Achmea Hypotheekbank N.V. annual report 2011

A general IBNR impairment loss is calculated using the average inflow into the credit management portfolio combined with
empirical figures. Historical loss rates are adjusted on the basis of current observable data in order to take account of the
impact of current conditions that did not apply in the period to which the historical data relates and to eliminate the impact of
the conditions in the historical period that do not currently exist.
Treatment of uncollectible loans and advances in the accounts
If all or part of a loan proves to be uncollectible, the amount concerned is written off from the corresponding provision for
impairment losses. Amounts that are in fact subsequently collected are recognised as income.
2.12 Derivative financial instruments and hedge accounting
Derivatives are financial instruments in the form of contracts to exchange future cash flows, the value of which depends on
one or more underlying assets, reference prices or indices. Examples of derivatives are forward exchange contracts, options,
interest rate swaps, futures and forward rate agreements. Achmea Hypotheekbank executes transactions in derivatives to
hedge its own interest rate and currency risks. The financial instruments are classified as held for trading and measured at fair
value.
Initial recognition of derivatives is at fair value on the date on which a derivative contract is signed. The fair values are derived
from market prices quoted on active markets, including recent market transactions or, where applicable, determined on the
basis of valuation methods, including present value models. Derivatives are recognised as assets if their fair value is positive
and as liabilities if their fair value is negative.
On initial recognition of a derivative, the transaction price is the best indicator of fair value unless the fair value of the
instrument is supported by other information about observable current market transactions in the same instrument or is based
on a valuation method which makes exclusive use of observable markets.
Achmea Hypotheekbank has designated the majority of its derivatives as fair value hedges of the interest rate risk inherent in
all or parts of its mortgage portfolio (macro hedge). For the application of fair value hedge accounting, Achmea Hypotheekbank
documents the relationship between the hedging instruments and the hedged items or positions, as well as the risk
management objective and strategy at the inception of the transaction.
Achmea Hypotheekbank also formally records whether the derivatives used in the hedging transactions are effective in
offsetting changes in the fair value of hedged items, both at the start and for the duration of the hedging relationship. A hedging
relationship is effective when the effectiveness is prospectively between 95% and 105% and retrospectively between 80% and
125%. Effectiveness is measured by dividing the change in fair value of the hedging instruments (parts used in the hedging
relationship) by the change in fair value of the hedged item (based on the risk being hedged). To ascertain the effectiveness,
Achmea Hypotheekbank performs both prospective and retrospective tests.
Achmea Hypotheekbank periodically assesses the fair value change in the hedged part of the portfolio of mortgage loans
attributable to the hedged risk, on the basis of the expected interest reset date. On condition that Achmea Hypotheekbank
finds the hedge to have been effective according to the method that it uses for determining the effectiveness, it recognises
the fair value change in the hedged part of the portfolio of mortgage loans as a gain or loss in the statement of comprehensive
income and in the consolidated statement of financial position item of loans and advances to customers.
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