Glossary of terms

ALM (Asset and Liability Management)
Aims to limit the level and volatility of market risks, while generating the highest possible return within these limits.

APE (Annual Premium Equivalent)
The total amount of annual premium from new regular premium business and 10% of the total amount of single premium business written during the year.

Associate
An entity over which the Group has significant influence, generally through a shareholding of between 20% and 50% of the voting rights, but which is neither a subsidiary nor a joint venture.

AWBZ (‘Algemene Wet Bijzondere Ziektekosten’, Exceptional Medical Expenses Act)
Dutch legislation covering uninsurable medical risks, e.g. chronic illness of handicapped (young) people.

Basel I
Regulatory requirements issued by the Basel Committee on Banking Supervision for the solvency calculation, which are superseded by Basel II.

Basel II
Regulatory requirements issued by the Basel Committee on Banking Supervision for the solvency calculation. Basel II is an international standard for calculating the required capital based on internal models that take into account the financial and operational risks.

BIS
An international organisation which fosters international monetary and financial co-operation and serves as a bank for central banks. BIS has set a minimum for the solvency ratio reflecting the relationship between capital and risk weighted assets. The ratio should be at least 8%.

Cash Generating Unit
The smallest identifiable group of assets that generates cash inflows which are largely independent of the cash inflows from other assets or groups of assets.

Catastrophe risk
The risk that a single event, or series of events, of major magnitude, usually over a short period (often 72 hours), leads to a significant deviation in actual claims from the total expected claims.

Claim
A demand for payment of a policy benefit because of the occurrence of an insured event, such as the death or disability of the insured or the maturity of an endowment, the incurrence of hospital or medical bills, the destruction of or damage to property and related deaths or injuries, defects in, liens on, or challenges to the title to real estate, or the occurrence of a surety loss.

Claims and claims handling expenses
The sum of incurred claims and claims handling expenses, used interchangeably with ‘loss and loss adjustment expenses’.

Claims handling expenses
The expenses of investigating and settling claims, including certain legal and other fees, and the expenses of administering the claims adjustment process.

Claims ratio
The ratio of a Non-Life or Health insurances’ incurred claims and claim handling expenses to net premiums earned. Also referred to as ‘loss ratio’.

Collar
A collar is a combined derivative financial instrument that consists of a stock or a stock/index. Generally, the put and the call are both out-of-the-money when the collar is originated, and have the same expiration month.

Combined ratio
The sum of the claims ratio and the expense ratio for Non-Life and Health insurances. A combined ratio of more than 100% does not necessarily mean that there is a loss on insurance policies, because the result also includes the allocated investment income.

Cost of required capital
The cost related to having to hold capital for the risks of operating the business, which is therefore not available for distribution to shareholders. It is calculated as the difference between the required capital itself and the present value of the projected release of this amount and the after-tax investment earnings on the assets deemed to back the required capital.

Credit spread
The difference between the yield on a corporate bond and a government bond. The credit spread reflects the additional net yield an investor can earn from a bond with more credit risk relative to one with less credit risk.

DBC (‘Diagnose Behandel Combinatie’)
A settlement method covering a whole medical treatment period in which the claim compensation for separate treatments is specified. The final settlement with the health insurer is at the end of the treatment period.

Deferred tax assets
The amounts of income taxes deemed to be recoverable in future periods in respect of: – deductible temporary differences; – the carryforward of unused tax losses; – the carryforward of unused tax credits.

Deferred tax liabilities
The amounts of income taxes payable in future periods in respect of taxable temporary differences.

Defined Benefit Plan
Defined benefit plans are post-employment benefit plans other than defined contribution plans.

Defined Contribution Plan
Post-employment benefit plans under which an enterprise pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further contributions if the entity does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.

Derivatives
Derivatives are financial instruments, which include forwards, futures, options and swaps, whose value is based on an underlying asset, index or reference rate.

Economic capital
The minimum amount of capital that is required to absorb unexpected losses in times of severe stress.

Economic profit
Change in the Embedded Value caused by change in the economic environment.

Embedded Value
The present value of the existing life business at the valuation date and excluding any value attributable to future new business.

Employee benefits
All forms of consideration given by a company in exchange for services rendered by (former) employees.

European Embedded Value
Embedded Value based on the principles set by the CFO forum, a group representing the Chief Financial Officers of major European insurers.

Expense ratio
The ratio of Non-Life or Health insurance operating expenses to net earned premiums.

Fair value
The amount at which an asset or a liability could be traded on a fair basis at the balance sheet date, between knowledgeable, willing parties in arm’s-length transactions.

Financial instruments
Financial instruments are contracts that give rise to both a financial asset for one company and a financial liability or equity instrument for another company.

Free surplus
Shareholders net worth reduced by required capital.

Goodwill
The amount of future economic benefits arising from assets that are not capable of being individually identified and separately recognized as an asset in a business combination.

GWP (Gross Written Premiums)
Total premiums (whether or not earned) for insurance contracts written or assumed during a specific period, without deduction for premiums ceded.

HKC
(‘Hoge KostenCompensatie’, high cost compensation)
For the basic health insurance in the Netherlands some specific types of claims can be recovered from a pool established by the ZvF (Zorgverzekeringsfonds). Each insurer in the Netherlands that sells basic health insurance policies contributes to this pool and can recover claims with extreme claim amounts (above A 12,500 per insured). The related payments and settlements are considered as re-insurance.

In-Force Business
Policies or contracts that are effective at the valuation date. Paid-up policies are included.

Intercompany transaction
Intercompany transactions are transactions between the Eureko Group’s companies.

Joint venture
A contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control.

Liability option
The financial option or guarantee embedded in life insurance products, e.g. profit-sharing option, annuity option, etc.

Minority interest
That part of the net results of operations and of net assets of a subsidiary attributable to interest which are not owned, directly or indirectly through subsidiaries, by the parent.

NBPM (New Business Profit Margin)
Indicator of the profitability of new business that is calculated as a ratio of the present value of the net of tax profits from new business in the period and the present value of expected new business premiums.

Net earned premiums
The portion of net premiums written that is recognised for accounting purposes as income during a period.

Net written premiums
Gross written premiums for a given period less re-insurer premiums ceded during such period.

Notional amounts
Notional amounts represent units of account which, in respect of derivatives, reflect the relationship with the underlying assets. They do not reflect, however, the credit risks assumed by entering into derivative transactions.

Operating profit
Increase in (embedded) value over a period that results from new business written in the period, experience deviations, changes in non-economic assumptions and expected profit from in-force business and net shareholder worth.

Operating segments
Components of an enterprise where discrete information is available that is evaluated regularly by the chief operating decision-maker or decision-making group in deciding how to allocate resources and in assessing performance.

Over-the-counter instrument
Non-standardised financial instrument not traded on a stock exchange but directly between market participants.

Participating business
Covered business in which policyholders have the right to participate (receive additional benefits) in the performance of a specified pool of assets or contracts, fund or company within the Group.

Participating interest
A participating interest exists if a corporation or its subsidiary provides capital or causes capital to be provided for the account of either of them to another corporation in order to be durably linked to that corporation in furtherance of its own activities.

Performance-related fee
Fee which is earned when the investment performance of a fund meets specified criteria.

Periodic premium products
Life insurance products that provide for more than one premium payment during the life of the contract.

Policyholders’ bonuses
Bonuses (or policyholders’ dividend) periodically credited to participating contract holders. Regular bonuses, once credited, are guaranteed on death or maturity.

Post-employment benefit plans
Formal or informal arrangements under which a company provides post-employment benefits for one or more employees. Post-employment benefits are employee benefits other than termination benefits and equity compensation benefits, which are payable after the completion of employment.

Preference share
A preference share is similar to an ordinary share but carries certain preferential rights. These rights usually concern the guarantee of a fixed (cumulative) return to the shareholder or a guaranteed return on the investment.

Premiums earned
That portion of gross written premiums in current and past periods which applies to the expired portion of the policy period, calculated by subtracting changes in the provision for unearned premiums from net premiums.

Re-insurance contract
Re-insurance contract is an insurance contract issued by one insurer (the reinsurer) to compensate another insurer (the assignor) in connection with losses on one or more contracts issued by the assignor.

Required capital
The amount of capital which is necessary to hold on top of the assets covering the liabilities to meet the greater of the regulatory requirements and internal requirements based on the risk assessment.

Return on Adjusted Equity (RoAE)
The ratio of adjusted Net profit to average adjusted Total equity whereas Net profit is adjusted for payments to holders of preference shares and holders of other equity instruments and impairment loss on goodwill. Total equity is adjusted for preference shares, other equity instruments and goodwill.

Return on Equity (RoE)
The ratio of Net profit to average Total equity.

Risk discount rate
Risk discount rate represents the rate which is used for discounting the future cash flows back to valuation date. It reflects the risk of the specific block of business.

Securities Lending
Securities lending describes the market practice by which, for a fee, securities are transferred temporarily from one party, the lender, to another, the borrower; the borrower is obliged to return them either on demand or at the end of any agreed term.

Segregated investment accounts
An annuity offered by an insurance company which guarantees a specific return on the investment upon maturity. The term “segregated” is used because the funds are kept separate from the issuing company’s other regular investment funds.

Shareholders’ net worth
Market value of the shareholders’ net assets excluding intangible assets, deferred acquisition costs, prepaid commission, provision for profit sharing and bonuses, and goodwill.

Single premium products
Life insurance products that provide for only one premium to be paid at the issuance of the contract.

Solvency II
The new supervisory framework on solvency requirements for Eureopean Insurers will be implemented as from 2012. Solvency II sets solvency requirements that match the risks run by insurers and that is based on mark-to-market valuation principles.

Stochastic techniques
Method of estimating the range of outcomes where there is uncertainty about the future development of one or more variables.

Subordinated loan
A credit or a liability where, in the event of bankruptcy under the application of the emergency regulations as referred to in the Act on Supervision of the Credit System, or liquidation of the debtor, the outstanding part is not eligible for set-off and is not repayable until all other currently outstanding debts have been re-paid.

Subsidiary
An entity that is controlled by Eureko.

TIER-1 CAPITAL
Also referred to as the core capital of Achmea Bank and Eureko. It comprises paid up share capital, reserves excluding revaluation reserves, retained earnings, minority interests and hybrid Tier-1.

TIER-1 RATIO
Reflecting the Tier-1 capital as a percentage of its total risk weighted assets. The minimum set by the Dutch central bank is 4%.

Time value of the option
The value of potential future payments not expected to be paid under current economic circumstances but which may become due as a result of future changes in economic conditions.

Total contributions on insurance and investment
contracts
Total contribution on insurance and investment contracts includes gross written premiums on insurance contracts and considerations received on investment contracts. Investment contracts do not qualify as an insurance contract as these contracts contain no or limited insurance risk.

Trading portfolio
The trading portfolio comprises those financial instruments which are held to obtain short-term transaction results, to facilitate transactions on behalf of clients or to hedge other positions in the trading portfolio.

Underwriting results
The pre-tax profit or loss experienced by an insurance company or re-insurance company after deducting incurred claims and claims expenses and operating expenses from premiums earned. This profit and loss calculation includes re-insurance assumed and ceded but excludes investment income.

Value-in-Force
Present value of the after tax profits distributable to shareholders from the business in-force at the valuation date, discounted at the risk discount rate.

VNB (Value of New Business)
The present value of expected distributable after tax profits from the new business sold in the reporting period.

ZvF (‘Zorgverzekeringsfonds’, health insurance fund)
A fund related to the basic health insurance in the Netherlands and financed by employers and the Dutch state. From the ZvF, settlements are paid to insurers that sell basic health insurance policies. The settlements are related to the risk mitigating factor as introduced as part of the basic health insurance. This fund also settles the premiums of children 18 years or younger.