o www.ahold.com/reports2009
How we manage risk - continued
Governance
Risks associated with its insurance programs
Ahold manages its insurable risks through a combination of self-insurance and commercial
insurance coverage. Our U.S. operations are self-insured for workers' compensation,
general liability, vehicle accident and certain health care-related claims. Self-insurance
liabilities are estimated based on actuarial valuations. While Ahold believes that the
actuarial estimates are reasonable, they are subject to changes caused by claim reporting
patterns, claim settlement patterns and legislative and economic conditions. This makes
it possible that the final resolution of some claims may require us to make significant
expenditures in excess of our existing reserves. In addition, third-party insurance
companies that provide the fronting insurance that is part of our self-insurance programs
require us to provide certain collateral. We take measures to assess and monitor the
financial strength and credit-worthiness of the commercial insurers from whom we
purchase insurance. However, we remain exposed to a degree of counterparty credit risk
with respect to such insurers. If conditions of economic distress were to cause the liquidity
or solvency of our counterparties to deteriorate, we may not be able to recover collateral
funds or be indemnified from the insurer in accordance with the terms and conditions
of our policies.
Risks related to health care and pension funding requirements
Ahold has a number of defined benefit pension plans covering a large number of its
employees in the Netherlands and in the United States. Falling stock market values and
interest rates negatively affect Ahold's pension funds, which may lead to higher pension
charges and contributions payable. In addition, a significant number of union employees
in the U.S. are covered by multi-employer plans. The unfunded portion of the liabilities of
these plans may result in increased future payments by Ahold and the other participating
employers. Ahold's risk of such increased contributions may be greater if any of the
participating employers in an underfunded multi-employer plan withdraws from the plan
due to insolvency and is not able to contribute an amount sufficient to fund the unfunded
liabilities associated with its participants of the plan. For additional information, see Note
23 to Ahold's consolidated financial statements included in this Annual Report. If Ahold is
unable at any time to meet any required funding obligations for some of its U.S. pension
plans, or if the Pension Benefit Guaranty Corporation (the PBGC), as the insurer of certain
U.S. plan benefits, concludes that its risk may increase unreasonably if the plans continue,
the PBGC could terminate the plans and place liens on material amounts of the
Company's assets, under the U.S. Employee Retirement Income Security Act of 1974
(ERISA). Ahold's pension plans covering its Dutch operations are regulated by the Dutch
Central Bank (De Nederlandsche Bank or DNB). DNB may require Ahold to make
additional contributions to its pension plans in case minimum funding requirements are
not met. In addition, U.S. health care costs have risen significantly in recent years and this
trend is expected to continue. Ahold may be required to pay significantly higher amounts
to fund U.S. employee health care plans in the future. Significant increases in health care
and pension funding requirements could have a material adverse effect on the Company's
financial position, results of operations and liquidity.
