Life

• In a shrinking Life market results improved but remain under pressure
• Gross written premiums down 8% mainly due to bank saving
• Lower sales resulted in lower Value New Business but margins improved

*     Eureko applies the European Embedded Value Principles
**   After effect of economic assumptions
***  Without the effect of the merger of two of Eureko’s pension funds

GENERAL

Life, including pension insurance and, from 2009, pension services, is a major business for Eureko and represents 25% (2008: 22%) of Eureko’s total gross written premiums. With estimated market share of 12% in Life and 11% in pensions in the Netherlands, the Achmea labels are established names in this business. Eureko further operates its Life and Pensions business in Ireland, Greece, France, Slovakia, Romania, Bulgaria and Cyprus. In February 2010, Eureko announced a management buy-out of its Cyprus activities.

Gross written premiums (including pension insurance) improved 18% to € 4,998 million (2008: € 4,231 million). The main contributor to growth was the merger of our two pension funds, Stichting Pensioenfonds Interpolis (SPI) and Stichting Pensioenfonds Achmea Personeel (SPAP), into Stichting Pensioenfonds Achmea (SPA). This resulted in an increase in gross written premiums of € 1.1 billion. Excluding this item, premiums declined 8% due to growing competition from so-called bank savings products. Moreover, Achmea broker label Avéro ceased selling individual life policies as of September 2009.

Following a significant loss of €1,381 million in 2008, Profit before tax improved, but is still a loss of € 108 million, mainly due to some recovery from the longrunning downturn in financial markets. Compared to 2008 impairments, realised losses and negative results from fixed income through P&L were € 1,267 million lower at €- 164 million. Furthermore, a decrease in operating expenses of 7% to € 997 million (2008: € 1,077 million) contributed to a better result.

Value new business (VNB) 2009 declined to € 10 million (2008: €41 million). If the SPI contract is excluded, the VNB would have been € 36 million. The decline of € 5 million is explained by fewer sales; the VNB margin improved to 1.6% (2008: 1.3%).

Embedded value
The Embedded Value of Eureko’s life business has increased over 2009 mainly due to large operating profits and capital movements. The Embedded Value is € 4,910 million at 31 December 2009, compared to €4,123 million at the end of 2008, a rise of €7 87 million, or 19%. The main drivers are operating profits (€ 290 million) and capital injections (€ 619 million).

* Adjusted net value is the market value of the shareholders’ net assets excluding intangible assets, deferred acquisition costs, pre-paid commission and goodwill.

The Netherlands
Achmea has a top position in this saturated market. Competition is fierce with providers no longer limited to traditional insurers. Banks and Pension funds are now offering similar products with comparable tax advantages. All insurers are affected by this move. At the same time, in recent years there has been a steady decline in customer confidence. All insurers in the market are challenged by the lack of trust. The original issue was cost-loading of unit-linked products. Like its peers, Achmea also established a financial compensation arrangement that was approved by the Financial Services Ombudsman in May 2009. Eureko has offered total compensation of € 315 million. Single-premium policies, once popular for their tax advantages, are showing a steady decline. The same applies for unit-linked contracts as a consequence of poor performance in financial markets and market sentiment about cost loading. Profit before tax amounted to € -80 million compared to € -1,358 million in 2008, mainly due to better investment results.

Pension insurance and management
Pension insurance in the Netherlands has a threepillar structure. The first pillar is the state pension and the third is private pension plans. The second pillar comprises industry and sector pensions. In pension insurance, Achmea brands focus primarily on the second pillar of this structure. In 2009, gross written premiums grew 95% to € 2,331 million (2008: € 1,197 million), due mainly to the creation of SPA. Excluding this item, premiums increased by 3%; single premiums decreased € 50 million to € 470 million while annual premiums showed an increase of € 72 million to € 739 million.

Pension services
Pension services includes asset management and pension administration. Services are offered by our Syntrus Achmea brand. From 2009, pension services has been reclassified from Holding activities to the Life segment. Pension services is a highly competitive business. In recent years, there has been increased competition from asset managers set up by pension funds, international managers, banks and insurers. This resulted in a loss of market share for Syntrus, from 39% to an estimated 26% in early 2010, based on number of pension participants. Assets under management on behalf of institutional clients amounted to € 58 billion (2008: €55 billion) mainly due to better investment results. This included Syntrus Achmea Vastgoed’s real estate portfolio which remained stable at € 14 billion. Total fee and commission income increased 5% to € 343 million (2008: €328 million) due to one-off income generated by departing customers. Syntrus Achmea transferred several administration contracts to other providers at the end of 2009 and will put its house in order in 2010 following the departure by a number of customers. The effects of reduced customer numbers on fee and commission income will be visible in 2010.

Life Insurance
The Achmea brands offering individual life will focus on more standardised products, more efficient processes and a reduction of systems in use. This will facilitate transparency and enables our brands to market their products more in line with customer demand. Broker brand Avéro Achmea withdrew from the individual life market in 2009.

Bank: With an estimated market share of 6% (2008: 9%), Interpolis still generates the largest part of our life insurance premiums. However, this is changing, as the decline in market share shows. Bank partner Rabobank has decided to phase out its current savings and mortgage-linked life products. Interpolis will focus on developing complementary insurance products creating a full package in tandem with Rabobank. Bank distribution contributed gross written premiums of €1,228 million to our Life business, a decrease of 22% compared to 2008.

Direct: We offer life insurance products through our brands Centraal Beheer Achmea and FBTO. We have a moderate, stable market share (estimated at 3%) primarily because individual life insurances are often complex and customers tend to prefer personal advice. Direct distribution contributed gross written premiums of €442 million (2008: € 393 million).

Broker: Through our Avéro Achmea brand we offer life insurance products to the broker channel where the focus is on advice-driven, more complex life products. In 2009, Avéro decided to withdraw from the individual life insurance market. We are realigning our strategy to meet the pension insurance needs of SMEs and large corporates.
Our market share was slightly lower at an estimated 2% (2008: 2%). Gross written premiums through our brokerage channel decreased to € 339 million in 2009 (2008: € 390 million) due mainly to the withdrawal from certain life insurance products.

OUR EUROPEAN MARKETS

Ireland
The economic recession had a considerable impact on the market for new life and pensions sales in Ireland which are estimated to be down in excess of 30% compared to 2008. Friends First’s new sales declined approximately 15% compared to 2008. As a result, market share increased to an estimated 7%; Friends First ranks sixth in the market. Gross written premiums were € 238 million, down slightly on € 253 million in 2008. Current market conditions strongly affected the level of new deposits on investment contracts, however, new deposits increased to € 291 million compared to € 249 million in 2008.

Greece
Our Interamerican brand has a top three position in the Greek market (2008: top four position). The life and pensions market is beginning to decline, particularly in investment-related business. Gross written premiums decreased to € 114 million (2008: € 120 million). The contribution of investment contracts is up 7% to €61 million (2008: € 57 million).

Other European Countries The operations in other European countries, Romania, Slovakia, Bulgaria, Cyprus and France, contributed gross written premiums of € 85 million (2008: € 110 million) or 2% on the total Life gross written premiums. In February 2009, the French regulatory authorities (CEA) withheld final approval of the sale of Império France. This was due mainly to the economic environment. As a consequence, the ‘held for sale’ classification of Império France is no longer applicable. Our strategic intentions, however, remain unchanged.