Title 9, Book 2 of the Dutch Civil Code and the Dutch Accounting Standards Board Guidelines for annual reporting are applied as a basis for external reporting. Insofar as no valuation rule is mentioned, the assets and liabilities are included for the nominal amounts. The annual accounts have been prepared on the basis of the going concern assumption.

In preparing the annual accounts, DH Reinsurance must make estimates and assumptions that affect the reported items in the balance sheet and profit and loss account. These estimates are made to the best of the Management Boards knowledge, but the actual results may ultimately differ from those estimates.

The estimates and underlying assumptions are assessed periodically, but at least once a year, based on empirical data. These will be adjusted if necessary. Revisions to estimates are recognized in the period in which the estimate is revised and in future periods affected by the revision.

The most important estimates and assumptions relate to:

- the technical provision for insurance liabilities;
- the liability adequacy test and any related other technical provisions;
- Solvency II (see also Solvency II principles).

There is only one branch in the Netherlands, in which reinsurance originating from the individual or collective business is treated on an individual basis. In the annual accounts, therefore, no distinction is made between countries of residence or between individual and group insurance policies.

The annual accounts have been prepared in euros, which is DH Reinsurance's functional and presentation currency. Amounts in foreign currencies are converted to the exchange rate at the end of the financial year.Results arise due to differences with the rate at the end of the previous financial year or with the rate at which settlement was made. Gains and losses arising from underwriting valuation differences are included under “Other technical income and expenses”. Results on exchange rate differences on investments are included under “Unrealized gains or losses on investments”.

The basis for the valuation of equity is the current value. The current value is determined for the following categories as follows:

• Listed investments (shares and bonds) based on the stock price;
• Guarantee Fund Onderlinge Levensverzekering-Maatschappij based on purchase price;
• The mortgage fund and the loan funds based on the market value stated by the funds.

The valuation differences resulting from revaluation have been incorporated in the revaluation reserve, taking into account the deferred tax positions. Changes in value upon sale and decreases in value below the most recently determined purchase price are recognized in the Profit and Loss Account.

The bonds are valued on the basis of amortized cost. Agio and disagio are included in the line item Investments. The effective return is determined on the basis of the amortization of the agio or disagio.

Receivables are valued at fair value upon initial inclusion. After initial inclusion, receivables are valued at amortized cost (equal to the nominal value if there are no transaction costs), less any impairment losses if there is question of irrecoverability.

Liquid assets are valued at nominal value. If liquid assets are not freely available, this is taken into account in the valuation.

The positive valuation differences of investments valued at market value, less the related deferred tax liabilities, have been entered in the revaluation reserve.

The undistributed profit of the previous financial year and the dividend paid out for the previous financial year are recognized in the Other reserve.

Other debts and accrued liabilities are valued at fair value upon initial inclusion. After initial inclusion, debts are valued at amortized cost (equal to the nominal value if there are no transaction costs).

The calculation of the technical provision is based on actuarial assumptions. In determining the technical provision, assumptions have been made regarding mortality, medical risk, disability and the like. These assumptions are made at the time the insurance is taken out and, except for vested annuities, are valid for the entire duration thereof.

The following methods have been used to calculate the technical provision:

The provision is calculated using the net method. For pensions that have not yet started, a 1% payment cost is taken into account.

For annuities, the formulas take into account the payment frequency and the conditions regarding the start or end of payment after death. As a rule, it is assumed that death benefit payments are made in the middle of the insurance year. For a number of older insurance policies, the exception applies that payment is calculated at the end of the insurance year. In the case of lifelong mortality insurance policies, the provision is increased by 2% (excluding the unearned premium).

The unearned premium is a proportionate part of the gross premium calculated over the period between the balance sheet date and the next premium due date in the new financial year. The interest due is calculated over the period between the last due date in the financial year and the balance sheet date. The calculation of unearned premium and interest due is done in days, with the month set to thirty days.

The provision is zero for risk insurance policies with a one-year premium. However, an unearned premium is retained in the amount of the pro rata gross premium.

The provision is intended for future costs for non-contributory insurance policies and future costs after premium payment has ended for insurance policies for which the term of the premium payment is shorter than the term of the insurance. The provision is equal to 2% of the total technical provision for life insurance own account before adding unearned premiums and interest due.

Interest rate discounts on single premiums (and subsequently on surrender values) are calculated using an actuarial method. The reduction in the life insurance technical provision due to interest rate discount is calculated in accordance with the actuarial method as the present value of the future excess interest.

The interest is related to the provision excluding administration costs reserve, unearned premium and interest owed. Most of the provision has a fixed interest rate of 3%; the remainder has a rate of 0%, 2%, 2.5%, 3.5% or 4%.

If the premium for occupational disability has no actuarial basis, the provision is calculated by multiplying the net premium for this risk by a factor. In the case of an exemption from premium payment in the event of occupational disability, the factor is equal to 5.

For occupational disability pensions, the factor is equal to the elapsed duration in years, with a linear reduction to zero in the last five years of the premium payment. The provision for vested occupational disability is equal to the present value of the exempted net premiums or of the occupational disability annuity to be paid.

The provision for this risk is zero.

For the main insurance, the net method is used to determine the technical provision for life insurance. For supplementary insurance policies without an actuarial basis, the premium is set as 95% of the net premium for the relevant risk.

Due to the use of the net method, negative outcomes for the technical provision for life insurance hardly occur. A negative result is not set to zero.

The same method is used for outgoing reinsurance as for the main insurance policies.

The liability adequacy test tests whether the balance sheet value of the technical provisions (after deduction of capitalized interest rate discount and before reinsurance) is at least equal to the best-estimate provision, corrected for any accounting mismatch. The best-estimate provision consists of the discounted value of the expected cash flows and is the sum of:

• the present value of the future annual expected payments and the expected costs for the insurance less the expected gross premiums, based on best-estimate assumptions. The cash flows  are discounted on the interest rate curve published by EIOPA without volatility adjustment as at the balance sheet date;
• an adequate risk margin;
• the value of any embedded options and guarantees (not applicable at DH Reinsurance).

The best-estimate provision is then adjusted for any accounting mismatches with the corresponding assets. This means that any difference between the balance sheet value and market value of investments allocated to the liabilities must be taken into account. If the market value of the investments is higher than the balance sheet value, this will lead to a reduction in the test provision, and vice versa.

The test provision determined in this way is compared to the balance sheet provision before reinsurance, whereby the balance sheet provision must be at least equal to the test provision.

Deferred taxes are based on the nominal value of the temporary differences between the commercial and fiscal valuation of assets and liabilities. Deferred taxes are based on the tax consequences of the settlement of the assets and liabilities included in the balance sheet. Due to the long-term nature of these deferred taxes, the future nominal tax rate of 25.8% has been taken into account.

Provision for deferred employee benefits

The provision concerns the provision for jubilee awards pursuant to Guideline 271 of the Council for Annual Reporting (‘Raad voor de Jaarverslaglegging’).

The interest income is allocated to the technical result on the basis of the ratio between year-end balance sheet values of the technical provisions (with the exception of the “Other technical provision”), the deposits on which interest must be paid, and the fixed-income securities. The outcome of this is reduced by the pro rata part of the investment costs. The total investment income less the interest allocated to the technical result is allocated to the non-technical result.

Acquisition commission, inspection costs and fees for medical advisers are acquisition costs. Bank charges in connection with investments are investment costs. Part of the personnel costs are allocated to acquisition costs and investment costs on the basis of an estimate of the time spent.

The cash flow statement has been prepared using the indirect method.

Events that provide further information about the actual situation on the balance sheet date and that are apparent up to the date of preparation of the annual accounts are taken into account in the annual accounts. Events that do not provide further information about the actual situation on the balance sheet date are not recognized in the annual accounts. If such events are important for the opinions of users of the annual accounts, their nature and estimated financial consequences are disclosed in the annual accounts.

The principles for the valuation of assets and liabilities are laid down in Article 75 of the Solvency II Directive and are further elaborated in Chapter 2 of Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 (Articles 7 to 16).

In determining the solvency ratio, DH Reinsurance has to make estimates and assumptions that influence the reported percentage. These estimates are made to the best of the Management Board's knowledge, but the actual results may ultimately differ from those estimates. The estimates and underlying assumptions are reviewed periodically, but at least once a year. These are adjusted if necessary. The main estimate and assumptions relate to the technical provision.

The balance sheet item deferred taxes is formed on the basis of temporary differences between the statutory and fiscal valuation of assets and liabilities and the differences between the statutory balance sheet and the Solvency II balance sheet, taking into account the tax percentages used for the BW2 valuations.

Listed investments are valued at the market value at the end of the financial year, both in the annual accounts and in the Solvency II balance sheet.

The value of the Guarantee Fund Onderlinge Levensverzekering-Maatschappij „‘s- Gravenhage” U.A. is based on the purchase value.

The mortgage fund is classified as equity and is valued on the basis of the balance sheet value as stated in the investment report of the fund manager. The balance sheet value of the mortgages is determined by the fund manager by discounting the future contractual cash flows, taking into account early repayments by the mortgagor. Furthermore, the limitation in the possibility to sell mortgages in the market is taken into account.

The loan funds are classified as equity and are valued based on the balance sheet value as stated in the investment reports of the fund managers. The balance sheet values of the loans are determined by the fund manager by discounting the future contractual cash flows.

Bonds are valued at market value. This is determined on the basis of the stock market prices on the balance sheet date.

Receivables are valued at fair value upon initial recognition. Because the receivables are of a short-term nature, this approach is also considered adequate for application to the Solvency II balance sheet. The receivables from reinsurance are valued at market value.

The other provisions consist of a provision for the rental contract and a provision for additions to the De Hoop Leven fund.

Income and expenses are allocated as much as possible to the year to which they relate.

Premium income is recognized in the year to which it relates. The unearned premium is part of the “Technical provision”.

The costs are determined with due observance of the valuation principles stated above and are allocated to the year to which they relate.