Achmea Hypotheekbank N.V. annual report 2011

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Achmea Hypotheekbank’s policy is to maintain a strong capital base to maintain investor, creditor and market confidence and to sustain future development of the business. The trade off between risk and return is part of the overall risk appetite framework of the bank. Under the Dutch Financial Supervision Act (Wft), banks are required to maintain a minimum capital ratio (BIS ratio) of 8%. The Executive Board set the internally applied target for the capital minimum level at 12%. Achmea Hypotheekbank complies with external and internal minimum requirements throughout the year with a Core Tier 1 ratio of 11.7% and a BIS ratio of 12.6% at year-end 2011. Qualifying capital and risk weighted assets Core tier 1 capital In 2011, core tier 1 capital decreased by EUR 26 million from EUR 507 million to EUR 481 million, mainly due to the negative 2011 result. Lower direct capital deductions of EUR 5 million (2010: EUR 21 million) had a positive effect on core tier 1 capital in 2011. Since Achmea Hypotheekbank does not hold any hybrid tier 1 instruments, tier 1 capital equals its core tier 1 capital. Tier 2 capital Qualifying lower tier 2 capital (subordinated loans) is decreased with EUR 75 million compared with 2010 to EUR 43 million, mainly as a result of: • The bank redeemed a EUR 60 million subordinated loan (maturity 2016) in November 2011, resulting in a EUR 60 million decrease in qualifying lower tier 2 capital. • Subordinated loans are assigned a lower weighting as they approach maturity, which results in a EUR 15 million lower contribution to the qualifying capital. Risk weighted assets In view of the new Basel III guidelines and the new securitisation reporting guidelines by De Nederlandsche Bank (DNB) (‘Regeling securitisaties’), Achmea Hypotheekbank currently reports its exposure arising from securitisation positions within its risk-weighted assets instead of directly deducting these from its tier 1 and tier 2 capital. This direct deduction from its tier 1 and tier 2 capital led to a decrease from tier 1 and tier 2 capital of EUR 28 million and an increase in risk-weighted assets of EUR 297 million. Therefore the total risk-weighted assets increased slightly from EUR 4,0 billion (year-end 2010) to EUR 4,1 billion (year-end 2011), even though Achmea Hypotheekbank reduced its risk exposure further in 2011 by reducing its mortgage portfolio. The deductions consist of the reserve accounts. 46
Qualifying capital and BIS In millions of euros 2011 2010 Share capital 18 18 Share premium reserve 269 269 Reserves 199 241 Deductions -5 -21 Core Tier 1 capital 481 507 Lower Tier 1 43 118 Deductions -5 -21 Tier 2 capital 38 97 Total qualifying capital 519 604 Risk-weighted assets 4,124 3,958 Core Tier 1 ratio 11.7% 12.8% BIS ratio 12.6% 15.3% Internal capital adequacy requirements The bank has implemented internal processes to align with the required capital for the risks the bank faces. At Achmea Hypotheekbank these processes are included in the Internal Capital Adequacy Assessment Process (ICAAP) manual. Among other things, this manual describes the governance structure, the procedures, the assumptions and the methods used to determine the required capital. ICAAP serves to assess and maintain both the current and future capital adequacy of Achmea Hypotheekbank. At present, the internal capital adequacy requirement is based on the requirements of Pillar I, supplemented with: • a surcharge for interest rate risk; and • add-ons for elevated credit risk of the mortgage portfolio and counterparty credit risk under stressed conditions. Capital contingency The purpose of capital contingency is to ensure that appropriate measures are taken in case of an (imminent) solvency deficit. Achmea Hypotheekbank monitors its solvency position on a frequent basis. At the same time however, the bank recognizes that unexpected events, both internally and externally, during a short or long period may adversely affect the capital position and that this may jeopardize the continuity of the bank. It is therefore important to consistently be able to obtain sufficient capital, not only in a going concern situation but also in times of stress. Achmea Hypotheekbank has a capital contingency plan with the objective to have the appropriate measures in place to bring the solvency of the bank back at the desired level. 3.8 Fair value financial assets and liabilities The fair value is the value at which an asset can be traded or for which a liability can be settled between parties who are well informed in this regard, who are willing to enter into a transaction and who operate independently of each other. Achmea Hypotheekbank N.V. | 2011 47
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Achmea Hypotheekbank N.V. annual report 2011

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