Delta Lloyd Group profile

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3 Delta Lloyd Group profile As a customer and service oriented financial services provider, Delta Lloyd Group offers a wide range of products under the brands Delta Lloyd and OHRA through distribution channels chosen by individual and commercial customers. Products range from simple savings products to complex insurance and financial planning. Delta Lloyd works together intensely and exclusively with independent insurance intermediaries and OHRA focuses directly on individual and commercial customers. The joint venture with ABN AMRO announced in November 2002 enables Delta Lloyd Group to serve customers through the banking channel under the label of ABN AMRO. In addition to prominent Dutch insurance operations, Delta Lloyd operates divisions for Asset Management and banking, together with divisions in Germany, Belgium and the Netherlands Antilles. Delta Lloyd aims to be one of the leading financial services providers in the Netherlands, Belgium and Germany. Employing approximately 7,500 staff after the joint venture with ABN AMRO, Delta Lloyd Group is divided over the following divisions: Delta Lloyd Insurance; insurance via independent intermediaries in the Netherlands OHRA Insurance; insurance directly to individual and commercial customers in the Netherlands Delta Lloyd ABN AMRO Insurance; insurance via the distribution network of ABN AMRO in the Netherlands Delta Lloyd Asset Management; asset management in the Netherlands Delta Lloyd Property; property investment Delta Lloyd Banking; retail and private banking in the Benelux, asset management in Belgium Delta Lloyd Deutschland; life insurance, private banking and asset management in Germany Delta Lloyd Life Belgium; life insurance in Belgium and Luxembourg Ennia Caribe; insurance in the Netherlands Antilles and Aruba 3

4 strategic framework As an important player in the field of financial services, Delta Lloyd Group wishes to distinguish itself in the market. The main focus of the group is on being a socially involved financial services provider that clearly contributes to the development and affluence of society. The continuous pursuit of a proper balance between entrepreneurial spirit and social responsibility makes Delta Lloyd an open and non-conformist organisation that does not run away from its responsibilities. For Delta Lloyd Group the customer is central and the Group acts accordingly, both in its relationships with intermediaries and directly with customers. Having its heart in society and a keen eye for social developments, both in its direct and indirect environment, Delta Lloyd consciously focuses on the development and marketing of products and services that reflect its involvement and integrity, and on creating a working environment that offers its employees many opportunities. Seven core values The guiding principles behind all Delta Lloyd Group s activities are the company s seven core values. These are: Integrity This covers all the norms, values and rules that ensure the organisation maintains its integrity. Customers and business partners are also expected to operate with this same fairness. Central focus on the customer The customer s interests are the first priority in the conduct of business. Knowledge of the customer s needs, offering a high level of service, keeping agreements and a good complaints procedure are vital in meeting customer demands. Responsibility and involvement The starting point for all activities is a deep feeling of responsibility for and involvement with customers, stakeholders and society in general. Employees at all levels are therefore encouraged to build knowledge and expertise in their field, to take responsibility for their work and to develop a problem-solving mentality. Team spirit The financial business is a people business. Co-operation is a prerequisite. Critical success factors in building team spirit are involvement, personal contacts and placing a value on results. Open communication Trust, honesty and transparency are essential for good co-operation. Flexibility The continuity of the operations is subject to our ability to foresee social changes. Readiness to change is a prerequisite in this respect. Enterprise An active and entrepreneurial company needs entrepreneurial employees who show initiative and are committed to achieving results. 4

5 strategic framework The model Delta Lloyd has developed a straightforward model for the conduct of business. In addition to the seven corporate values and the three strong brands (Delta Lloyd, OHRA, and ABN AMRO), seven strategic pillars define the group s long-term strategy. Seven strategic pillars Multi-channel, multi-label and single back offices Delta Lloyd Group offers its customers the possibility to buy insurance through several distribution channels (multi-channel), with strong brands (multi-label), and with the administration performed by joint facilities wherever possible (single back offices). Individual and commercial customers in the Netherlands can choose from insurance through intermediaries, through the banking channel or direct. Life and Asset Management as a core activity Delta Lloyd Group is currently one of the largest asset managers in the Netherlands. The life and pension activities are traditionally the Group s most important operating area. Achieving top-three positions in defined markets Delta Lloyd wants to compete only in markets in which it is a winner, or can be one. Maximum synergy The best possible synergy throughout the Group is essential for achieving cost savings and increasing profitability. Expertise and knowledge must be exchanged, without obstacles, among and across all divisions in the Group. Stringing beads Apart from organic growth, revenue has to improve through mergers, joint ventures and acquisitions. The strategy for take-overs is that of stringing beads. Mergers and take-overs will be focused mainly on a stronger distributive power and an added value to the Group. Focus on the Netherlands, Belgium and Germany Development and retention of profitable activities in the area of General Insurance and Care Insurance This is essential because Delta Lloyd wants to be a prominent player here in sub-markets. In addition, these activities provide an extensive customer base that creates opportunities to sell additional products in the field of Asset Management and Life. Delta Lloyd Group concentrates on the Dutch market for these activities. 5

6 organisation chart Delta Lloyd Insurance Delta Lloyd Life Delta Lloyd General Insurance Delta Lloyd Care Delta Lloyd Marketing & Sales Nuts Insurance Praevenio Technical Insurances B. Franco Mendes OHRA Insurance OHRA General Insurance OHRA Life OHRA Care Nationaal Spaarfonds OHRA Investments Delta Lloyd ABN AMRO Insurance Delta Lloyd Asset Management Delta Lloyd Asset Management OHRA Asset Management DELTA LLOYD GROUP Amstelplein BC Amsterdam The Netherlands P.O. Box BA Amsterdam The Netherlands T +31 (0) F + 31 (0) E cc@deltalloyd.nl Delta Lloyd Group Executive Board and supporting units Delta Lloyd Property Delta Lloyd Banking Delta Lloyd Deutschland Delta Lloyd Bank OHRA Bank Delta Lloyd Bank Belgium Delta Lloyd Securities (Belgium) Bank Nagelmackers 1747 (Belgium and Luxembourg) Berlinische Lebensversicherung Gries & Heissel Bankiers Delta Lloyd Investment Managers Delta Lloyd Belgium Delta Lloyd Life Belgium Delta Lloyd Luxembourg OHRA Belgium Ennia Caribe Ennia Caribe Life Ennia Caribe General Insurance Amersfoortse Antillen OHRA Mortgage Bank 6

7 Supervisory Board and Executive Board SUPERVISORY BOARD J.A.N. (Jacques) van Dijk, chairman V.A.M. (Vincent) van der Burg, deputy chairman C.P.J. (Peter) Appeldoorn L.J.M. (Leo) Berndsen (until 17 June 2002) H.C. (Caspar) Broeksma R. (Richard) Harvey R.H.P.W. (René) Kottman J. (Jan) Oskam A.B. (Tony) Wyand EXECUTIVE BOARD N.W. (Niek) Hoek, chairman R.L.M. (Rob) Hillebrand (with effect from 1 January 2003) P.J.W.G. (Peter) Kok P.K. (Paul) Medendorp (with effect from 1 January 2003) C.H. (Chris) Tesselhoff (until 1 April 2003) 7

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9 contents KEY FIGURES DELTA LLOYD GROUP KEY FIGURES BY DIVISION MESSAGE FROM THE SUPERVISORY BOARD THE EXECUTIVE BOARD S REPORT corporate governance and risk management Delta Lloyd Group and its employees sponsoring and donations divisions ANNUAL ACCOUNTS consolidated balance sheet after appropriation of profits consolidated profit & loss account consolidated cash flow statement general notes to the annual account explanatory notes to the consolidated balance sheet explanatory notes to the consolidated profit & loss account consolidated technical account life insurance explanatory notes to the consolidated technical account life insurance consolidated technical account general insurance explanatory notes to the consolidated technical account general insurance consolidated technical account care insurance explanatory notes to the consolidated technical account care insurance consolidated profit and loss account mediation activities consolidated profit and loss account banking operations explanatory notes to the consolidated expenses and commission remuneration Executive Board remuneration Supervisory Board balance sheet of Delta Lloyd NV after appropriation of profits profit & loss account of Delta Lloyd NV explanatory notes to the balance sheet and profit and loss account of Delta Lloyd NV OTHER DETAILS appropriation of profits and dividend auditors report outline of major group companies KEY FIGURES CURRICULUM VITAE SUPERVISORY BOARD DELTA LLOYD GROUP PERSONAL DETAILS DELTA LLOYD GROUP ADDRESSES 9

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11 key figures Delta Lloyd Group In millions of euros KEY FIGURES 2002 DELTA LLOYD GROUP Revenue Gross premium income Life insurance 2, ,686.6 Gross premium income General insurance Gross premium income Care insurance Total gross premium income 4, ,146.3 Other activities Investment income 1, ,399.6 Total revenue 5, ,622.3 Result Consolidated result Life insurance General insurance Care insurance Banking activities Holding Result before taxation Taxation Result after taxation Minority interest Net result Shareholders funds 1, ,353.9 Number of staff on a full-time basis at 31 December 6,464 6,506 11

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13 key figures per division In millions of euros Delta Lloyd Insurance OHRA Insurance Delta Lloyd Banking Delta Lloyd Deutschland Other Total KEY FIGURES 2002 PER DIVISION Revenue 3, ,486.1 Result before taxation Shareholders funds 1, ,713.0 Total assets 18, , , , ,780.8 Total liabilities 17, , , , , ,067.6 Number of staff on a full-time basis at 31 December 2, , ,109 6,464 KEY FIGURES 2001 PER DIVISION Revenue 3, ,622.3 Result before taxation Shareholders funds 1, ,353.9 Total assets 18, , , , , ,238.6 Total liabilities 17, , , , , ,884.7 Number of staff on a full-time basis at 31 December 2, , ,506 13

14 message from the Supervisory Board Annual Accounts and appropriation of profits In accordance with the provisions of article 34 of the Articles of Association, we have adopted the annual accounts for the year 2002 drawn up by the Executive Board. We submit these accounts to you for consideration in accordance with paragraph 4 of article 34. Taking into account the certifying report of the auditors PricewaterhouseCoopers Accountants N.V., which is included in the annual report, we recommend that the shareholders approve these annual accounts. In accordance with article 35 of the Articles of Association we have given our approval to the resolution of the Executive Board that the almost all profit in the annual accounts be reserved. A dividend of s 0.2 million is assigned to preferred stocks A. The year 2002 The disappointing developments on the stock markets have left a mark on the results of Delta Lloyd Group. A sharply decreasing return on investments made it necessary to place strong emphasis on cost control in the year under review, for instance by reducing the cost of new business, by improving IT systems and by combining back offices of the general insurance operations in a Shared Service Centre (SSC). The General Insurance Service Centre in Arnhem and the Bodily Injury Service Centre in Amsterdam have been operational since 1 January At the same time, much attention was paid to an increased service quality, such as improved contact with independent intermediaries and an extension of Internet activities, including the extranet Delta Lloyd Digital Domain (DDD). Another joint venture was eventually called off for commercial reasons. It concerned a co-operation with PGGM, the pension fund for health, mental and social care, known as Careon. Other efforts were made in the year 2002 in the field of transparensy and protection of the customer s position. The introduction of the Financial Information Leaflet, with important details and qualities about financial products, was executed on time by the Delta Lloyd Group. The GIDI Code of Conduct for information supply by intermediaries took effect on 1 January Since then, Delta Lloyd Group has been applying this code to the appointment of intermediaries. In addition, Delta Lloyd Group has also signed the Code of Conduct of the Association of Insurers in the Netherlands. Members of the Supervisory Board are satisfied that the efforts of employee participation, trade unions and Delta Lloyd in 2002 have resulted in harmonisation of the terms of employment in Delta Lloyd Group. Instead of several Collective Labour Agreements (for insurance, banking, care) and many different personnel schemes, all employees in Delta Lloyd Group will fall within the scope of an own custommade Collective Labour Agreement with effect from The new head office for Delta Lloyd Group in Amsterdam was officially opened on 5 November Supervisory Board meetings The Supervisory Board met six times in the year under review. Issues discussed include the Corporate Plan , (intended) joint ventures with PGGM, Yarden and ABN AMRO, cost control, development of Shared Service Centres, responsibilities of the Executive Board, as well as quarterly reports, annual figures and reports from the Audit Committee and the Remuneration/Nomination Committee. Discussions on the quarterly and annual figures were always attended by the Executive Board and, with very few exceptions, by all members of the Supervisory Board. In some cases, the Group Finance and Control general manager and the auditors Pricewaterhouse- Coopers attended. A major step was the co-operation with ABN AMRO in the field of bancassurance, announced on 27 November The joint venture combines the distributive power of the Dutch network of ABN AMRO and the insurance expertise of Delta Lloyd, and it considerably strengthens the Group s position. 14

15 message from the Supervisory Board Tripartite consultation of Supervisory Board, Executive Board and Central Works Council The annual meeting between the Supervisory Board, Executive Board and Central Works Council took place in October. The general theme in this meeting was Development on the stock exchanges and in the market: opportunity or threat? Supervisory Board and Executive Board changes The Supervisory Board consists of nine members, two of whom were recommended by Aviva and two recommended by the Central Works Council. In 2002 the composition of the Supervisory Board was changed as follows: Financial agenda Delta Lloyd Group follows the financial agenda of shareholder Aviva plc and will therefore publish its results for the six months of 2003 on 31 July Meetings of the Audit and Remuneration/ Nomination Committees The Audit Committee and the Remuneration/Nomination Committees are composed of members of the Supervisory Board to deal with specific tasks of the Supervisory Board. The Audit Committee met five times last year. Subjects under discussion included reports from Group Consolidation & Reporting about the quarterly and annual figures, compliance and Risk & Control, composition of the Audit Committee, matching (financial) reports with Aviva, Delta Lloyd Banking group Finance Statute, allocation methods, Brede Herwaardering and the development in the (financial) reports of insurance companies (Traas Committee and International Financial Reporting Standard IFRS ). The Audit Committee meetings were regularly attended by the Group Finance and Control general manager, the Group Audit & Consultancy general manager, the Group Actuary and the auditors PricewaterhouseCoopers. The Remuneration/Nomination Committee met four times in 2002 and issues discussed included succession, composition and remuneration of the Executive Board. Mr. L.J.M. Berndsen, former chairman of the Executive Board of Koninklijke Nedlloyd NV, retired from the Supervisory Board of Delta Lloyd Group. Mr. Berndsen accepted another Supervisory Board membership in the financial services world. We are grateful for the friendly way in which we have worked together and for his sharp financial insights. Mr. Berndsen s retirement left a vacancy in the Supervisory Board. The composition of the Executive Board did not change in The Supervisory Board appointed R.L.M. (Rob) Hillebrand (47) and P.K. (Paul) Medendorp (48) members of the Executive Board of Delta Lloyd NV with effect from 1 January Mr. C.H. (Chris) Tesselhoff (61) will retire from the Executive Board on 1 April 2003 when he reaches retirement age. Rob Hillebrand had been chairman of the management of OHRA insurance since 2000; OHRA is the direct business division of Delta Lloyd Group. He has gained extensive management experience in his 20-year career with Delta Lloyd. Paul Medendorp had been director of Delta Lloyd Deutschland since 1999, and chairman of the Executive Board of the German division since 1 January Before this period, he focused on the commercial aspects of the Delta Lloyd Life operations. After a few years in international hotel management, Paul Medendorp switched to the insurance industry in He has been working with Delta Lloyd since

16 2002 a year of extremes the Executive Board s report In millions of euros Gross premium income 4, , Investment income 1, , Other activities Revenue 5, ,622.3 Result (before taxation) Shareholders funds 1, ,353.9 Number of staff on a full time basis at 31 December 6,464 6,506 With a sense of understatement, the year 2002 can be considered an extremely turbulent one for the financial sector. Delta Lloyd Group had to operate in a very negative economic environment, with poor developments in the financial markets; substantially worse than expected after the events of At the same time, tumultuous developments in Dutch politics created many uncertainties. Consequently, after years of growth in premium income and results, the year 2002 ended with disappointing figures. This development not only affects the group, but also its customers. The effects can particularly be felt in investments and life insurance. As an early recovery of the economy seemed unlikely, business last year focused mainly on the limitation of risks. This was evident in a more cautious investment policy and greater emphasis on cost control. However, Delta Lloyd Group has been able to demonstrate that it is and can remain a strong player in the market, even when times are hard. The vitality of Delta Lloyd Group is underlined by the fact that it has been able to realise a major ambition amidst all of these uncertainties: adding a third distribution channel in the Netherlands through a 51 per cent stake in the joint venture with ABN AMRO. Through this joint venture, the group gains exclusive access to the distribution network of the Business Unit Netherlands of ABN AMRO. It has placed Delta Lloyd Group firmly in the leading group of Dutch insurers. At the same time, it is the realisation of the multi-channel and multi-label principle: in addition to sales through the Dutch ABN AMRO network, Delta Lloyd will also be sold through independent intermediaries and by OHRA as a direct writer. The starting point of this strategy is, and remains, a strict separation of distribution channels with their relevant brands of Delta Lloyd, OHRA and ABN AMRO Insurance. Despite difficult external factors, all group divisions were perfectly able to retain or even improve on their excellent competitive positions. A number of developments offset negative trends to some extent. There are, for example, opportunities in the pension market. As Delta Lloyd Life generates most of its business from individual and group pension contracts, the company is gradually benefiting more from this trend. Another important fact is that Life activities outside the Netherlands, with a lighter tax pressure, are showing notable growth. This applies mainly to Delta Lloyd Life in Belgium, but Delta Lloyd Deutschland is also developing favourably in this respect. Delta Lloyd General Insurance business was stronger as an excellent position was created in some sub-markets where the product portfolio linked up very well to developments in the market. OHRA performed slightly better than expected in Care and General Insurance. The banking group realised higher income, due partly to Bank Nagelmackers 1747 being consolidated completely for the first time in

17 the Executive Board s report 2002 a year of extremes JANUARY 2002 Name changes With effect from 1 January 2002 the official name of the Group was changed from Delta Lloyd Nuts Ohra to Delta Lloyd NV. For a proper distinction between brand and total organisation, Delta Lloyd NV is referred to as Delta Lloyd Group. The name of the British shareholder was changed from CGNU to Aviva plc in the summer of APRIL 2002 Co-operation on funeral insurance In April, Yarden, funeral insurance and undertaking, and Delta Lloyd Group announced a co-operation to offer insurance products and services concerning loss of life. Yarden and Delta Lloyd use each other s knowledge and experience in the field of funeral, life and care insurance. Most important results In the year under review, Delta Lloyd Group recorded a steep drop in results before tax of 57 per cent to s 158 million and a decrease in the net result of 54 per cent to s 138 million. This drop in profits was mainly caused by disappointing results on the financial markets, which affected all parts of the Group. In addition, a number of incidental items affected the results including an extra deposit in the pension fund (s 31 million), extra contributions to provisions including guarantee contracts (s 42 million) and investment in the new Shared Service Centre (s 30 million). In the light of economic developments in 2002, intensive attention was paid to cost improvements in the whole Group. The trend for annually rising costs was halted thanks to a higher premium income and by realising lower administration costs. This should be continued in coming years. The total gross premium income rose by 5 per cent to s 4,341 million. Premium income from life activities of the whole Group grew by 2 per cent to s 2,744 million, the premium income from general insurance and care developed positively with increases of 8 per cent and 11 per cent respectively. Total revenue fell marginally to s 5.5 billion, due to a 27 per cent drop in investment results to s 1,022 million. The Group revenue consists of: 71 per cent from life insurance, asset management and banking activities (2001: 74 per cent); 14 per cent from care (2001: 13 per cent) and 15 per cent from general insurance (2001: 12 per cent). The further expansion of activities is continuing. Some 22 per cent (2001: 19 per cent) of the total revenue was realised abroad. The Group has 6,464 full-time employees (2001: 6,506). The total assets under management fell to s 36.3 billion, a drop of 18 per cent on the year before. The most important acquisition in 2002 was undoubtedly the joint venture, announced in November, with ABN AMRO allowing insurance distribution through the bank s network. For a 51 per cent share in the new venture which will see the merger of insurance activities Delta Lloyd Group will pay at least s million, depending on the venture s revenue. While the results for 2002 are disappointing, Delta Lloyd Group believes that financial services are in the long run about customer trust. Delta Lloyd Group emphasises a prudent policy for all stakeholders. The Group s management kept the worrying developments on the financial markets under constant surveillance. Solvency, in particular, was followed closely. At around 177 per cent, the solvency of the insurance operations can still be considered good and above the internal requirement of 150 per cent. The BIS ratio for banking activities was, at 13.9 per cent, far above the legal minimum of 8.0. At the end of 2002, Standard & Poor s confirmed the AA rating of Delta Lloyd Group. The negative developments on the stock markets have led, for the second consecutive year, to a drop in investments and therefore in the individual assets of the Group. Individual assets dropped during the year under review by 27 per cent to around s 1.7 billion. The Revaluation Reserve was positive at s 90 million. 17

18 the Executive Board s report 2002 a year of extremes APRIL 2002 Delta Lloyd and PGGM stop Careon Advice The joint venture between PGGM (pension fund for health, mental and social care) and Delta Lloyd Group came to an end on 29 April The joint venture, named Careon, was to offer financial services to employers and employees in the health and welfare sector. PGGM and Delta Lloyd confirm that their strategies on which the joint venture was based are in agreement. However, after a study into the commercial feasibility, both contracting parties agreed that the basis was not deep enough to achieve the intended win-win situation within a reasonable period of time. Outlook 2003 Given the continuing uncertainty in economic developments, international politics and financial markets, it is not possible for Delta Lloyd to make a reliable prediction for its 2003 results. However, the Executive Board does expect cost levels to fall slightly in 2003 and premium income in Life, General and Care to develop favourably. The focus for Life operations will be on pension business. A further increase in premium income is also expected in Belgium and Germany. Consistent strengthening of strategy The co-operation with ABN AMRO, announced in November 2002, is a logical step in the Delta Lloyd Group strategy. In previous years, a straightforward model was developed for the group for the conduct of business under the name Model. This outlines seven strategic pillars, two strong brands (Delta Lloyd and OHRA) and seven core values. A third brand was added in the year under review (ABN AMRO Insurance) and the name of the model was consequently changed to the Model. The formulated strategic pillars, brands and core values together define the Group s long-term policy. By means of the Model, Delta Lloyd Group is placing emphasis on more distribution channels multi-channel and the realisation of further expansion in mainly life insurance and asset management, through direct take-overs and joint ventures. The objective is to develop into a major financial services provider in the Netherlands, Belgium and Germany with a wide range of products and services. In the past few years, Delta Lloyd Group has worked consistently and firmly on strengthening this strategy. Now that external market developments are causing a setback in the short term, the emphasis in the coming period will be mainly on consolidation and integration of the joint venture with ABN AMRO. However, the long-term strategic policy will be pursued vigorously. This strategy is based on an awareness that the extremely high returns we have had in the past few years should be considered a coincidence. Delta Lloyd also regards the current negative conditions as a temporary phenomenon, one the Group is able to cope with thanks to a solid long-term policy. Even after the lower stock exchange prices and sharply reduced returns in the financial year 2002, Delta Lloyd Group remains solid and solvent. Markets The Dutch insurance industry was under pressure from all sides in Uncertainty was not only caused by the extraordinarily lower share markets, the downward economic trend and reduced consumer confidence, but such drastic events as natural disasters and (fear of) terrorist attacks, political developments, more regulations and changes in consumer behaviour adversely affected the market as well. The Government s influence on the life business in particular was significant. The tax reforms introduced in 2001 reduced the life annuity deduction and the mortgage regime was adjusted. The effects were even stronger as a result of the basic life annuity deduction and the limitation of company savings schemes. 18

19 the Executive Board s report 2002 a year of extremes MAY 2002 New campaign OHRA A new media campaign began in May. The general theme was: Direct Insurance, Direct Investment, Direct Banking, Direct Result. JULY 2002 Banking activities Belgium The restructuring of banking activities in Belgium after the acquisition of Bank Nagelmackers was concluded on 1 July and led to a strong distribution network throughout the country: more than 150 offices and independent agents offer a selected range of banking and insurance products under the name of Delta Lloyd Bank. Private banking and institutional asset management are offered under the name of Bank Nagelmackers Growing consumer protection by the Government is leading to stricter supervision and more excessive regulations. One example is the compulsory Financial Information Leaflet, which took effect on 1 July The Social Economic Council (SER) in 2002 welcomed the Government s plans to legalise the supervision of financial services providers, with the Financial Markets Authority being given supervisory tasks. Although Delta Lloyd supports developments in this area, the side effect of new reporting requirements and a compulsory information supply involves higher costs that cannot be compensated by a premium expense loading. The consequences for the life operations are drastic: lower margins, pressure on profits and negative growth in the personal lines market. There is also movement in the General Insurance market. Terrorism and catastrophes in worldwide commercial markets led to higher claims. The combination of the collapse of the share markets and the non-compliance with risk models meant that reinsurance premiums were much higher in In the past few years, the individual general insurance market has gradually turned into a market based on price through standardisation, increase in scale and lower expenditure. There is enormous potential in the income market, particularly as a result of the new WAO resolutions, which include a significant role for private insurers. The role of income insurers is moving from benefit authority to mediator and counsellor and from insurance product to the provision of services. In all these developments, the basis of Delta Lloyd Group is relatively favourable: good solvency, strong brands, experience and knowledge, power of scale, a great supply of products and several distribution channels. However, a sound future requires a low cost level. In addition, rapid product development, a high level of service and accessible insurance knowledge are essential. The Care market has always been dominated by politics, which have been trying for years to control the cost of health care and to improve organisation. The emphasis in 2002 was on decision-making in connection with the basis system. It was decided in May 2002 that a new medical expenses system should be introduced on 1 January 2005, but the decision was postponed because of the collapse of the Government at the end of As a consequence, uncertainty is impeding the Care sector. At the same time, adverse stock exchange conditions and stricter regulations also affect the Care sector. Realisation of objectives: cost reduction, efficiency and service enhancement Delta Lloyd Group can look back on a positive year as far as the realisation of objectives set in 2002 are concerned except for the financial results. The development of profits may have been disappointing, due mainly to the poor performance of share markets and associated developments, but other activities of the Group are on schedule. An important objective was the reduction of the Group s cost level. In order to strengthen Delta Lloyd Group s competitive position, cost awareness was highlighted and costs were reduced in a short period of time. 19

20 the Executive Board s report 2002 a year of extremes JULY 2002 Delta Lloyd customers earn A 10,000 for Stichting Sterrekind Delta Lloyd conducted a campaign in May asking general insurance customers to switch to direct debit of their premiums. For each customer who did, Delta Lloyd donated one euro to Stichting Sterrekind, an association devoted to improving the lives of chronically ill children. A cheque of B 10,000 was presented to the foundation on 30 July and Delta Lloyd Group extended its main sponsorship of the organisation for the coming three years. The campaign also produced many new supporters for Sterrekind. The Group was able in 2002 to reduce recurrent costs excluding commission below last year s level. An impressive result, which also highlights a changed attitude towards expenditure. However, this is not enough. The emphasis in the next few years will be on cost control. For this purpose, several programmes have been drawn up that should lead to a further structural cost reduction. The big challenge is the best possible use of synergy between various companies, like the use of the Shared Service Centres for the insurance industry. The co-operation with Pink Roccade, announced in September 2002, for the development of a joint service centre for the general insurance business (SSC) of Delta Lloyd and OHRA is a good example in this respect. The SSC is taking over the administrative back office processes from the individual insurances of Delta Lloyd and OHRA. The objective is the best possible efficiency in handling standardised administrative processes in an expertise centre with an attractive scale and volume. This will enhance the service level, but at the same time, it will reduce costs considerably. The centre is set up as an independent company. A conscious choice was made for co-operation with an ICT management partner that can arrange ICT expertise and the associated infrastructure. Other insurers may join, at a later stage, by introducing their administrative processes for general insurance and thus realising economies of scale. Another objective realised is the accentuation of the sourcing policy, introduced in the Delta Lloyd Group in June The aim is to focus more on the essential competencies of the Group as a financial services provider, reducing costs structurally and gaining more flexibility and decisiveness. Outsourcing may help by placing standardised non-key activities with third parties. In this way, the available means may produce more returns, and expertise in non-key activities may be secured in the longer term. This is demonstrated by the outsourcing of back office tasks in the mortgage division to an external company. The subsequent freeing up of people in the mortgage division led to a better focus on key tasks, with the same number of employees, more customer focus and, eventually, revenue trebled. A first step has also been made in outsourcing computer centres and a study has been started into the possibility of outsourcing general and technical services. Cost saving was also emphasised by the creation of a Procurement department. Better contract management and joint, sharp procurement make cost savings more likely. Enhanced service has been realised by Delta Lloyd insurance, through a new distribution policy. A distinction has been made between intermediaries, and this has enabled the account management to offer custom-made service to intermediaries who are important to Delta Lloyd. OHRA redefined its market position: it wants to sell a simple, clear product with a quick service. OHRA guarantees its customers business will be handled very rapidly, as shown in the media campaign OHRA, Direct Result. 20

21 the Executive Board s report 2002 a year of extremes SEPTEMBER 2002 Delta Lloyd introduces Verzekerd Beleggen In a reaction to the uncertain stock exchange conditions, Delta Lloyd introduced a new category of investment products under the name of Verzekerd Beleggen. The starting point of this new product is a high degree of capital protection through a guaranteed minimum return, while members still benefit from rising European share markets. OCTOBER 2002 Delta Lloyd wins Diversity Award Delta Lloyd received the Diversity Award on 31 October from the Confederation of Netherlands Industries (VNO-NCW). The prize is given to support companies and stimulate diversity policies. Central focus on customer In the year under review, Delta Lloyd Group put increasing emphasis on one of its most important core values: central focus must be on the customer. The customer s interest is the first priority in the conduct of business; the customers wishes define the Group s attitude and behaviour. Thanks to the multi-channel approach, Delta Lloyd Group offers a wide range of products through the distribution channel chosen by the individual and commercial customers. Delta Lloyd operates intensively and exclusively with independent intermediaries and OHRA concentrates directly on individual and commercial customers. As a result of the joint venture with ABN AMRO, the customer now has a choice of three channels: through intermediaries, through the banking channel or directly. The new distribution policy of Delta Lloyd Insurance, introduced in 2002 and aimed at creating an advantageous relationship with intermediaries, has greater added value for customers, by better matching the marketing and sales organisations to the different intermediaries and their clients. The service structure of the back offices also better meets the specific needs of intermediaries. Better service to intermediaries allows them to service their customers better as well. Delta Lloyd Group plays a pioneering role in the field of chain integration in the industry. Delta Lloyd wants to realise an efficient handling and relief of paperwork in good consultation with fellow insurers and intermediaries. One way to do this is through Internet activities. The Delta Lloyd Digital Domain (DDD) was given a significant impetus in this respect. In such Internet developments, the enhancement of service is important. The speed and controllability of transactions, the introduction of direct electronic reimbursement traffic, the possibility to buy products online, rapid information supply and product comparison, direct contact with existing and new customers: all these elements contribute to the best possible customer satisfaction. Delta Lloyd developed several pioneering initiatives in the field of Care in This concerns service and facilities, rather than new products. For instance, both Delta Lloyd Care and OHRA guaranteed patients operations within 14 days or, in the case of urgent surgical treatment, even offering a three-day guarantee. In practice, this means looking for a solution for customers in cities and towns other than their place of residence in the Netherlands, abroad or in private hospitals. Another example is looking at the care that customers really need, such as offering the possibility to opt for full dental cover. Protecting the customer s position is also an important issue. The principle of know your customer means that more attention is paid to the customer so that service can be concentrated on the customer s individual situation. In the banking division, investment relations were asked to indicate the best risk profile of customers and which service would best fit clients. Stricter codes of conduct, a more extensive obligation to provide information in quotations or value and surrender details, and quality requirements of customer information by intermediaries, are other forms of special attention to consumers. 21

22 the Executive Board s report 2002 a year of extremes NOVEMBER 2002 New Head Office in Mondriaan Tower Job Cohen, mayor of Amsterdam, officially opened the new head office of Delta Lloyd Group on 5 November. NOVEMBER 2002 Delta Lloyd and ABN AMRO together in bancassurance Delta Lloyd Group and the Dutch business unit of ABN AMRO signed a letter of Intent on 27 November for a unique co-operation in the field of bancassurance. Delta Lloyd takes a 51 per cent stake in and will have the management control of a joint venture in which the insurance business of ABN AMRO is to be placed. The co-operation combines the distributive power of the Dutch network of ABN AMRO and the insurance expertise of Delta Lloyd. Continuity and reliability for all stakeholders The year 2002 was also characterised by what is known as a crisis in capitalism. The scandals surrounding such companies as Enron, Worldcom and Vivendi Universal painfully show the consequences of an exaggerated focus on short-term results, a lack of values and of ignoring the interests of stakeholders. For Delta Lloyd Group these developments once again confirm the importance of offering continuity and reliability to all our stakeholders. Delta Lloyd Group considers the Dutch construction of structure companies a significant added value. This legal construction offers the best guarantee that all groups concerned and not only those representing the shareholders interests exert influence on the enterprise. Delta Lloyd Group believes in the importance of the company s solvency being maintained and improved and, therefore, in financial solidity being guaranteed to customers. The awareness of our responsibility as a financial services provider illustrated that the corporate values defined in 2000 are really embedded in our organisation. These values show what the company stands for, they give direction to the corporate policy and they define the corporate culture and identity, both internally and externally. Our policy is always checked against these values and any dilemmas are a subject of discussion at all levels. In 2003, the core values will be the basis of the formal performance appraisal of all individual employees. Integrity and transparency in all areas, towards customers, employees and society at large, is an important basic principle for Delta Lloyd. Delta Lloyd has welcomed initiatives such as GIDI, a code of conduct for information supplied by intermediaries. Delta Lloyd Group also co-operated enthusiastically with the Association of Insurers in the Netherlands on the creation of the code of conduct for the insurance industry. Social involvement The actual interpretation of our core values is not only evident in our business activities, but also in our personnel policy. For instance, it is part of the performance appraisal policy, and the active diversity policy that Delta Lloyd Group has pursued for some years now. The principle of this policy is that all employees, male or female, irrespective of background, religion or origin should genuinely work together, eventually leading to a better operating result. Developments in the work force show that this approach is successful. Not only is this clear from figures: a rise of 0 per cent to 11 per cent female directors in two years, but also in qualitative improvements: in raising consciousness, recognition and acknowledgement. Delta Lloyd Group occupies a special position, which became clear when the Group received the Diversity Award from the Confederation of Dutch Industries (VNO/NCW). In June 2002, Delta Lloyd was also named the most Female Friendly employer in the insurance industry. The core values are also becoming more visible in the policy on sponsoring and donations, as more and more is being invested in social projects. This is one of the reasons why Delta Lloyd Group decided not to renew the sponsor agreement with the Royal Dutch Athletics Union when it ran out on 31 December Instead, the Group has opted to give financial aid to groups that link up better with Delta Lloyd Group s social involvement. This includes Sterrekind Foundation, Stichting Bio-Kinderrevalidatie, Valid Express, Simavi and R&B. 22

23 Corporate Governance corporate governance and risk management Corporate Governance is the appropriate management of an enterprise, adequate supervision and transparent account to those involved in that enterprise. Delta Lloyd NV, being a structure company, has its own structure for Corporate Governance under which shareholders transfer a substantial amount of power to an independent Supervisory Board. The relationship between the board and shareholders is close and positive, strengthening the position of Delta Lloyd Group as a major division of the Aviva Group. The Executive Board consults with the top management and the Central Works Council on all major decisions. Tactical and operational planning (three years rolling) and realisation of the short-term corporate objectives are the prime responsibilities of the division management and supporting divisions. The Executive Board has a directive responsibility through a fixed steering model, formulation of performance criteria and approval of corporate plans. The Supervisory Board therefore has a major responsibility in the supervision of the management by the Executive Board and the management of the company. With sufficient attention, reasonable care and sound judgement, the Supervisory Board contributes to the healthy operations of Delta Lloyd, including its foreign entities. The Supervisory Board acts in accordance with the recommendations of the Peters Committee (1997) and in line with recommendations of such international committees as Turnbull. Developments from various supervisory bodies like the Pensioen- en Verzekeringskamer, Dutch Central Bank, AFM, SUO-WTZ, CTZ, CBP in the Netherlands or the FSA (Financial Services Authority) abroad, are monitored closely and lead to adjustments if necessary. The Executive Board monitors the progress of the realisation of plans. To this effect, the Executive Board is supported by Group Finance & Control for the assessment of the planning and the reporting process. Group Audit & Consultancy provides an unbiased assessment of operating processes, systems and change projects. At the same time, central bodies co-ordinate ICT infrastructure and services, HRM, communication, facilities and procurement, security, compliance and fraud control. Naturally, external supervisors, consultation in the insurance industry, stakeholders and our customers provide a powerful, supplementary contribution for the accountability and successful management of the Group, for the supervision thereof and the account given thereof. The Audit Committee of the Supervisory Board meets on a regular basis to extensively review all kinds of aspects of the operations. Representatives of the Executive Board, internal and external audit, finance and control are invited for those meetings to report audit plans, findings and control issues. The final responsibility for the internal management systems of Delta Lloyd NV lies with the Executive Board. This particularly concerns the strategy and the long-term planning. The internal structure of corporate governance was further strengthened in Compliance officers were appointed for each division, who contribute to the timely reaction to and execution of legislation and regulations (codes of conduct). They have a significant degree of independence and objectivity; they may act directly and independently with the regulators. Other issues handled in 2002 include the effects of the introduction of the new Data Protection Act and the appointment of a Data Protection Officer. 23

24 Risk management corporate governance and risk management Cautious Risk Management is being given much more attention in the organisation. For financial institutions like Delta Lloyd Group risk management is core business, as it guarantees a long-term compliance with liabilities towards stakeholders. Through its products, Delta Lloyd Group covers risks for its relations. Delta Lloyd Group does everything it can to keep the subject of risk management at the forefront of all divisions. An important element for risk management in the Delta Lloyd Group is the risk & control self assessment by the Executive Board, which provides topical risk profiles each quarter. Such profiles illustrate the situation on the basis of an internal method, divided into 21 risk groups. The risk profile of the group creates a summary of the inherent risk of the underlying strategic, tactical and operational risks and of the remaining risk, when management features are taken into account, of mention being made of issues and action plans, if necessary. Every six months all Executive Board members state that the risk map covers all relevant risks and which aspects require additional reporting. The risk map and Executive Board statements are reported to and discussed with the Audit Committee. The company also uses other risk management features, such as business balanced score cards, to ensure its policies are working. The various divisions also carry out risk assessments for the corporate plans. During 2002 specific attention was paid to solvency management and the yield development of certain products, in particular products with a guaranteed return for customers and immediate life annuities. For the banking division the new Regeling Organisatie en Beheersing (ROB) was implemented. Delta Lloyd has been able to retain a proper solvency level, despite adverse economic conditions and falling share prices. Expert Asset Liability Management on the basis of scenario analysis guarantees an accountable course for our customers and the Group. Delta Lloyd Executive Board and management are continuously aware of the importance of a clear strategy and appropriate policy and plans to meet the business objectives. Delta Lloyd Group is confident that the present formula will lead to a successful future: seven strategic pillars, three strong brands and seven core values. Future Divisions in the Delta Lloyd group act as independently as possible from a strategic framework with clear objectives. At group level, small top-quality executive organs supply an added value through an assessment of the corporate processes and advice about general synergies and co-operation. Regulators complete the corporate governance framework by visiting Delta Lloyd Group and by reviewing or auditing its activities. They make recommendations or issue directives. Delta Lloyd Group acknowledges the need for an effective corporate governance, but is concerned by the threat of too much bureaucracy. Transparency and supervision are necessary, but too many details and too many double or redouble measures are counter productive. Modernisation of the supervision with enhanced responsibility for the enterprises are considered positive developments by the Group, offering opportunities for an efficient interpretation. More rules and regulations are resulting in increased expenditure which cannot completely be passed on to the price, certainly not because the premium has already been received and such costs had not been provided for. 24