be excluded or displaced by resorting to reinsurance, by setting supplementary conditions and/or by applying coverage limits and by restricting the options and guarantees provided. Within Health, the basic insurance rates are an exception. Coverage conditions are imposed by the government and acceptance is mandatory.

UNDERWRITING

The underwriting process consists of assessing, accepting (under possible conditions) and pricing individual risks within existing product ranges. Underwriting takes place based on business rules that are defined during the product development process and at the establishment of the underwriting process. The underwriting process is mostly automated. It will also assess individuals or companies based on national registers.

Achmea Annual Report 99 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

In life and disability contracts, medical selection is part of the underwriting procedures, with premium levels reflecting the health status of the prospect. Medical underwriting is done by skilled and authorised persons.

For the Dutch basic health insurance, Achmea follows the Health Insurance Law under which a general obligation to accept is in force. The underwriting policy for the additional insurance is driven by regular evaluation procedures, in which actuarial staff assess actual loss occurrence.

The application process is to determine whether a risk stays within the existing reinsurance coverage (treaty) or that a separate reinsurance contract (facultative coverage) must be purchased. Achmea Reinsurance has a signalling role if a risk qualifies for reinsurance. Decision making takes place in the FRC.

REINSURANCE

With reinsurance, the negative consequences of deviations from an expected underwriting result are transferred to an external party, the reinsurer. It is an important mean taken to mitigate risks. Responsibilities and competences with respect to decisions on reinsurance contracts are set out in Achmea‟s reinsurance policy.

The type of reinsurance used within Achmea is mainly on an excess-of-loss basis. Risks that exceed the treaty limit are covered on a facultative basis. Achmea uses a multi-layered reinsurance structure, focusing on Group-wide retention levels aiming at reducing overall costs by leveraging increased risk-carrying capacity and combined purchasing power.

Within Achmea all purchased reinsurance of the Dutch entities is managed by Achmea Reinsurance Company N.V. (hereinafter Achmea Reinsurance). Achmea Reinsurance retains some of this risk and places the risk that exceeds the retention levels on the reinsurance market. The non-Dutch operating companies (hereinafter OpCos) operate their own reinsurance program. Achmea Reinsurance participates as a reinsurer in most programs of the OpCos.

The Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden N.V. (NHT) covers all claims on Dutch policies related to terrorism attacks of up to €1 billion. Terrorism claims above this maximum are excluded in Achmea‟s Dutch policies. Like all insurance companies, Achmea pays premiums to the NHT in proportion to its market share. NHT losses are divided in the same way. The NHT has reinsured a large part of the risks on an excess-of-loss basis

Within Non-life, catastrophe risk is the largest risk and this risk is annually quantified using mostly externally developed catastrophe models. Based on this quantification, Achmea determines how much reinsurance capacity must be purchased in accordance with the reinsurance policy to hedge this risk. Following the approval of the FRC, the program is placed in the reinsurance market.

For Life and Disability, pandemic applies as catastrophe risk. This risk is not reinsured, but is evaluated every three years to assess whether reinsurance is needed. In Health Netherlands, because of the risk-absorbing effect of the settlement of health costs, reinsurance currently does not play a role.

POLICY MANAGEMENT

The management of individual policies as (parts of) portfolios is essential for the structural guarantee of quality and good returns. To manage the risk with regard to policy management, the most important mitigating measure Achmea uses is the use of qualified personnel with the right skills. Additionally, Achmea makes use of a support system with the proper calculations for changes in policies. Specifically for Non- life, where the insurer can act per renewal, tooling is used, which (from the perspective of returns) offers the right policies reassessment. At portfolio level an update on indexing, changing social insurance data and adjusting occupation classes is conducted.

CLAIMS PROCESS AND RESERVING

The claims process starts with a damage report or claim of the customer. This notification is assigned to a claim handler, which organises the work around it. Achmea has an active policy to settle claims. As soon as reasonably possible, it is attempted to make an arrangement with the claimant, so that the risk of further growth of claims is mitigated. For each claim, given the available information, such a provision is made by the claims handler that the average run-off result is positive. The provision total is limited by the adequacy test and the prudency policy.

100 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The provision for Non-life and Disability consists of already reported claims and an „incurred but not (enough) reported‟ IBN(E)R provision. These claims are either determined case-by-case or statistically. In addition to determining a best estimate provision, a prudency policy is defined. With the provision coming from this policy negative deviations from the best estimate provisions should be absorbed.

Within disability (AOV), after the initial claims report a customer follows a reintegration program that assesses whether interventions by external service providers could hold potential. This applies to workplace adjustment or waiting list mediation. The choices occur mostly according to the protocol, and are included in the customer file and in the strategic plan.

In health, claims of insured are for the most part settled directly between the healthcare provider and Achmea. For Health, best estimates are made of the expected costs of settling the claims: the health costs are estimated per underwriting year for three consecutive years. The health care purchasing department makes an estimate of each type of care based on health care purchasing inputs. This estimate is tested 4-6 times per year with an actuarial estimate based on historical outcome patterns. It is estimated separately for the basic and supplementary insurance taking into account the different types of care. It takes into account a prudency provision to absorb for adverse deviations from the best estimate provisions.

The establishment of the provisions within Life is not about claims but about the expected future benefits in life or death.

The liability adequacy test is a test on the prudency and adequacy of the contractual insurance provisions.

The provisions for Life, Non-life and Health are tested at least once a quarter for adequacy, and more often if deemed necessary. The development of the adequacy test for Life (both group and individual) is monitored monthly at current market rates. Adequacy Tests, including those of the Opcos, are reviewed by Risk & Compliance.

In carrying out this test, use is made of estimates of future contractual cash flows, based on current developments regarding mortality, morbidity, policyholder behaviour (surrender), future distribution and management costs and, where relevant, results from investments covering these provisions. The resulting best estimate cash flows are discounted using the ECB AAA curve.

The extrapolation method used for the long-term liabilities is the ultimate forward rate, which is in line with the requirement of the Dutch Central Bank for regulatory reporting.

The mortality tables used in the Netherlands and Ireland take into account the longevity risk because a margin for mortality improvement is included. Elsewhere, to ensure adequacy, standard mortality tables are adjusted in various ways, such as age adjustments. The provisions for the longevity risk are tested periodically with the latest mortality information and longevity trends.

The expected loss of claims in Non-life is in general based on a case-by-case approach. IBNR provisions are derived from historical loss patterns.

In assessing claims provisions, the claims history of previous years is taken into account, as is claims inflation of claims from previous years for lines of business with long run-off patterns.

Insurance liabilities include a statistical and non-statistical margin for prudency on top of the „best estimate‟. The non-statistical prudency margin is to cover claim-raising events not possible to quantify statistically, such as new legislation. The height of the margins is evaluated at least annually. In the context of prudency policy, the prudency margin is calculated based on a confidence level of 98.5%.

If the liability adequacy test shows that the provision is not within the range of 10% below or above the prudency margin, the parameters with which the provisions are established will be evaluated and adjusted. The test also verifies the adequacy of the provision for claims handling expenses and unearned premium.

Part of the Non-life reserves are tested qualitatively once a year and monitored quarterly. This mainly concerns WIA, a portfolio for which not yet enough data is available to be tested quantitatively.

The liability adequacy test for disability is based on cash flows. In determining the present value, the current yield curve is used. Non- economic assumptions are based on a mix of industry standards and own experiences.

Achmea Annual Report 101 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Annually (at year-end) internal actuaries provide a consent declaration indicating that the insurance liabilities are consistently and prudently established and that the valuation of insurance liabilities is reliable. The external certifying actuary assesses the accuracy and adequacy of the insurance liabilities on legal entity level and provides an annual statement.

ASSESSMENT OF ASSUMPTIONS

To manage the risks permanently, it is necessary to have up-to-date information on the chances of risk occurrence. This information is used both in pricing, product development and the liability adequacy test. In this phase, the principles that form the basis of the risk premium are drafted. The level of the risk premium determines the height of the final premium paid by the customer and is designed to compensate for expected claims, the expected costs and a profit.

The assumptions study gives a picture of the experience (per assumption) within the portfolio. The assumptions study is carried out annually, but can also occur ad hoc if required by the results or other events. The study is based on both our own history, portfolio data in line with the strategy of the Business Plan phase, and on the external publications from, for example, the Association of Insurers, CVZ and ZN, the AG and the UWV.

For Life, the assumptions study is conducted for pricing and to establish the best estimate properly during the course of the policy. That best estimate is the basis of the second order assumptions in various reports such as LAT and MCEV. Within Life the main technical assumptions are mortality, lapses and expenses. Per portfolio for both Life and Pensions these assumptions are examined. Surrender, paid up and cancellations are subject to lapse research. The mortality study investigates the actual observed mortality and a distinction is made between mortality and longevity. The actual costs are compared each quarter with cost assumptions.

For Non-life, bodily injury claims are recognised for the worst-case amount. The worst case study is conducted annually and the results may lead to an adjustment due to more prudency than allowed. Additionally, frequencies and average claim costs are specified in the product development process for new products or in the product review for existing products.

For Disability, the assumptions are set using probability assumptions and are largely determined for the rate and the provisions. The probability assumptions consist of incidence, recovery, death, cancellation, utilisation and WIA-regime transition probabilities.

In Health, the following assumptions significantly determine the risk premium for the basic and supplementary insurance: frequencies and average health care costs (average claims cost per type of care), management costs, margins, discounts (based on collectivity grade) and result risk adjustment (based on risk insured population), which, after 2012, is limited to 'high cost equalisation' (GGZ), 'generic costing' (mental health and hospitals) and bandwidth control (hospital, outfitting up to and including 2015). The premiums of existing products are annually reassessed on the basis of the above assumptions.

REPORTING AND ANALYSES

In reporting and analysis, the required capital is calculated with the partial internal model as an important input. This capital is a measure for the risk. The analysis looks specifically at whether the relationship between risk and return is in balance.

Management reports on insurance risk through reports of various frequencies, depending on interest. In certain cases, in response to these reports, analyses are conducted that are relevant to business planning, product adaptations and policy management. The reports include stress testing, scenario analyses and analyses of the adequacy of the technical provisions.

PRODUCT REVIEW AND PORTFOLIO ANALYSIS

Based on a fixed frequency per product, all products, product characteristics, the processes associated with the product and product lines are reviewed on commercial, insurance, legal, financial and compliance aspects. The criteria leading in this process come from the Standard Framework Propositions as prepared by Achmea, and additional requirements from the market.

From the product review it should be concluded that the product remains unchanged in the market, that changes are necessary, or even that the product no longer be sold.

Premium analyses form the basis for the annual plan of renewal and pricing. In such analyses there is a view on the return, cost, and the claims on portfolio, label, sector, product and policy level.

102 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

In portfolio analysis, the entire portfolio is assessed on the basis of various structural analyses as annual inflow and outflow analysis, claims and capital analysis. The portfolio analysis is prepared for operational decision making, for commercial, strategic and product management.

INSURANCE RISK FRAMEWORK DEVELOPMENT

In 2012 Achmea, as part of its risk management framework, adopted a formal insurance risk policy, in which all of the above is properly described.

C INSURANCE RISK EXPOSURE

LIFE RISK

Life risk is defined as a change in value of the provisions by adverse developments in the expected future cash flows in life insurance (including expenses). This risk can be split into the sub-risk types of longevity, mortality, catastrophe and expense (including lapse risk). In life insurance within Achmea, longevity risk is predominant and, to a lesser degree, so is mortality risk.

An overview of the life portfolio liabilities is presented below.

LIFE PORTFOLIO ANALYSES (€ MILLION) 2012 2011

LIABILITIES % LIABILITIES %

For Achmea, Ireland and Greece are the two largest life markets outside the Netherlands. In Greece, medical expense insurance is written as a rider to life insurance, referred to as closed block of business with guaranteed premium rates.

The product range includes traditional products, for which Achmea guarantees a minimum return, as well as unit-linked products, where the investment risk is taken by the policy holder. Within individual life various traditional saving products with guaranteed investment returns are offered, such as the sharing of interest profit and single premiums with guaranteed compensation (whole life policies).

In the Netherlands there are saving products offered with the guaranteed investment income equal to the interest level of the mortgage. Mortgages can be linked to both traditional and saving products as unit-linked policies.

Mortality and costs In addition, for products such as insurance covering mortality in traditional individual life insurance, premiums at the start of the contract are fixed and can normally not be adjusted thereafter. For individual contracts in the Netherlands there is an 'en bloc' clause which allows the insurer in extreme cases to increase the premium. With this instrument, the consequences of adverse mortality and costs could be mitigated.

For unit-linked policies in the Netherlands monthly risk premiums for mortality and expenses are withdrawn from the credit of the policyholder. Those costs are maximised, as set out in compensation schemes.

Longevity and costs For longevity, there are no conditions or other mitigating measures that could reduce the longevity risk. For group contracts, it is common to adopt new rates regularly. At Achmea in the Netherlands, calculations are performed to quantify the longevity risk and to test the adequacy of insurance liabilities for this risk. These calculations are based on mortality tables, which are derived from industry statistics and best estimate assumptions regarding future developments. Where possible, the renewal premiums are increased when developments are less favourable than assumed. The pricing of new products will be adjusted accordingly.

In group insurance, a distinction can be made into separate investment contracts where the investment risk lies with the policyholders and traditional insurance.

Achmea Annual Report 103 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

There are insurance contracts for which the policyholder bears investment risks, where Achmea takes the risk that the coverage at the end of the contract is less than 100%. This risk is mitigated by setting premiums for a fixed term, in general five years, and by reducing profit sharing. For Group pensions and annuities provisions, longevity risk is included.

Sensitivities The nature of insurance is such that in the preparation of the financial statements a number of assumptions are taken at the start. The sensitivity of the profit for deviations in the cost and mortality is shown below. For each sensitivity factor, all other assumptions are unchanged.

The table below summarises the impact on the sensitivities of Life. The influence of lapse on the result is positive, since the provision is always greater than the surrender value. The sensitivities of a 5% increase in mortality, 10% increase in costs and 5% reduction in mortality of annuities would have the following impact on the figures in the book year.

LIFE INSURANCE SENSITIVITIES, IMPACT ON PROFIT BEFORE TAX (€ MILLION) MAINTENANCE INSURANCE ANNUITY EXPENSES MORTALITY MORTALITY 10% 5% -5% − − − − − −

The percentages of +5% and -5% are not related to an increase in life expectancy but only to an increase and decrease in the observed mortality for 2011 and 2012. Increase or decrease of the shock, as presented in the sensitivity tables, will result in a proportional increase or decrease in the result. The assumptions for mortality and longevity in the calculation of the insurance provisions will remain unchanged, given the negative correlation between these assumptions, unless the life expectancy rises significantly, combined with a decrease in the mortality portfolio, in which Achmea currently has substantial margins. Based on a Liability Adequacy Test, the total provision is tested for adequacy each quarter. An important element in this is the best estimate assumption for mortality and longevity. This assumption will always be kept up to date.

Reinsurance Within Life, reinsurance is used to limit the risk assumed on individual lives or groups of lives. Achmea, Friends First and Interamerican Greece were all protected by reinsurance for large sums. The reinsurance covers of our portfolios are integrated into one programme with a small priority for 2011 and 2012. A part of the Achmea portfolio is reinsured to reduce the solvency requirements of the Life entities and diversify mortality risk across the Group.

Developments Market developments are such that further reduction of the actual (future) costs is continually monitored within Achmea. For its efficiency and performance, operational processes and supporting processes, using the Group-wide performance and cost reduction programmes are evaluated and made more efficient. Additionally, the simplification of the organisational model by forming product and distribution divisions will support these goals. For Life and Pensions in particular, the closed book focus will contribute to this target.

NON-LIFE RISK

Non-life risk is defined as a change in value of the provisions by adverse developments in the expected future cash flows in Non-life insurance (including expenses). Non-life risk is divided into the sub-risk types premium, reserve, catastrophe and costs. Catastrophe risk is related to both natural and man-made catastrophes such as terrorism. Concentration risk also plays a role.

The risks covered by Achmea are within the typical lines of business, such as accident and sickness, motor (hull and liability), fire and natural events, general liability, legal and transportation / aviation. The categories on which the direct and indirect business insurance focuses are medium-sized industrial and commercial risks, with a normal maximum limit of €40 million based on the maximum expected loss. For most products, settlements take place in a short timeframe. Only in motor liability and general liability insurance and some special insurance (see Note at BSI insurance liabilities) could long settlements occur. Achmea does not underwrite heavy industrial risks, as airports or power plants.

The following table provides a breakdown of the carrying amount of Insurance liabilities and Gross written premiums to product.

104 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

NON-LIFE PORTFOLIO ANALYSES (€ MILLION) 2012 2011

LIABILITIES GWP % LIABILITIES GWP %

Sensitivities The sensitivity of the insurance provisions for changes in the expenses and the cost of claims is shown below. For each sensitivity factor, the other assumptions remain unchanged. The sensitivities of a 10% increase in costs or 5% increase in claims would have had the following impact.

NON-LIFE INSURANCE SENSITIVITIES, IMPACT ON PROFIT BEFORE TAX (€ MILLION) MAINTENANCE GROSS CLAIM EXPENSES RATIOS + 10% + 5% − − − −

For this table, models based on an economic base are used (best estimates with a risk margin). Effects greater than the specified range have a direct effect on the results of Achmea. For the purpose of sensitivity to costs, the costs from the source files are increased by 10% and the model is recalculated. For the purpose of sensitivity for claims, payments from the previous year are increased by 5%. The provisions are disregarded in this respect because shocks and disasters will probably be focused on events during the year, and would not have much impact on the provisions formed in the past.

For premium risk, reserve risk and the risk due to massive expulsions, we have developed internal risk measurement models. These models will be submitted for approval to the DNB in the context of Solvency II.

Catastrophe risk and reinsurance Achmea defines catastrophe risk as the risk that a single event, or series of events, of major magnitude and affecting more than one risk object, leads to a significant deviation in actual claims from the total expected claims.

Mainly the property and motor hull insurance lines are exposed to catastrophe risk. The predominant natural perils are wind damage and hail risk in the Netherlands and, to a lesser extent, earthquake risk in our Operating Companies Greece (Interamerican) and Turkey (Eureko Sigorta). Motor hull in the Netherlands includes the risk of flood.

Reinsurance‟s primary application is to manage exposure to weather-related events, natural disasters, events involving multiple victims, major fires and large claims in general and motor third-party liability. It has significant effects driven by type of reinsurance chosen, retention and limits agreed. Exposure to natural disasters is limited by the use of catastrophe excess-of-loss reinsurance.

In general, catastrophe risks and large individual risks are covered in reinsurance treaties. Achmea makes use of (mostly external) catastrophe models to quantify its exposure to natural catastrophe risk. Achmea has applied for a partial internal model for Solvency II. Dutch and Greek non-life catastrophe risks are part of the internal model. The calibration of the catastrophe model is proposed by an expert panel and approved by the FRC. The calibration is based on (external) catastrophe models and loss experience.

The catastrophe reinsurance covers and retentions for property and motor in the Netherlands and Greece are based on the calibration of the internal model. For 2012 and 2013 the reinsurance upper limit is based on at most a 0.5% exceedance probability for all catastrophe programmes.

Achmea Annual Report 105 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

In 2012, the total catastrophe retention was €160 million (unchanged compared to 2011) and the highest retention per risk was €20 million (unchanged compared to 2011). The retention in the Netherlands on both the property catastrophe programme and the property per risk programme is protected for multiple large losses through layers with an annual aggregate deductible. The retention is based on the risk appetite and is mainly based on an assessment of the costs of reinsurance and the maximum annual retained loss.

Individual risks that exceed the treaty limit of the „per risk‟ programmes are covered on a facultative basis.

Eureko Sigorta has reinsured its largest catastrophe risk, earthquake risk, partly through the Turkish Catastrophe Insurance Pool and proportional treaties. The retention is covered through a catastrophe excess of loss programme.

An occurrence of a catastrophe event, which results in increased claims expenses, is also referred to as concentration risk. The most important concentrations of risk within non-life insurance follow from natural disasters (weather-related events such as severe storms and hail) and large fires. In lines of business such as general liability and motor liability (mainly bodily injury) with long settlements, the claims reserve is exposed to the risk of inflation. This risk is accurately monitored periodically, making use of actuarial liability adequacy tests and ALM studies.

The following tables provides an overview of the effect of concentration risk in property and motor business lines on profit before tax, based on the insurance portfolio, reinsurance and price level at year-end. The figures in the table are based on models and on historical data. The derived loss probabilities resulting from natural disasters are based on the catastrophe model calibration used for the internal model or internal purposes. The historical claims are indexed on price inflation. Model results or historical claims data are not factual and do not predict any future events. Actual loss experience can differ significantly. In the table that presents the property per risk exposure, the reinsurance capacity is not displayed, as the risks that exceed the treaty capacity are covered on a facultative basis.

CATASTROPHE RISK (€ MILLION) 2013 2012

− − − − − −

* Once in 200 years; based on catastrophe model calibration used for the internal model for internal purposes

PROPERTY PER RISK NETHERLANDS (€ MILLION) 2013 2012 LARGEST LOSS IN PAST LARGEST LOSS IN SOLVENCY II 10 YEARS SOLVENCY II PAST SCENARIO* SCENARIO SCENARIO* 10 YEARS SCENARIO − − − − − − − −

* Solvency II standard formula man-made fire, option 2: maximum loss of the largest single risk across all sub lines

Non-Life risk developments Achmea in the Netherlands pays annual premiums to the NHT and guarantees totalling €89 million as at 31 December 2012 (2011: €89 million).

Within the Non-life portfolio, the Dutch motor portfolio comprises 40% of the Dutch gross premium income for damages (excluding income). The motor market is characterised by intensive competition and little or no growth. Achmea is therefore actively doing research on the appropriate risk premium for each homogeneous risk.

At the beginning of 2012 a hailstorm occurred in the Netherlands, resulting in claims of €10 million, which falls entirely within the retention.

106 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

DISABILITY RISK

Achmea defines disability risk as a change in value of the provisions due to an adverse change in the expected amount of future cash flows for disability insurance (including expenses). This risk is split into sub risk types, including incidence risk, recovery risk, catastrophe risk and expense risk.

DISABILITY PORTFOLIO ANALYSES (€ MILLION) 2012 2011 LIABILITIES GWP % LIABILITIES GWP %

Income Protection products (part of Non-life) cover the risk of a reduction in income resulting from inability to work due to illness or disability. Achmea offers these products based on local regulatory requirements. In the Dutch regulations there is a distinction between employers (including self-employed) and employees. For employers and the self-employed there is no public insurance and a full private insurance is available. For employees there is a public insurance, the Work and Income according to ability Labor capacity (Werk en Inkomen naar Arbeidsvermogen, WIA) which consists of two covers: the income provision in case of full and permanent disability (Inkomensvoorziening Volledig en duurzaam Arbeidsongeschikten, IVA) and the return to work provision in case of partial or non permanent disability (Werkhervatting Gedeeltelijk Arbeidsgeschikten,WGA). There are two types of private WIA insurance: supplements to the public insurance and (re)insurance of the WGA, since a company can choose to bear the WGA risk itself and exit the public insurance.

Insurance liabilities related to income protection insurance are sensitive to changes in legislation, changes in medical cost levels, the level of absenteeism due to illness, the frequency and the extent to which people are considered to be disabled, the rate of recoveries from disability, and the level of minimum and actual interest rates.

An important part of the portfolio has a contract period of three to five years, allowing exposure to the above risks. In the vast majority of the agreements with maturities longer than one year the premium can be adjusted according to a clause in the policy conditions. The possibility of high claims per single risk for disability is mitigated by limiting the insured income and, in some cases, the use of reinsurance.

In Ireland, disability insurance is an important business line written on a standalone basis, but these products are also offered as part of life insurance products (PHI). The PHI contracts guarantee the premium rates for the duration of the contract for individual policyholders and for a limited period in the case of group contracts.

Sensitivities The sensitivity of the insurance provisions for changes in the cost, the claims and incidence and recovery rates is shown below. For each sensitivity factor, the other assumptions remain unchanged. The sensitivities of the percentages in the table would have in the book year the following impact:

DISABILITY INSURANCE SENSITIVITIES, IMPACT ON PROFIT BEFORE TAX (€ MILLION) MAINTENANCE GROSS CLAIM EXPENSES RATIOS INCIDENCE RATE RECOVERY RATE + 10% + 5% +10%* -10%

− − * The scenario ‘Incidence rate +10%’ also includes a 10% lower recovery expectation on the new claims

For this table, models based on an economic base are used (best estimates with a risk margin). For the purpose of sensitivity for claims, payments from the previous year are increased by 5%. The provisions are disregarded in this respect because shocks and disasters will probably be focused on events in the year, and would not have much impact on the provisions formed in the past.

Disability risk developments At the end of 2011 it became clear that the WGA insurance, and especially the product for own-risk bearers, developed unfavourably, and measures were taken to limit any risk. A provision was made and the premiums were adjusted. In 2012, the development of our WGA portfolio was closely monitored, including when new public information became available. This has led to additional measures in 2012.

Achmea Annual Report 107 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The main uncertainties in the WGA insurance cover the inflow and the duration of the disability.

It takes three to four years for a good overview of the inflow, due to the two-year waiting period and delays in the public examination by the Employee Insurance Institute (Uitvoeringsinstituut Werknemers Verzekeringen, UWV) and the report afterwards by the employer. The national inflow figures as published by the UWV show an increase. Achmea‟s portfolio is, for the oldest accident years 2004 – 2007, too limited to draw firm conclusions, while the accident years from 2008 are being closely monitored.

The difference between the public IVA and the WGA is the sustainability of the disability. The IVA is designed for full and permanent disability, while the WGA is for partial disability and complete, but not permanent, disability. In the explanatory memorandum to the WIA a period of five years is mentioned. In practice, those in the WGA are often completely disabled for more than five years, and yet are not re- examined and transferred to the IVA.

HEALTH RISK

Dutch Health Insurance system The health insurance system in the Netherlands consists of two components: a basic and a supplementary insurance. Achmea offers both basic and supplementary insurance to individual and group policyholders. For the basic health insurance Achmea offers the direct settlement (natura), the refund and the combination policy. For the supplementary insurance a refund policy is offered.

HEALTH PORTFOLIO ANALYSES (€ MILLION) 2012 2011 LIABILITIES GWP % LIABILITIES GWP %

Basic Health Insurance

The basic insurance is mandatory for anyone who lives or works in the Netherlands and must be bought with a health insurer in the Netherlands. Each insurer has a duty to accept. It covers the basic standard of care and Achmea offers insurance in kind, a refund policy or a combination. Premiums for the basic health insurance are largely influenced by political decision-making. The Dutch government determines the extent of coverage under the basic insurance package and the conditions applicable to the basic insurance package, including enrolment and the maximum discount for group contracts (10% of the gross premium). In addition, the government determines the payments from the health insurance equalisation fund to insurers and the standard nominal premium, which is normally sufficient to cover the total cost.

In addition to the health insurance premiums received from customers, Achmea also receives compensation from the equalisation fund that is financed by employers and the Dutch government. Payments by this fund depend on the risk profile of the portfolio of insured customers. In combination with the standard nominal premium, payments from this fund are expected to equalise the claims level for all insurers. Therefore, in such a system with risk-compensation measures, the risk of a non-average portfolio of insured customers is limited. These risks cover age, gender, medical status, type of employment, socio-economic status and geographic location, as well as an increase in the overall cost of health care. In the paragraph “Basic Health risk development” the main developments in the basic health risk have been elaborated.

Supplementary Health Insurance

Supplementary health insurance offers policyholders an opportunity to expand the cover provided by the basic health insurance. This insurance is optional and is comparable in nature and method to non-life insurance. The cover provided by these insurances is not tied to government stipulations and the insurer has the opportunity to differentiate the premium. Achmea offers a variety of general and dedicated supplementary health insurance packages. Premiums for supplementary health insurance are tailored to the cover offered.

Basic Health risk development In 2012 there were two major developments: change of the funding system of care in The Netherlands; introduction of DOT tariff structure; reduction of the ex-post compensation mechanisms to health insurers.

108 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Introduction of DOT tariff structure

In 2012 the funding system of care has significantly changed in The Netherlands compared to 2011. Starting January 1 2012, diagnoses and treatments performed by hospitals are translated into one of the 4.400 DOT tariffs. Till 2012 diagnoses and treatments were translated into 30.000 DBC tariffs. During the first half year 2012 hospitals were barely able to invoice the 2012 services. The implementation of the DOT tariff structure also increased the risk of inadequate billing by hospitals in 2012. Achmea reduced the key financial risks of claims by contracting hospitals for fixed amounts in 2012. Nevertheless, the risk of inadequate declarations can‟t be completely reduced by Achmea itself and could eventually have an impact on the income received from the health insurance equalisation fund.

The funding system of hospitals changed significantly which could have an impact on the financial status of the equalisation fund of the Dutch Government. Therefore, Zorgverzekeraars Nederland in association with the Dutch National Health Authority (Nederlandse Zorgautoriteit) are currently investigating the transition model of the Dutch hospitals. The results of this investigation is expected in the first quarter of 2013 and could have an financial impact on the Dutch health insurers.

Reduction of ex-post compensation to health insures

The Ministry of Health, Welfare and Sport (VWS) also decided to reduce ex-post compensation to health insurers in 2012, which implies that more financial risk is run. The inset flanking policies (flankerend beleid) of VWS ensures that this happens in a responsible manner. The purpose of this amendment is on one hand to further improve the risk equalisation model and to encourage insurers to invest more in good health procurement and control of healthcare costs and on the other hand compensate health insurers with a non-average portfolio.

The following flanking measures have been taken: The macro costing is replaced by a new supportive policy in which the macrobudget 2012 is reallocated to insurance companies based on actual portfolio and healthcare claims of the individual insurer. By abolishing the macro costing the financial risk of exceedances shifts from the government to the insurers. The bandwidth control is limited in the period 2012-2015: The bandwidth control acts as a safety net, limiting the financial risks that insurers run. The bandwidth control is applicable to the variable costs of the medical specialist care. The recalculation rate decreases from 100% to 90% and the bandwith is set around the market average. In 2012, the MHK (Perennial High Cost arrangement) is introduced and replaces the HKC. The MHK compensates for expected high costs for insured persons which have had high costs for specialised medical care over the past three years. The HKC compensates for actual high expenses on a yearly ex-post basis. In the calculation model of the health insurance equalisation fund the share of ex post components increased. Therefore starting 2012, less health expenses (mostly hospitals) are compensated on actual amounts but should be covered by (ex ante) forecasts by the Health Care Insurance Board (College voor Zorgverzekeringen). In 2012 the required capital for basic health insurance increased from 9% to 11% as a consequence of the increased risk from the change of the founding system of care in The Netherlands.

Uncertainties The uncertainties for a health insurer are specifically in basic health insurance, and occur for various reasons. One is changes in the funding of care, such as the introduction of new tariffs for hospitals (introduction of Diagnosis Treatment Combinations (Diagnose Behandel Combinaties – DBCs) in 2005 and DBCs-towards transparency - DOT's in 2012) and shifting from a-DTCs (financed by the budget of the hospital) to b-DBC (freely negotiable). Other issues include that the increasing market mechanism in healthcare is an uncertainty, settlements with the CVZ per occurrence year, and the clearing of over-and under-funding.

The outstanding claims provision and receivable from the Health Care Insurance Board (CVZ) are based on best estimates of expected amounts taking into account a prudent approach to uncertainties.

Uncertainties on the scale of health costs

In general, the uncertainty of health-related costs is due to both timeliness of invoice processing by health insurers, revenue settlement and the availability of reliable historical data. However, as several years have passed since the introduction of the new health insurances system, more data is becoming available on macro-incurred losses. This data is sourced from bodies representative of the health sector.

Achmea has taken a number of measures to mitigate the uncertainties on cost of care. Claim estimates are generated periodically by both care procurement and actuaries in order to gain insight into relevant developments and the adequacy of insurance liabilities. The results are

Achmea Annual Report 109 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements reported quarterly to the management team of Achmea‟s health division. Within De Friesland Zorgverzekeraar, loss estimates are made by both care procurement and actuaries. Achmea also uses a customer value model. With the customer value model the result of existing and possible new group contracts (prospects) is estimated and uncertainty of the result is reduced. In addition to these measures, there is more information available on a national level about the macro claims. Furthermore Achmea reduced the financial risk for hospital claims by contracting hospitals for fixed amounts in 2012.

Uncertainties on amount of income

Due to the introduction of the DOT tariff structure and the change in the ex-post compensating mechanism, in the process of estimating provisions and income from the health insurance equalisation fund new uncertainties arise. Also for earlier years there are also uncertainties on the amount of income received by the health insurer from the equalisation fund.

Uncertainty arises because standard amounts per insurance item in the budget provision are based on incomplete data. Furthermore, a number of budget parameters can only be partially determined because the information needed has to be collected by the health insurer before it can be analysed. Additionally, national healthcare costs can only be determined after they have been incurred and therefore the combined budget provision for all insurers can only be determined at a later date.

Measures have been taken to mitigate the uncertainties on the amount of income stated above. Information on the 2006 till 2009 basic insurance claims is available for study and to determine standard amounts in the ex-ante risk equalisation model. Some portion of uncertainties is reduced through provisional information made available by the Health Care Insurance Board (College voor Zorgverzekeringen, CVZ) on budget parameters.

These uncertainties surrounding the estimates will take a number of years to clarify. In the coming period the financial impact will be monitored closely.

Sensitivities Both the division Zorg en Gezondheid and De Friesland Zorgverzekeraar perform a sensitivity analysis. An impact analysis is performed around the many uncertainties that Achmea has to deal with under the basic insurance. Primarily, these are the uncertainties surrounding the forecasting of the health care costs and estimating the various budget components from the risk equalisation. The division De Friesland Zorgverzekeraar performs a sensitivity analysis on a higher level.

There are 10 insurance uncertainties (including macro costing and revenue offsetting the greatest impact) and scenarios are calculated in terms of the impact on the net result.

For the calculation of the maximum impact (in other words, based on the worst-case scenario) on the net result that may occur over a horizon of one year, the principles of the DNB Custom Tool Care (MTZ) are followed. Here a certainty level of 99.5% is assumed for both the budget components and the cost of care.

The table below lists the results of this impact analysis of Basis Health Insurance. They are compared with the available capital including prudence margin in provisions. If the change between budget items and the cost of care can be absorbed with the capital (including progress prudence) then the capital with a certainty of 99.5% is sufficient for the worst-case situation.

RESULTS IMPACT ANALYSES COMPARED TO AVAILABLE CAPITAL (€ MILLION) ACHMEA

The performed impact analyses at the end of 2012 have shown that the existing capital of Achmea in conjunction with the prudence margin is more than sufficient to undergo the Worst Case (with a confidence level of 99.5%) in a one year horizon.

Reinsurance Based on annual evaluations, it has been decided not to re-insure these risks, other than the legal obligations as HKC (high cost compensation, for the years up to 2011) and Nederlandse Herverzekeringsmaatschappij voor Terrorismeschaden N.V.

110 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

D MARKET RISK

Market risk is the risk of loss, in other words the decrease in the market value of the net assets (assets minus liabilities), due to unexpected changes in the financial markets. It encompasses interest rate risk, equity risk, property risk, spread risk and currency risk.

MARKET RISK

Policies take into account the impact of adverse developments on profitability and solvency. Specific mitigation policies are in place, such as for interest rate risk and currency risk exposure. The market risk position and the risk of regulatory insolvency are monitored at least quarterly or more often when appropriate.

ASSET LIABILITY MANAGEMENT AND OPTIMAL INVESTMENT PORTFOLIO

For its Dutch insurance companies, Achmea manages market risk positions within an ALM framework developed to achieve long-term investment returns in excess of its obligations under insurance and investment contracts. The ALM‟s key objective is to maximise expected returns on assets within the defined risk appetite. The total investment portfolio of Achmea can be split in a replicating portfolio (creating a market risk neutral position in relation to the liabilities) and a return portfolio for generating investment income by taking market risks. The risk budget for the latter is determined in the ALM study. The main aspects of the ALM framework are determining policies, hedging the liabilities using replicating portfolios and setting the strategic investment mix for the return portfolio.

The budget for market risk is determined on the basis of Achmea‟s risk appetite which sets limits in terms of the relation of available capital to required capital, the maximum loss accepted, the maximum share of capital allowed for financial risks and a targeted credit rating. In the ALM study different asset mixes are tested for their effect on expected profit and these limits of the risk appetite. This research is executed at least annually or more frequently when appropriate.

A risk budget for market risk is set based on the ALM study. Following this an optimal return portfolio (the strategic investment mix) is determined that fits the set risk budget and provides the highest return given additional restrictions on, for example, liquidity and minimum size per asset class. An investment plan, which has to be approved by the FRC, sketches how the strategic investment portfolio will be reached. Periodic monitoring is in place, focussing on deviations from the strategic mix, and managing the interest rate exposure. Investment decisions are taken at Group level, but the limits have to be adhered to by each distinct regulated entity for which a separate portfolio of assets is maintained.

For the insurance entities outside the Netherlands, an ALM and Investment Plan process is followed, based on central guidance from Group. Local investment policies are based on a periodic ALM study to safeguard that the investments best balance the risk positions that originate from the liabilities. In general, very limited market risk is taken above the level needed to balance the risk from the insurance liabilities.

PERIODIC MONITORING POLICY

Interest rate risk policy Insurance Achmea‟s interest rate policy for the Dutch insurance entities is to manage the interest rate risk of investments and liabilities on an economic basis using different scenarios for parallel shifts in the interest rate curves. The negative change in the difference between assets and

Achmea Annual Report 111 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements liabilities must remain within an allowed bandwidth; changes in the composition of the investment portfolio are implemented to correct mismatches. Interest rate derivatives are used to improve matching of insurance liabilities as part of this process. The interest rate sensitivity of the net position is assessed monthly, both on regulated entity and Achmea level. For this assessment, parallel shocks are applied to the replicating portfolios and the related actual investment portfolios. The sensitivity for a shock of 40 basis points and 100 basis points has to be within certain bandwidths for both life and non-life. These are respectively -1.5% and -4% of available capital for life and -1% and -3% of available capital for non-life. For Hagelunie N.V. this bandwidth is specifically set at -1.5% and -4.5%, given the size of the investment portfolio.

Interest rate risk policy Bank Fluctuations in interest rates can affect Achmea‟s banking operations both economically (market value of assets and liabilities) and in terms of earnings. Risk taking and managing risk as a source of profitability is a core business activity for a bank. However, excessive interest rate risk can pose a significant threat to a bank‟s capital and earnings. Accordingly, an effective risk management process that maintains interest rate risk within prudent levels is essential for the safety and soundness of the bank. The focus of the banking activities is on retail banking products (mortgages, consumer loans, deposits, savings and current accounts). The majority of these products or services generate interest rate risk. This risk is mitigated by using derivatives (interest rate swaps and forward rate agreements). Within Achmea‟s banking activities no use is made of non-linear derivatives, such as swaptions, caps and floors.

Currency Risk Policy Achmea‟s policies on foreign currencies and hedging strategies do not aim to fully hedge foreign currency exposure. In general, Achmea does not hedge the net investment in, or the income streams from, its non-euro subsidiaries, because the operations of these subsidiaries are regarded as part of Achmea‟s long-term strategy. Exposure in the investment portfolio is generally hedged. Achmea is exposed to currency risk, specifically in US dollars, as part of the regular investment portfolio (equities, fixed-income investments and listed real estate). In 2012, the investment portfolio, denominated in US dollars, was hedged to a large extent. Other significant long-term exposures are the Turkish lira, through the investments in Eureko Sigorta and Garanti Emeklilik, and the Russian rouble, through the investment in Oranta.

E MARKET RISK EXPOSURE

INSURANCE PRODUCTS

Achmea sells products that contain embedded options, such as minimum guarantees and profit sharing (see the product range under life risk). These options are taken into account when constructing the replicating portfolio for the Dutch insurance entities. The total amount of related Dutch traditional life insurance liabilities subject to embedded options is €14.3 billion (2011: €14.7 billion). Less than fifteen percent of disability insurance liabilities in the Netherlands are related to products with profit sharing on technical results. Furthermore, two insurance contracts, reflecting ten percent of the disability liabilities, include the option of crediting investment return if it exceeds a specific ceiling. In Ireland, there is a significant amount of with-profits business where generated profits are distributed to policyholders as reversionary or terminal bonuses. Irish with-profit business is based on the „United Kingdom-model‟, where discretionary regular and terminal bonuses are given, dependent on returns on the Participating Fund. The total amount of the related insurance liabilities is €1.5 billion (2011: €1.4 billion). In general, profit sharing in Greece and Slovakia is a percentage of the excess investment return above the guaranteed rate. The related insurance liabilities are considered small at Group level.

The decreasing market interest rates have led to higher premiums in group contracts and increasing provisions for interest rate guarantees. The interest rate risk in the Insurance liabilities is covered, as well as possible, by means of replicating the portfolio.

INVESTMENTS OF CASH COLLATERAL RECEIVED IN SECURITIES LENDING

Achmea lends securities to borrowers, who in turn, pay cash collateral (see Note 11 Investments). The received cash collateral at 31 December 2012 amounted to €0.1 billion (2011: €0.3 billion), which is invested in shares of money market funds. As part of Achmea‟s de-risking strategy this programme is in run-off and is expected to expire in 2018. The investments in the money market funds are subject to a risk of change in value. Achmea has no exposure to exchange rate risk, as amounts received in foreign currencies are invested in funds with the same currency.

112 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

INTEREST RATE RISK WITHIN INSURANCE

Interest rate risk relates to the interest sensitivity of the difference in market value between assets and insurance liabilities. Achmea hedges interest rate risk that originates from the insurance liabilities, by means of an overlay management process that makes use of interest rate derivatives (swaps and swaptions). Achmea has entered into a number of long-term interest rate derivative contracts within its Life business. These derivatives are supplementary to the conventional fixed-income investments and the primary aim of the derivatives is protection of economic value. Achmea applies hedge accounting when necessary to decrease the volatility in the Consolidated Income statement.

The total value of the interest rate derivative position is €1,514 million (2011: €1,638 million) with a notional amount of €18.3 billion (2011: €19.3 billion).

Sensitivities The actual sensitivities are within the bandwidth of the policy for the Dutch insurance entities. For internal monitoring and management, Achmea uses scenarios of interest rate sensitivity shocks with effect presented on economic basis. The result of Achmea may be influenced depending on the accounting classification of affected balance posts or recognition of impairments. The impact of an increase in interest rates of 1% on available capital at year-end 2012 is €-48 million. The impact of a similar size decrease is approximately €58 million. Sensitivities only relate to parallel shifts in the interest rate curves. Non-parallel shifts are performed as well, based on predefined scenarios. These shifts may have different impact on available capital.

SCENARIO INTEREST RATE SHOCKS (€ MILLION) EFFECT EFFECT EFFECT EFFECT INTEREST INTEREST INTEREST INTEREST AVAILABLE RATE RATE RATE RATE CAPITAL SHOCK -1% SHOCK -0.4% SHOCK +0.4% SHOCK+1% − − − −

Achmea‟s foreign subsidiaries apply a duration matching approach within bandwidths, which is monitored locally via committees. On an annual basis a full ALM study is carried out, which includes, in addition to duration matching, sensitivities on available capital for different scenarios for shifts in the interest rate curves. This is discussed at both local and Group level.

The following table shows the notional amounts and the positive (assets) and negative (liabilities) fair values of Achmea‟s interest rate derivative contracts. The exposure through derivatives is fully collateralised.

INTEREST RATE DERIVATIVES (INSURANCE) (€ MILLION) NOTIONAL AMOUNT BY TIME FAIR VALUE FAIR VALUE TO MATURITY ASSETS LIABILITIES 2012

2011

INTEREST RATE RISK WITHIN BANK

Within Achmea‟s banking units interest rate derivatives are used to manage interest rate risk related to both assets and liabilities.

Achmea Annual Report 113 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Sensitivities The following methods are used to measure and control interest rate risk: Income at Risk measures the sensitivity of the net interest margin due to a one-basis point shift in interest rates. Value at Risk measures the potential loss in value of an asset or portfolio over a defined period for a given confidence interval (99%, 1 year). This is based on a set of predefined interest rate scenarios. Duration measures the sensitivity in market value of equity due to a one-basis point shift in interest rates. The stress test outcomes are based on parallel shifts of the interest rate curve (100-basis points up and down).

For all methods limits are set and several scenarios are analysed regularly.

The outcomes of several scenarios are shown in the table below:

SENSITIVITIES BANKING ACTIVITIES (€ MILLION) 2012 2011 2012 2012 FRIENDS FIRST 2011 2011 FRIENDS FIRST ACHMEA BANK STAALBANKIERS FINANCE ACHMEA BANK STAALBANKIERS FINANCE

The following table shows the notional amounts and the positive (assets) and negative (liabilities) fair values of Achmea‟s interest rate derivative contracts related to banking activities.

INTEREST RATE DERIVATIVES (BANKING ACTIVITIES) (€ MILLION) NOTIONAL AMOUNT BY TIME FAIR VALUE FAIR VALUE TO MATURITY ASSETS LIABILITIES 2012

2011

EQUITY RISK

Equity risk is the risk that originates from changes in value of equity instruments. Achmea‟s exposure to equity risk is divided among the following sectors: Agriculture sector (€22 million), Energy (€44 million), Financials (€2,194 million), Government (Government and govennment related €9 million), Healthcare (€65 million), Industries (€33 million), Information Technology (€23 million), Materials and Construction (€59 million), Services (€35 million), and other sectors (€208 million).

Sensitivity of equities and alternative investments for a change in market value of +10% is €194 million (2011: €158 million) and -10% is €-193 million (2011: €-154 million). As Achmea‟s equity investments are classified as „Available for sale‟ this will in general only affect total equity as, besides impairment losses, changes in market values are only reflected in Total equity and not in Net profit. Total equity will be 2% lower if equity investments decline by 10%, and solvency will be 4.4% points lower. In these figures no account is taken of sensitivity of future profits to fees and charges in the unit-linked portfolio, which are related to unit-linked asset value.

PROPERTY RISK

At year-end, total investment property amounted to €1,172 million (2.7% of the total investment portfolio). The greater part is invested in direct real estate in the Netherlands. An overview of the composition of the investment property portfolio is given in Note 10 Investment property. The impact of a 10% decrease in the value of real estate would result in a 1% decrease in Total equity and a 2.6% points decrease

114 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements in the solvency ratio. In these figures no account is taken of sensitivity of future profits to fees and charges in the unit-linked portfolio, which are related to unit-linked asset value.

SPREAD RISK

Spread risk is the risk that originates from changes in the level or volatility of credit spreads. Achmea‟s main exposure to spread risk is from investment grade credits (€6,427 million), convertible bonds (€264 million) and emerging market debt (€208 million). Achmea mitigates the spread risk through a conservative investment strategy that balances the exposure types (corporates, financials, covered bonds, government related bonds and asset backed securities), the maturity profile and the regional allocation. The credit rating of the fixed income instruments is presented in the counterparty default risk paragraph.

CURRENCY RISKS

The exchange rate risk table below shows the total exposure to the major currencies at year-end.

EXCHANGE RATE RISK (€ MILLION) 2012 2011 2012 NOTIONAL AMOUNT 2011 NOTIONAL AMOUNT TOTAL OF HEDGING 2012 TOTAL OF HEDGING 2011 EXPOSURE INSTRUMENTS NET EXPOSURE EXPOSURE INSTRUMENTS NET EXPOSURE

ASSETS − − − −

−

LIABILITIES − − − −

− − − − − − NET POSITION

− − −

− −

−

Investments related to cash collateral received in securities lending are not included in this table as they are not exposed to foreign exchange- rate risk.

Achmea Annual Report 115 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The table below summarises the notional amounts of Achmea‟s currency derivatives and fair values.

CURRENCY DERIVATIVES (€ MILLION) NOTIONAL AMOUNT BY TIME FAIR VALUE FAIR VALUE TO MATURITY ASSETS LIABILITIES 2012

2011

Scenario analysis Achmea uses scenario analysis to assess the effect of changes in foreign currency exchange rates against the euro on total equity and profit before tax. The table below shows the impact of a change in foreign exchange rates on total equity and profit before tax based on the situation at year-end. In these figures no account is taken of sensitivity of future profits to fees and charges in the unit-linked portfolio, which are related to unit-linked asset value.

EURO VERSUS ALL OTHER FOREIGN CURRENCIES + 10 % (€ MILLION) 2012 2012 PROFIT BEFORE 2011 2011 TOTAL EQUITY TAX TOTAL EQUITY PROFIT BEFORE TAX

On the basis that all other variables remain stable, a 10% decrease of the euro against all other foreign currencies at 31 December 2012 would have had the opposite effect on the amounts shown in the table above. During 2012, Achmea applied only fair value hedge accounting. Fair value hedge accounting implies that the fair value mutations from the hedging instrument and the fair value mutations from the hedged item that are attributable to the hedging risk are recognised in the income statement. The hedge accounting is applied for the portfolios exposed to foreign currency risk. Foreign exchange contracts are used as hedging instruments. The fair value of a foreign exchange contract varies identically to the foreign exchange rate and this equals the foreign exchange rate fair value changes of an investment in a foreign currency. Therefore, hedge accounting related to foreign exchange can be 100 per cent effective. These results are presented below:

RESULTS ON HEDGE ACCOUNTING (€ MILLION) FOREIGN CURRENCY FAIR VALUE HEDGES 2012 2011

Sovereign risk and GIIPS exposure developments in 2012 Achmea monitors developments in GIIPS (Greece, Ireland, Italy, Portugal and Spain) countries on a continuous basis.

Based on risk of losses, we have gradually lowered our exposure in those countries over the past few years, and a limited exposure remained in 2012. Achmea‟s government and government related bond (referred to as government bonds) exposure in GIIPS countries is €668 million (2011: €580 million) or 3% of the total government bonds portfolio, which is in line with Achmea‟s risk profile. Approximately 78% of government bonds are invested in Dutch and German government bonds.

Achmea has exposure to Greek and Irish government bonds only through its Greek and Irish subsidiaries, Interamerican Greece (€11 million in Greek government bonds) and Friends First (€511 million in Irish government bonds), respectively. The developments in GIIPS countries

116 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements are an important and recurring point of attention in the FRC meetings. Potential risks in other, higher rated countries are also discussed. For quantitative information of exposure per GIIPS and other EU countries, please refer to Note 11 Investments.

Starting in the first quarter of 2012, Achmea shifted 10% (approximately €2.0 billion) of Dutch, German and French government bonds to low-risk credits issued by investment grade companies with low leverage and a low probability of default. This shift originated from the notion that government bond investments cannot be considered risk free, both from the perspective of a potential default and the perspective of mark-to-market risk (in other words, the value of the investments does not always precisely follow the value of the insurance liabilities). The low-risk credit portfolio provides an additional return potential, which is needed to match the liabilities and sustain a strong solvency position.

F COUNTERPARTY RISK

CURRENT POLICY

Counterparty risk is the risk of economic loss due to unexpected default, or deterioration in the credit standing of the counterparties and debtors of Achmea entities. Achmea is exposed to counterparty risk in the area of investments, treasury, banking, reinsurance, healthcare providers, intermediaries, and policyholders.

COUNTERPARTY RISK

The main „prevention‟ objective in managing counterparty risk is to prevent concentrations, ensure that portfolios are well diversified and ensure that risks are sufficiently reduced or mitigated. Alternatively, the main contingency objective in managing counterparty risk is to ensure that recovery processes are well organised and capital surplus is sufficient to withstand credit events. A comprehensive Group level Counterparty Risk Policy (CRP) is in place and forms the basis for counterparty risk management within Achmea.

At the heart of this policy is a rating-based system of exposure limits per counterparty as given in the following table.

MAXIMUM GROUP-LEVEL EXPOSURE (€ MILLION) RATING SUPRA OTHER NATIONALS AND COUNTERPARTIES GOVERNMENTS

Achmea Annual Report 117 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Achmea decided that these maximum Group-level exposure limits do not apply to the exposure towards the Rabobank Group. This exposure mainly consists of saving accounts held at Rabobank Group related to life insurance policies in force (Note 11 Investments) and a credit facility that is reported as Loans and borrowings (Note 26).

The principles of this policy are linked to the Achmea Capital Adequacy Policy. In this way, exposure concentrations are ensured to be conservatively less than capital surplus on both Group level and legal entity level within Achmea.

An important element in this policy is to require ratings from multiple agencies and use the second-best rating to offset subjectivity. Furthermore, Achmea monitors the credit default swap (CDS) spread of financial institutions on a daily basis and lowers the exposure limit if the CDS spread stays too high for too long. Concentration limits enforce diversification across counterparties. Additionally, investment management requirements ensure further diversification across counterparties, regions and sectors on investment portfolio level. Derivative transactions are only initiated with counterparties that meet Achmea‟s rating requirements and collateral requirements. ISDA master agreements (International Swaps and Derivative Association) are in place between Achmea entities and its derivative counterparties. The policy defines collateral requirements that must be specified in the individually negotiated Credit Support Annexes. Only government bonds issued by highly rated countries and cash collateral in Euros, US dollars, British pounds and Swiss francs are accepted as collateral. Independent valuation of derivatives, daily settlement of collateral and increasing haircuts up to approximately 104%, proportional to remaining maturity, further reduces the counterparty default risk.

With respect to counterparty risk of receivables regarding private persons unable to pay their health premiums, procedures are in place. The Dutch government has a policy that obliges the insurer to provide all Dutch citizens with health insurance. As a consequence, private persons who are unable to pay their premium must be provided health care by law. Hence, on the liability side we cannot terminate this risk. To enable insurers to manage this risk, the Dutch government has put in place regulations through the Health Care Insurance Board (CVZ), which compensates for all unearned premiums due for more than six months. This risk is limited to at most six months of unearned premiums per private person. In addition to this, Achmea holds capital to buffer for the risk of more private persons failing to make their payments.

Achmea‟s credit risk in banking operations is largely concentrated in mortgage lending activities and counterparty exposures in the money market and capital market for Achmea Hypotheekbank, Staalbankiers and Friends First Finance. The credit risk in mortgage lending is managed by applying credit approval criteria and subsequently monitoring repayment criteria. Any non-standard conditions imposed on borrowers require the approval of the Credit Committee. Procedures have been set up to monitor interest and repayment arrears. Achmea is actively pursuing a policy of enhancing the risk profile of the banking credit portfolio by improving risk assessments and by securitisation of existing mortgage credit portfolios.

The counterparty risk Group level governance framework is defined in the Counterparty Risk Policy by explicitly describing roles and responsibilities, the process for initiating transactions with new counterparties, the limit distribution per counterparty within Achmea departments and legal entities and the limit revision and exposure control process. Adequate cooperation between Group level and operational level is achieved by stakeholder authorities called the Finance and Risk Committee (consisting of EB members and directors), the Counterparty Risk Meeting (consisting of specialists and managers in the areas of investment, treasury, risk and reporting) and the Counterparty Data Meeting (consisting of managers from risk, control, reporting and IT).

The credit crisis of recent years and new regulations (Solvency II) increased the awareness within Achmea to have complete, correct and timely high quality exposure data at hand. Achmea has in place a detailed exposure administration and data quality process that ensures exposure details that are consistent with balance sheets across entities and at Group level. The central database with counterparty master data and counterparty exposures enable reporting and analysis, for instance by geographical distribution, rating buckets, sectors, exposure buckets, financial instruments, balance sheet items, and so on. The above mentioned governance structure enables quick data and IT response to new developments or changing reporting demands from the operational level.

DEVELOPMENTS IN COUNTERPARTY RISK FRAMEWORK

Achmea decided to continue the application of a set of additional counterparty exposure rules to manage counterparty risks, given the ongoing turmoil in monetary and financial markets during 2012. For example, all counterparties for cash and short-term deposit transactions must satisfy stringent country, rating and CDS requirements. These rules are evaluated and prolonged on a monthly basis. Furthermore, cooperation and communication between first line of defence (primarily the Treasury department but also FRC and the Executive Board) and second line of defence (Risk & Compliance) have been intensified to adequately manage the increased risks in these markets.

118 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

Besides these „temporary‟ additional rules, Achmea has further developed its Counterparty Risk Policy (CRP). The current CRP was approved by the FRC in June 2012 and increased the applicability in the following areas: - All counterparties and all Achmea entities under supervision are now in scope; - Explicit policy to measure and manage counterparty risk for counterparties that are part of a group structure; - Besides exposure limits at Group level, also limits on legal entity level are now defined, where the principles of these limits are linked to Achmea‟s Capital Adequacy Policy; - Explicit Group wide governance framework for exposure control process and limit revision process.

In the near future we anticipate on more US and EU policy, aimed at stabilising the financial system, such as the Dodd Frank Act, Volcker Rule, Vickers Commission and requirements for Central Clearing of derivatives. These topics are monitored closely by Risk & Compliance and the Finance department to safeguard the appropriateness of Achmea‟s Counterparty Risk Policy.

G COUNTERPARTY RISK EXPOSURE

Financial assets as presented in the Consolidated Statement of Financial Position and related Notes, represent the maximum exposure to credit risk. An overview of the total assets from which Achmea is exposed to credit risk without taking into account any collateral is presented below.

MAXIMUM EXPOSURE ASSETS (€ MILLION) 2012 2011

Achmea Annual Report 119 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The following table provides information on the aggregated counterparty risk exposure for the financial investments with external rating and assets not rated (bonds, loans and mortgages and deposits).

EXTERNAL CREDIT RATING ASSETS (€ MILLION) AAA 2012 SOVEREIGN AAA AA A BBB BELOW BBB NOT RATED TOTAL

−

EXTERNAL CREDIT RATING ASSETS (€ MILLION) AAA 2011 SOVEREIGN AAA AA A BBB BELOW BBB NOT RATED TOTAL

− − −

Part of the unrated reinsurance assets amounting to €1,102 million (2011: €844 million) is a deposit with reinsurers resulting from a specific reinsurance treaty. Under this treaty, Achmea has the right to offset certain amounts due to, and from, a cedant in the event of insolvency.

The following table provides impairment charges for bonds with external (S&P) credit ratings.

IMPAIRMENT CHARGES BONDS RECOGNISED IN INCOME STATEMENT (€ MILLION) 2012 2011

120 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The following table provides an overview of the carrying amounts of financial assets that have been impaired and the ageing of financial assets.

FINANCIAL ASSETS, THAT ARE PAST DUE OR IMPAIRED (€ MILLION) NEITHER PAST TOTAL DUE IMPAIRED CARRYING NOR IMPAIRED PAST DUE BUT NOT IMPAIRED ASSETS AMOUNT

AMOUNTS PAST DUE

CARRYING CARRYING CARRYING AMOUNT 3 MONTHS MORE THAN AMOUNT AFTER 2012 AMOUNT PRINCIPAL 0–3 MONTHS – 1 YEAR 1 YEAR PAST DUE IMPAIRMENT

Achmea Annual Report 121 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

FINANCIAL ASSETS, THAT ARE PAST DUE OR IMPAIRED (€ MILLION) NEITHER PAST TOTAL DUE IMPAIRED CARRYING NOR IMPAIRED PAST DUE BUT NOT IMPAIRED ASSETS AMOUNT

AMOUNTS PAST DUE

CARRYING CARRYING CARRYING AMOUNT 3 MONTHS MORE THAN AMOUNT AFTER 2011 AMOUNT PRINCIPAL 0–3 MONTHS – 1 YEAR 1 YEAR PAST DUE IMPAIRMENT

Receivables include €1,484 million (2011: €508 million), which are payments to hospitals regarding the delayed invoicing caused by the implementation of the DBCs. Reference is made to Note 16 Receivables and accruals.

COUNTERPARTY RISK EXPOSURE BANKING

Achmea‟s banking activities provide primarily loans with real estate as collateral (mortgage backed loan) and / or with a security deposit as collateral. The total amount of loans with collateral of €14,041 million is part of the maximum credit exposure, presented as banking credit portfolio in the table above. Furthermore, these loans are issued only to counterparties which have been approved by the Credit Committee.

The credit risk of mortgage loans is broken down into categorised mortgages with a low risk profile (guaranteed mortgages (in the Netherlands by the Dutch government) and securitised mortgages with an average risk profile (all other mortgages receivables and purchased own bonds) and with a high risk profile (the part of mortgage receivables above loan to foreclosure value of 75%). This classification is in line with the reporting standards of De Nederlandsche Bank (DNB).

RISK MORTGAGES PORTFOLIO (€ MILLION) 2012 2011 2012 2011 2012 2011 ACHMEA BANK ACHMEA BANK STAALBANKIERS STAALBANKIERS FRIENDS FIRST FRIENDS FIRST

122 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

COUNTERPARTY RISK EXPOSURE DEVELOPMENTS

During 2012, the monetary crisis and financial crisis progressed and, from a general point of view, had a negative effect on the creditworthiness of sovereigns and financial institutions. Consequently, Achmea has managed its overall exposure profile at acceptable levels, to compensate for these increased risks. At the same time, the financial industry is adopting forthcoming regulations such as Solvency II, BIS III and rules for central clearing of derivatives, which are designed to stabilise the financial system. However, these risk reductions in the financial system come at a cost: if the consequence of these regulations is that financial institutions are required to hold more capital against (more) risks, and if the reduction of counterparty risk in derivative trading is achieved by more stringent collateral requirements and an increase in the number of actors involved in these trades, then costs are expected to increase and more capital and liquidity will be kept in the financial system. This has a further negative effect on the availability of capital and liquidity for the rest of the already slowing economies and as a result potentially leads to further increased counterparty risks for financial institutions from households, corporations and sovereigns. Furthermore, from a general point of view the IMF and OECD outlooks currently do not suggest a substantial improvement. Consequently, Achmea remained alert for counterparty risk throughout 2012 and is expected to do so in 2013.

H LIQUIDITY RISK

CURRENT POLICY

Liquidity risk is the risk that actual and potential payments and collateral obligations cannot be met when due. Achmea distinguishes between funding liquidity risk and market liquidity risk. The first type of liquidity risk is defined as the risk that a company will not be able to meet efficiently both expected and unexpected current and future cash flows and collateral needs without affecting either daily operations or the financial condition of the company. The latter is defined as the risk that the company cannot easily offset or eliminate a position at the market price because of inadequate market depth or market disruption.

LIQUIDITY RISK

Achmea‟s funding strategy is based on assuring access to international capital and credit markets at low cost, underpinned by credit ratings in line with its peers. In general, each operation is responsible for funding its own activities. Access to capital and credit markets are arranged both at legal entity and at holding level. The holding may be involved in financing the operations of certain subsidiaries, through capital increases or subordinated loans. Funding at holding level could come from dividends from subsidiaries, issuance of debt and committed and uncommitted credit lines with a number of national and international banks.

Insurance specific liquidity risk is managed by divisions and foreign subsidiaries. In their liquidity planning, cash inflows and outflows from insurance activities are taken into account. Huge distortions could arise in the case of a catastrophe, when payments have to be made, while corresponding payments are not yet received from reinsurers, and for payments from health pooling organisations in the Netherlands. Liquidity risk within Achmea‟s insurance operations is mitigated through the availability of cash and cash equivalents and investments in liquid assets. Maturity analyses of the insurance liabilities are presented in Note 20 Insurance liabilities and Note 21 Insurance liabilities where policyholders bear investment risks.

Linked to the business plan, liquidity planning takes place at both subsidiary and holding level. Those plans are updated on a monthly basis and more often when necessary. Reporting to the FRC on the liquidity position takes place on a quarterly basis.

The following risk appetite is defined with respect to liquidity risk: To maintain sufficient liquidity in a moderate stress scenario on both holding and legal entity levels to be able to meet its liquidity needs at all times. To maintain sufficient liquidity and flexibility in Achmea‟s risk profile in order to be able to reduce Achmea‟s market and counterparty default risk by making €1 billion liquid within 3 months. To maintain sufficient liquidity and flexibility in Achmea‟s risk profile in order to reduce its economic capital, based on a 99.95% confidence level, by at least €350 million within three months.

Achmea Annual Report 123 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The consequences of the risk appetite statements on liquidity are further elaborated in the liquidity risk policy.

A liquidity contingency plan is drafted describing the procedures and options to arrange liquidity in times of stress. This plan describes possible actions and sources of funds taking into account the behaviour of other counterparties.

Achmea has defined relevant metrics for each of its legal entities as well as the Holding. The metrics aim to provide a forward looking view on Achmea‟s liquidity position and liquidity risk exposure for various time horizons under normal conditions as well as for a range of moderate and extreme stress events. Combined with limits, they support Achmea to satisfy its risk appetite statements as defined by the FRC and provide early warning signs when Achmea runs the risk of having insufficient liquidity to meet its liabilities. Furthermore, they enable Achmea to provide quantitative information about its liquidity position on different levels to supervisors and market participants. With regard to extreme scenarios, several contingency actions are defined in order to generate liquidity.

Liquidity risk Banking Achmea‟s banking entities‟ main funding sources are securitisations, covered bonds and retail funding (deposits and savings accounts). Achmea strives to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities. Achmea continuously assesses liquidity risk by identifying and monitoring changes in funding required to meet overall strategic business goals and targets.

For its banking activities, Achmea manages its liquidity risk as part of its internal liquidity adequacy assessment process (ILAAP) at different levels: In the short-term (overnight to one month), the bank‟s cash position is managed on a daily basis. In the medium-term, Achmea measures the net funding requirement (NFR) against different scenarios to control its liquidity risk. The NFR measures the amount of funding needed to fulfil obligations, including any refinancing requirement in the capital market and net increase in assets of the retail business (e.g. mortgages). For the long-term, the bank strives for a well diversified funding base both in terms of maturity and funding sources.

In addition, Achmea frequently performs stress tests to investigate liquidity positions in times of severe market disruption.

Furthermore, the banking entities have adequate liquidity contingency plans available.

A „liquidity barometer‟ is in place to calculate all assets, liabilities and off balance sheet exposures under stress scenarios. The maximum cash outflow is calculated with scenario-based stress tests over the short term (30 - 90 days). Important metrics for the banking entities are the liquidity coverage ratio (LCR), defined as the stock of high quality liquid assets divided by the net cash outflow over a 30-day period, and the net stable funding ratio (NSFR), defined as the available amount of stable funding divided by the required amount of stable funding. Both indicators should be above 100%.

LIQUIDITY RISK EXPOSURE

124 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

In 2012, at Group holding level, sufficient funding was available mainly as a result of dividends from subsidiaries. At the end of 2012 the committed credit lines (€750 million) were undrawn.

LIQUIDITY RISK EXPOSURE BANKING (€ MILLION) BETWEEN BETWEEN LESS THAN 3 AND 1 AND MORE THAN 2012 3 MONTHS 12 MONTHS 5 YEARS 5 YEARS TOTAL

−

The amounts disclosed in the maturity analysis are the contractual undiscounted cash flows. Therefore, the table above does not reconcile to the discounted cash flows in the Consolidated Statement of Financial Position. The table above presents the liquidity risk as managed by the banks locally, including intercompany transactions as this reflects liquidity risk within Achmea‟s banking entities more appropriately.

I OPERATIONAL RISK

Achmea defines operational risk as the risk of loss arising from inadequate or failed internal processes, personnel or systems, or from external events.

Operational Risk Management (ORM) is the process that aims to identify the uncertain events that can impede the achievement of the business objectives and to manage them within the limits of operational risk appetite of the organisation. In this way the ORM process supports the organisation in achieving its objectives.

Achmea‟s management is responsible for managing and monitoring operational risks (first line). They are supported by a professional ORM function (second line) which provides policy framework, facilitates, monitors and reports the operational risks and if necessary, escalates.

Achmea Annual Report 125 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

CURRENT POLICY

Operational Risk includes the following 7 categories of risk events and management actions.

OPERATIONAL RISK

The ORM process supports the management of Achmea when compromising between operational risks, commercial interests and efficiency. The ORM process follows the steps of the risk management process: risk identification, risk assessment, risk response, implementation and monitoring & reporting.

In order to identify operational risks, management makes use of Risk Self Assessments (RSA), internal loss of data and external loss of data. The business units identify their risks, on a planned and ad hoc manner, by means of qualitative risk assessments and other methods. This is with respect to strategic, tactical, operational risk self-assessments, risk assessments of projects and programs, and in particular, business continuity management assessments.

The risk assessment takes place structurally, using Operational Risk Appetite, Risk Self Assessments and Operational Risk Scenarios as tools. The Operational Risk Scenarios for the biggest risks identified during RSAs are elaborated on using a top-down approach. Scenario analysis provides management with insight and focus on the greatest risks, the costs and benefits of mitigation measures and supports the decision making.

Part of the decision making process is that the management of Achmea assesses the risks against commercial interests and efficiency and then comes up with a proposal to deal with the risk (risk response). The selection is based on the extent to which management is willing to accept the risk as part of the strategy of the organisation and the costs of prevention. The Operational Risk Appetite is a basis for deciding on these actions.

While achieving its ambition, the management of Achmea ensures the implementation of the selected measures. Part of this is also project- based implementation of new measures within the business chain and to secure the effective operation of the business control cycle.

Achmea monitors the risks and risk developments, the internal control and its effect on time to steer in a number of ways. Management reports to internal and external stakeholders in the monthly report and annually with the Internal Control Statement (ICS). KPIs used in these reports are carefully selected indicators that provide insight into a possible change in intensity of the Operational Risk. The ICS describes the risks and internal control of both operational risk and other risk types as per Achmea risk classification.

Achmea calculates the Operational Risk Capital based on the standard formula of Solvency II and monitors the adequacy of capital based on the risk profile.

Developments operational risk framework To support the implementation of, and compliance with, the Operational Risk Management Policy, the first and second line periodically discuss policy compliance and, where necessary, taken action. This ensures Achmea complies with the Solvency II Operational Risk requirements.

126 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The Internal Control policy was prepared in 2012. Part of the internal control framework is the Control Framework (CFW). The CFW aims to strengthen the level of management in the field of Financial Reporting, Compliance and Business objectives of Achmea. Additionally, Achmea takes efficiency into consideration when determining the level of internal control. The ICS is formed from regular risk management activities and the outcomes of the CFW.

The Outsourcing and the BCM policy were further strengthened in 2012, with regard to the Operational Risk Policy. The second line OR&C monitoring report has been improved and standardised for all business units.

OPERATIONAL RISK EXPOSURE

In 2012, Achmea closely followed the euro crisis, as issues relating to financial institutions continued to dominate the headlines. Regaining the public‟s trust in the sector will take a great deal of effort. Achmea sees an opportunity in terms of following its objective to be „the most trusted insurer‟. As part of the regaining trust objective, ORM participated in the drafting and implementation of the controlled remuneration policy.

Also in 2012, the operational risk and compliance activities merged organisationally. This partnership promotes the effectiveness and efficiency of the work. Professionalising the ORM function within the organisation and the quality level of employees should be assured by ORM Courses, trainings and meetings for both operational risk and compliance staff and staff from the first line. During the year, a large group of employees were trained in facilitating RSAs.

In 2012 Achmea performed a Strategic Risk Analysis (SRA), as part of which the main risks were identified and prioritised by the chairmen of the business units and risk response was evaluated. The results of the SRAs of both Achmea and all business units are part of the business planning process and are used as the basis for the selection of scenarios and stress tests in the context of ORSA. In addition, as part of the ORSA process, a non-financial risk assessment and appropriateness assessment has been performed.

Developments Achmea sees an increasing influence from European legislation enforced in the Netherlands. Based on the supervisory attention for customer interest and Achmea‟s ambition to become the most trusted insurance company, there is more emphasis on product development. Achmea‟s products cannot be marketed or distributed without careful consideration of the risks and a careful assessment of other relevant factors, including the duty to the customer. Focusing on the customer interest will make a major contribution in sustainably restoring confidence in the financial sector.

J COMPLIANCE

Achmea defines compliance risk as the risk of legal or regulatory sanctions, material financial loss, or loss to reputation that a financial institute may suffer as a result of its failure to comply with laws, regulations, rules, related self-regulatory organisation standards, and codes of conduct applicable to its activities.

Compliance focuses on overseeing the management of the compliance risk and contributes to the mission of Achmea to become the most trusted insurer, which places the customer centrally. To enable management in a pragmatic way to comply with laws and regulations and internal codes of conduct, these are classified into business-related compliance issues. Achmea gives direction to compliance issues making the organisation more flexible and able to anticipate on developments in legislation.

Within the organisation, the compliance function is identified at the level of Group entities (including OpCos) and at the level of Group holding. Compliance is the responsibility of the management of the line organisation, supported by the Divisional Compliance Officer. To support the Executive Board and the coordination group, the central staff department R&C is in charge. The Division Compliance Officer is hierarchically under the direction of the division and is functionally controlled by the Group Compliance Officer (GCO).

The Compliance Officers within Achmea facilitate, advise and monitor the Group entities in implementing and maintaining compliance management (and compliance with laws and regulations). For this the following activities are relevant, both at central and decentralized level.

Identifying compliance issues and establishing frameworks for policies and procedures; creating awareness, advise, communicating and monitoring compliance, and maintain contacts and coordinate questions with regulators. The Board Office is the central contact for supervisors.

Achmea Annual Report 127 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

The Group entities report on compliance issues. Group reporting aims to enable the assessment of the functioning and effectiveness of the compliance function and organisation within Achmea. In addition, it provides insight into the status of awareness for compliance within Achmea, the management of compliance risks (core subjects), in compliance incidents and in the relationship and contacts with regulators.

Central staff analyses the risks, in part based on the reports of Group entities, and reports them to the Executive Board and Audit & Risk Committee of the Supervisory Board.

DEVELOPMENTS IN COMPLIANCE

From 1 January 2012, the Compliance department became part of the central R&C department. This changes the organisational embedding of the division Compliance Officers, which is now part of the financial column in the division. They retain a direct reporting line to the division chairman.

Integration with Operational Risk has also been shaped by integration of Operational Risk and Compliance Monitoring Reports.

The Achmea Control Framework ensures that the compliance risks are integrated on a continuous basis through self-assessments by the first line in an automated risk management system so that adjustments and reporting are carried out effectively and efficiently. More focus on key risks and key controls in the standard frameworks also facilitates one to increase the effectiveness and efficiency of risk management.

COMPLIANCE WITHIN ACHMEA

There is increasing influence of Dutch and European regulations on the processes and products of Achmea. In order to better monitor the developments in legislation and regulations within Achmea and to influence legislation in development in a timely fashion, a Group-wide Commission Act and Regulations was established.

In 2012, the self-assessments for the standard framework for propositions, where existing and new products were tested by focusing on customers' interests, were completed for the main products, and any existing gaps were identified. In the same year the project standard framework for propositions was brought back to the line organisation, which integrates the principles of the standard framework for propositions in the business plans and daily operations and product improvements.

Achmea sees the „Customer oriented Insurance‟ quality standard as an important tool in its efforts to become the most trusted insurer. During 2012, various labels within Achmea were in possession of the quality standard as issued by the Dutch Association of Insurers. These were: Interpolis, Avéro Achmea, Centraal Beheer Achmea, FBTO, Zilveren Kruis Achmea, DVZ, Agis, Profile TakeCareNow OZF and InShared. In 2012 a major effort was made to comply with the standard‟s requirements, both to demonstrate compliance and to show that the requirements are embedded in our processes.

In 2012 compliance took the initiative to start two pilot projects on culture, attitude and conduct. These pilot projects will be analysed by compliance to see how much the actual behaviour of employees is in line with the desired culture. Compliance will discuss their findings with the business.

128 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

51. CAPITAL MANAGEMENT

According to regulations on the supervision of financial conglomerates (based on European Union directives so called FCD), Achmea's available capital should at least be equal to the sum of required capital of the regulated entities. Different sector rules apply for insurance activities and banking activities. In addition, Achmea has set internal requirements, well above the regulatory requirements.

(€ MILLION) 2012 2011

− −

The solvency ratio increased to 207% (2011: 204%). This increase is the outcome of a combination of positive and negative developments. As of 2012, Achmea uses the ECB AAA-curve and an adjusted extrapolation method (the Ultimate Forward Rate) instead of the Euro Swap curve for discounting liabilities. The change to the ECB AAA-curve brings Achmea's solvency calculation methodology in line with standards used by other Dutch peers. The Ultimate Forward Rate is prescribed by the Dutch Central Bank for regulatory reporting since June 2012 and has led to higher solvency ratios. Positive results over 2012 have contributed to higher solvency ratios. Negative influences on solvency levels are caused by the increase of capital requirements for Dutch basic health insurance (from 9% to 11% of the claims amount), Goodwill related to business combinations in 2012 (deducted from Available Capital) and changes in parameters for calculating the Liability Adequacy Test (LAT), leading to a reduced surplus in the LAT. The surplus in the LAT is taken into account in the calculation of available capital.

Insurance activities European Union directives have been issued on capital requirements of insurance companies in order to protect the interests of policyholders (IGD). Achmea measures its capital position based on these requirements and applies more stringent requirements for internal purposes. The internal target levels are set at minimum coverage ratios equal to 175% and 185% of the minimum regulatory solvency requirements for its Dutch Life and Non-life businesses, respectively. For Dutch Health insurance, the minimum coverage ratio is 135% for the basic health insurance entities and 160% for supplementary insurance coverage. The target solvency levels are 200% for Achmea Reinsurance, 175% for Friends First and 130% for the other foreign subsidiaries. A target solvency level of 190% has been defined for the Achmea Group. The last one based on the Insurance Group Directive, i.e. with deconsolidation of the banking entities.

(€ MILLION) 2012 2011

Banking activities The European Union has issued directives on capital requirements of banks based on the Guidelines developed by the Basel Committee on banking supervision. Based on these directives, the Dutch Central Bank has issued minimum capital requirements. As of 1 January 2008, banking capital requirements are governed by the Capital Requirements Directive (Basel II). Achmea uses the Standardised Model to determine its credit risk. The BIS ratio based on Basel II increased to 14.6% compared to 14.1% in 2011, primarily due to the decrease in the risk weighted assets.

Achmea Annual Report 129 FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

(€ MILLION) 2012 2011

130 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Consolidated Financial Statements

52. SUBSEQUENT EVENTS

January 2013 Achmea’s Life Insurance and Pension portfolios in Romania

On 28 January 2013, Achmea signed an agreement to sell Eureko Romania's life and pension activities, by way of a transfer of assets and liabilities. This agreement will be effected during 2013. Eureko Romania issues, amongst other insurance products, life insurance contracts in Romania and is included in segment International. As at 31 December 2012, assets and liabilities related to these activities were reclassified to Assets classified as 'held for sale' and Liabilities classified as 'held for sale'. The result on the sale will, after the agreement is effected, be included in Net profit for the financial year 2013.

Business combination Achmea - Onderlinge Verzekeringen Overheid u.a.

On 1 October 2012, Achmea signed an agreement to effectively take over all activities of Onderlinge Verzekeringen Overheid U.A. (OVO), a Dutch specialist liability and fraud insurer, as per 1 January 2013. Achmea acquires knowledge about both specialist liability and fraud insurance and the access to government related clients. The transaction includes both the insurance liability plus the investments related to these insurance liabilities and all other assets and liabilities as per 1 January 2013. These activities and the provisional goodwill will be included in segment Non-life Netherlands. The consideration transferred amounts to €2 million. The provisional fair value of the net assets acquired has been calculated on €1 million, so that the provisional goodwill will be €1 million.

Agreement Staalbankiers – GE Artesia Bank

On 31 January 2013 Staalbankiers, a wholly-owned subsidiary of Achmea Holding B.V., reached agreement with GE Artesia Bank whereby their private banking customers will be introduced to Staalbankiers. In the coming period Staalbankiers will get acquainted with customers of GE Artesia Bank and aims to approach all private banking customers of GE Artesia Bank in the first half of 2013. The financial consequences regarding this agreement depend on the conversion rate in the first half of 2013.

February 2013 Nationalisation of SNS Reaal

On 1 February 2013, the nationalisation of SNS Reaal, a Dutch financial institution, was announced. As a consequence of the arrangements made by the Dutch government, the Dutch banking sector will be required to pay a one-time levy of €1 billion in 2014. For the banking activities in the Netherlands, based on current limited information, this is estimated to result in a charge of approximately €10 million. Achmea will carefully assess further details on form, amount and timing of the levy as they become available. Furthermore, the Dutch Ministry of Finance has decided to postpone the introduction of the new Deposit Guarantee Scheme from 2013 to 2015.

AUTHORISATION OF CONSOLIDATED FINANCIAL STATEMENTS

Achmea Annual Report 131 FINANCIAL STATEMENTS Company Financial Statements

BALANCE SHEET (BEFORE APPROPRIATION OF RESULT) (€ MILLION) 31 DECEMBER 31 DECEMBER NOTES 2012 2011

− −

− − − − − − −

PROFIT AND LOSS ACCOUNT (€ MILLION) NOTES 2012 2011

− − −

132 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Company Financial Statements

1. ACCOUNTING POLICIES

General In the Company Income Statement of Achmea B.V., use has been made of the exemption pursuant to Section 402 Book 2, part 9 of the Dutch Civil Code.

Concerning the Company cash flow statement of Achmea Holding N.V., use has been made of the principle according to Section 360.106 of the Dutch Accounting Standards (RJ).

Principles for the measurement of assets and liabilities and the determination of the result Achmea B.V. makes use of the option provided in section 362 (8) Book 2, part 9 of the Dutch Civil Code. By making use of this option the Equity attributable to holders of equity instruments is equal in both the Consolidated Statement of Financial Position and the Company Balance sheet. This means that the principles for the recognition and measurement of assets and liabilities and determination of Net profit of the Company Financial Statements of Achmea B.V. are the same as those applied in the Consolidated Financial Statements with the exception of Investments in subsidiaries which are recognised at net asset value with goodwill, if any, recorded under intangible assets. The Company Financial Statements have been prepared in accordance with Book 2, part 9 of the Dutch Civil Code.

All amounts in the Company Financial Statements are in millions of euros unless stated otherwise.

2. ASSETS AND LIABILITIES HELD FOR SALE

On 28 January 2013, Achmea B.V. signed an agreement to sell Eureko Romania's life and pension activities, by way of a transfer of assets and liabilities. These companies are an almost 100% subsidiary of Achmea B.V. The remaining share capital is held by Eureko Eastern Europe Holding B.V., a subsidiary of Achmea B.V. Reference is made to Note 5 Assets and liabilities held for sale and divestments in the Consolidated Financial Statements.

3. BUSINESS COMBINATIONS

Business combination Achmea - Independer.nl N.V.

On 19 December 2011, Achmea signed an agreement to effectively obtain control of Independer.nl N.V. (hereafter 'Independer') and its fully-owned subsidiary Independer Zorg B.V. as per 1 January 2012. At closing date, on 3 January 2012, Achmea acquired 77% of the ordinary shares and all cumulative preference shares of Independer. Reference is made to Note 6 Business combinations in the Consolidated Financial Statements.

Business combination Achmea - FBA Holding B.V.

On 31 December 2012, Achmea B.V. signed an agreement with Friesland Bank N.V. to effectively obtain control at that date of FBA Holding B.V. and its fully-owned subsidiaries FBA Friesland B.V., Friesland Bank Assuradeuren B.V. and Friesland Bank Assurantiën B.V. from Friesland Bank N.V. Reference is made to Note 6 Business combinations in the Consolidated Financial Statements.

Achmea Annual Report 133 FINANCIAL STATEMENTS Notes To The Company Financial Statements

4. INTANGIBLE ASSETS

(€ MILLION) INTERNALLY VALUE OF OTHER DEVELOPED DISTRIBUTION BUSINESS INTANGIBLE SOFTWARE NETWORKS BRAND NAME ACQUIRED GOODWILL SSETS TOTAL 2012 TOTAL 2011

− − − − −

−

− − −

The acquisitions of intangible assets mainly relate to the acquisition of Independer.nl N.V. and FBA Holding B.V. (reference is made to Note 7 Intangible assets of the Consolidated Financial Statements).

5. FINANCIAL FIXED ASSETS

(€ MILLION) EQUITIES AND SIMILAR SUBSIDIARIES ASSOCIATES INVESTMENTS DERIVATIVES LOANS TOTAL 2012 TOTAL 2011

− − − − −

− − − − − − − −

−

The purchase price as per 31 December 2012 of Equities and similar investments amounts to €9 million (2011: €57 million).

134 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Company Financial Statements

6. RECEIVABLES

(€ MILLION) 2012 2011

In line with 2011, Receivables are expected to mature within one year after reporting date.

7. CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise bank balances. Cash and cash equivalents are not subject to any restrictions.

8. EQUITY ATTRIBUTABLE TO HOLDERS OF EQUITY INSTRUMENTS OF THE COMPANY

Reference is made to Note 18 Equity attributable to holders of equity instruments of the company in the Consolidated Financial Statements.

9. PROVISIONS

(€ MILLION) 2012 2011

Deferred tax liabilities are attributable to the following items:

(€ MILLION) BALANCE AT RECOGNISED BALANCE AT BALANCE AT BALANCE AT 1 JANUARY IN INCOME OTHER 31 DECEMBER 1 JANUARY RECOGNISED OTHER 31 DECEMBER 2012 STATEMENT MOVEMENTS 2012 2011 IN EQUITY MOVEMENTS 2011 − − − − − − − − − − − − −

Achmea B.V. and the majority of its Dutch subsidiaries together form a fiscal unity for corporate income tax and VAT. As a consequence the company is liable for all deferred and current liabilities relating to corporate income tax and VAT.

Achmea Annual Report 135 FINANCIAL STATEMENTS Notes To The Company Financial Statements

Movements in Other provisions are as follows:

(€ MILLION) 2012 2011

− − − −

Other provisions mainly relate to legal cases and share-based payments. In line with 2011 Other provisions are of a long-term nature.

10. LONG-TERM LIABILITIES

(€ MILLION) 2012 2011

In June 2009, Achmea B.V. issued €750 million notes (at 7.375%) under its €2.5 billion programme for the issuance of debt instruments. These notes will mature in June 2014 and are presented as part of Loans and borrowings.

11. SHORT-TERM LIABILITIES

(€ MILLION) 2012 2011

In line with 2011, Short-term liabilities are expected to mature within one year after reporting date.

12. OTHER RESULTS

(€ MILLION) 2012 2011

− −

Information concerning remuneration of the Executive Board and the Supervisory Board is included in Note 30 Related party transactions of the Consolidated Financial Statements. Included in Other expenses are expenses related to audit firms that carry out the audit of the financial statements of Achmea B.V. (reference is made to Note 44 Operating expenses of the Consolidated Financial Statements).

136 Achmea Annual Report FINANCIAL STATEMENTS Notes To The Company Financial Statements

13. CONTINGENCIES

Contingent liabilities Achmea B.V. has issued guarantees on behalf of subsidiaries that relate to the activities of these subsidiaries carried out in their capacity as insurers, credit providers, service providers, employers, investors and tax payers.

Achmea B.V. has provided the Dutch State with indemnity for amounts due to the Dutch State from Achmea Hypotheekbank N.V. As a result of its participation of the 2008 Credit Guarantee Scheme. Achmea B.V. issued guarantees as mentioned in article 403 Book 2 of the Dutch Civil Code, in respect of two investment companies within the group. In addition, Achmea B.V. has given a guarantee that the liquidity and solvency of three subsidiaries will be sufficient to continue their operations. Achmea B.V. also issued guarantees, as part of specific tenders for non-life insurance contracts for local Dutch governments, related to the fulfilment of the obligations resulting form these contracts in case of non performance by the non-life insurance group company. Furthermore, Achmea B.V. issued guarantees relating to two Romanian subsidiaries confirming that these entities will operate as going concern as far as necessary and can be requested from Achmea B.V. as a shareholder. No material losses are expected in respect of these guarantees. Due to their nature, these guarantees are not quantified.

In the table below an overview is given of all the contingent liabilities provided by Achmea B.V. on behalf of its subsidiaries. No material losses are expected in respect of these guarantees and indemnities.

CONTINGENT LIABILITIES (€ MILLION) 2012 2011

Contingent assets Conflict between the Slovak Republic and Achmea

In contradiction to an agreement for encouraging investments between The Slovak Republic and The Netherlands, The Slovak Republic has enforced a ban on profit on the Slovak health insurers, including Achmea's Slovak subsidiary Union, in the period between 2007 and august 2011. Due to this enforcement Achmea set its activities in its Slovak subsidiary in hibernation during this period. Achmea sought compensation for the incurred losses via an international arbitral tribunal. In December 2012 the arbitral tribunal decided in favour of Achmea. According to this decision The Slovak Republic is required to compensate Achmea with an amount of approximately €25 million for damages incurred due to the enforcement of the ban on profit. Given the public announcement of the Slovak Government that it disagrees with the decision of the arbitral tribunal, Achmea considers the receivable amount is not sufficiently certain in order to recognise it as an asset.

14. REGISTERED SEAT

Achmea B.V. is seated in Zeist, the Netherlands, and registered at the Chamber of Commerce, trade register Midden Nederland 33235189.

15. NUMBER OF EMPLOYEES

Other than the Executive Board members, there is no personnel employed by Achmea B.V. in either 2012 or 2011.

Achmea Annual Report 137 FINANCIAL STATEMENTS Notes To The Company Financial Statements

AUTHORISATION OF COMPANY FINANCIAL STATEMENTS

138 Achmea Annual Report FINANCIAL STATEMENTS Other information

SUBSEQUENT EVENTS

January 2013 Achmea’s Life Insurance and Pension portfolios in Romania

On 28 January 2013, Achmea signed an agreement to sell Eureko Romania's life and pension activities, by way of a transfer of assets and liabilities. This agreement will be effected during 2013. Eureko Romania issues, amongst other insurance products, life insurance contracts in Romania and is included in segment International. As at 31 December 2012, assets and liabilities related to these activities were reclassified to Assets classified as 'held for sale' and Liabilities classified as 'held for sale'. The result on the sale will, after the agreement is effected, be included in Net profit for the financial year 2013.

Business combination Achmea - Onderlinge Verzekeringen Overheid u.a.

On 1 October 2012, Achmea signed an agreement to effectively take over all activities of Onderlinge Verzekeringen Overheid U.A. (OVO), a Dutch specialist liability and fraud insurer, as per 1 January 2013. Achmea acquires knowledge about both specialist liability and fraud insurance and the access to government related clients. The transaction includes both the insurance liability plus the investments related to these insurance liabilities and all other assets and liabilities as per 1 January 2013. These activities and the provisional goodwill will be included in segment Non-life Netherlands. The consideration transferred amounts to €2 million. The provisional fair value of the net assets acquired has been calculated on €1 million, so that the provisional goodwill will be €1 million.

Agreement Staalbankiers – GE Artesia Bank

On 31 January 2013 Staalbankiers, a wholly-owned subsidiary of Achmea Holding B.V., reached agreement with GE Artesia Bank whereby their private banking customers will be introduced to Staalbankiers. In the coming period Staalbankiers will get acquainted with customers of GE Artesia Bank and aims to approach all private banking customers of GE Artesia Bank in the first half of 2013. The financial consequences regarding this agreement depend on the conversion rate in the first half of 2013.

February 2013 Nationalisation of SNS Reaal

On 1 February 2013, the nationalisation of SNS Reaal, a Dutch financial institution, was announced. As a consequence of the arrangements made by the Dutch government, the Dutch banking sector is required to pay a one-time levy of €1 billion in 2014. For the banking activities in the Netherlands, based on current limited information, this is estimated to result in a charge of approximately €10 million. Achmea will carefully assess further details on form, amount and timing of the levy as they become available. Furthermore, the Dutch Ministry of Finance has decided to postpone the introduction of the new Deposit Guarantee Scheme from 2013 to 2015.

STATUTORY REQUIREMENTS FOR APPROPRIATION OF RESULTS

The Achmea's Articles of Association contain the following requirements regarding appropriation of results: The profit will be distributed pursuant to Article 34 of the Articles of Association of Achmea B.V. The provisions can be summarised as follows: The profits shall be at the free disposal of the General Meeting of Shareholders. Achmea may only make distributions to shareholders and other persons entitled to distributable profits to the extent that its equity exceeds the total amount of its issued share capital and the reserves to be maintained pursuant to the law. If the General Meeting of Shareholders decides on the distribution of dividends, first of all, if possible, a dividend equal to 7.15% of the nominal amount shall be paid to preference shareholders. Subject to the approval of the Supervisory Board, the Executive Board shall be authorised to increase the above mentioned percentage determined at the time of issue each year with a maximum of 1.8%. If no dividend in cash is distributed, a dividend in the form of preference shares can be resolved upon. If the General Meeting of Shareholders decides on the distribution of dividends and dividend on preference shares has not been paid in previous years, cash dividends shall first be paid to preference shareholders on these previous years, before any distribution can take place on other shares.

Achmea Annual Report 139 FINANCIAL STATEMENTS Other information

TOTAL NET PROFIT IS PROPOSED TO BE DISTRIBUTED AS FOLLOWS: (€ MILLION)

−

ACHMEA SHAREHOLDERS AT 31 DECEMBER 2012 NUMBER SHARE % SHARE % COMPANY COUNTRY OF SHARES (ORDINARY) (INCL. PREFS)

The number of shares held by Stichting Administratiekantoor Achmea include one A share. Achmea has only issued one A share. There are special rights entitled to the A share. Significant decisions of Achmea's General Meeting of Shareholders can only be made with the approval of the holder of the A share. The Board members of Stichting Administratiekantoor Achmea are Mr. P.F.M. Overmars, Mrs. J.L.A. Boogerd- Quaak and Mr. H.J. Snijders.

On 11 April 2012, Achmea issued 597,460 ordinary shares to Vereniging Achmea, related to an acquisition in 2011 financed by an issue of shares in 2011. According to the agreement, the number of shares to be issued depends on Achmea‟s share price as at 31 December 2011. In anticipation of the determination of this value as at 31 December 2011, a preliminary value was used in 2011 to determine the number of shares. When the final share price became available in 2012, the number of shares was adjusted accordingly.

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ACHMEA SUBSIDIARIES AND JOINT VENTURES

Unless otherwise stated the interest is 100% or almost 100% on 31 December 2012.

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142 Achmea Annual Report FINANCIAL STATEMENTS Other information

TRUSTEE REPORTS OTHER EQUITY INSTRUMENTS

Trustee Report EUR 500,000,000 Fixed-to-Floating Rate Perpetual Capital Securities ("the Securities"), ISIN Code NL0000117224, issued by Achmea B.V. ("the Issuer"). Pursuant to article 17 of the trust deed dated 24 June 2005, the undersigned hereby reports on its work during the year ended 31 December 2012. The Securities are perpetual securities and have no fixed redemption date. The Securities may be redeemed in whole but not in part at the option of the Issuer, at their principal amount together with any Outstanding Payments on the Coupon Payment Date falling on 24 June 2015 ("the First Call Date") or any Coupon Payment Date thereafter, subject, after the Issuer becoming subject to Capital Adequacy Regulations, to the prior consent of the Dutch Central bank. The Securities bear a fixed rate of interest of 5.125 per cent per annum on their outstanding principal amount until (but excluding) the First Call Date and thereafter a floating rate of interest. Interest will be payable, in respect of the Fixed Rate Period, annually in arrear on 24 June of each year and thereafter quarterly in arrear on 24 March, 24 June, 24 September and 24 December of each year, subject to Conditions 4 and 5. Payments (such term does not include principal) may be deferred, as more fully described in Condition 4. In the year 2012 the interest on the Securities was paid in accordance with the Conditions.

Amsterdam, 5 March 2013 Amsterdamsch Trustee's Kantoor B.V.

Trustee Report EUR 225,000,000 8.375 per cent Capital Securities ("the Securities"), ISIN Code XS0362173246, issued by Achmea B.V. ("the Issuer"). Pursuant to article 17 of the trust deed executed on 5 October 2006, the undersigned hereby reports on its work during the year ended 31 December 2012. The Securities are perpetual securities and have no fixed redemption date. The Securities bear interest as is specified in the relevant Final Terms. Such interest Subject to Conditions 2(b)(i), 2(b)(ii), 4(a), 4(b) and 6(d) will be payable in arrear on each Coupon Payment Date as indicated in the relevant Final Terms. Subject to Condition 2(b)(i) or 2(b)(ii) the Issuer may redeem all, but not some only, of the Securities on each Coupon Payment Date. In the year 2012 the interest on the Securities was paid in accordance with the Conditions and the relevant Final terms.

Amsterdam, 5 March 2013 Amsterdamsch Trustee's Kantoor B.V.

Trustee Report EUR 600,000,000 6 per cent Capital Securities ("the Securities"), ISIN Code NL0000168714, issued by Achmea B.V. ("the Issuer"). Pursuant to article 17 of the trust deed executed on 5 October 2006, the undersigned hereby reports on its work during the year ended 31 December 2012. The Securities are perpetual securities and have no fixed redemption date. The Securities bear interest as is specified in the relevant Final Terms. Such interest Subject to Conditions 2(b)(i), 2(b)(ii), 4(a), 4(b) and 6(d) will be payable in arrear on each Coupon Payment Date as indicated in the relevant Final Terms. Subject to Condition 2(b)(i) or 2(b)(ii) the Issuer may redeem all, but not some only, of the Securities on each Coupon Payment Date. In the year 2012 the interest on the Securities was paid in accordance with the Conditions and the relevant Final terms.

Amsterdam, 5 March 2013 Amsterdamsch Trustee's Kantoor B.V.

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STATEMENT OF THE EXECUTIVE BOARD OF ACHMEA B.V.

The Executive Board of Achmea B.V. is responsible for the preparation of the Annual Report 2012, including the Consolidated Financial Statements 2012. The Consolidated Financial Statements 2012 are prepared in accordance with International Financial Reporting Standards as adopted by the European Union. The Company Financial Statements 2012 and the Executive Board Report 2012 are prepared in accordance with Book 2, Part 9 of the Dutch Civil Code, and the Financial Supervision Act part 5.1A. The Executive Board reviewed the Achmea B.V. Consolidated and Company Financial Statements on 18 February 2013 and authorized them for submission to the Supervisory Board. The Executive Board of Achmea B.V. declares that, to the best of its knowledge, the Achmea B.V. Consolidated and Company Financial Statements 2012 give a true and fair view of the assets, liabilities, financial position and profit or loss of Achmea B.V. and that the information contained herein has no omissions likely to modify significantly the scope of any statements made. The Executive Board of Achmea B.V. also declares that the Executive Board Report 2012 gives a true and fair view of the situation on 31 December 2012, the development and performance during 2012 and describes the principal risks of the businesses of the Group. The Achmea B.V. 2012 Consolidated Financial Statements and 2012 Company Financial Statements will be submitted to the Annual General Meetings of Shareholders for approval on 28 March 2013.

Zeist, 5 March 2013

The Executive Board W.A.J. (Willem) van Duin, Chairman J.A.S. (Jeroen) van Breda Vriesman D. (Danny) van der Eijk

144 Achmea Annual Report FINANCIAL STATEMENTS Other information

INDEPENDENT AUDITOR'S REPORT TO THE GENERAL MEETING OF SHAREHOLDERS AND SUPERVISORY BOARD OF ACHMEA B.V.

Report on the financial statements We have audited the accompanying financial statements 2012 of Achmea B.V., Zeist as set out on pages 1 to 138. The financial statements include the consolidated financial statements and the company financial statements. The consolidated financial statements comprise the consolidated statement of financial position as at 31 December 2012, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in total equity and consolidated statement of cash flows for the year then ended and the notes, comprising a summary of significant accounting policies and other explanatory information. The company financial statements comprise the balance sheet as at 31 December 2012, the profit and loss account for the year then ended and the notes, comprising a summary of accounting policies and other explanatory information.

The Executive Board’s responsibility The Executive Board is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the Executive Board Report in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore, the Executive Board is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor‟s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company‟s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company‟s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Executive Board, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion with respect to the Consolidated Financial Statements In our opinion, the consolidated financial statements give a true and fair view of the financial position of Achmea B.V. as at 31 December 2012, and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code.

Opinion with respect to the Company Financial Statements In our opinion, the company financial statements give a true and fair view of the financial position of Achmea B.V. as at 31 December 2012, and of its result for the year then ended in accordance with Part 9 of Book 2 of the Dutch Civil Code.

Report on other legal and regulatory requirements Pursuant to the legal requirement under Section 2: 393 sub 5 at e and f of the Dutch Civil Code, we have no deficiencies to report as a result of our examination whether the Executive Board Report, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required under Section 2: 392 sub 1 at b-h has been annexed. Further we report that the Executive Board Report, to the extent we can assess, is consistent with the financial statements as required by Section 2: 391 sub 4 of the Dutch Civil Code.

Amsterdam, 5 March 2013 PricewaterhouseCoopers Accountants N.V.

Original signed by Drs. G.J. Heuvelink RA

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