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How we manage risk continued
Ahold
Annual Report 2010
Group at a glance
Performance
Fi nancials
Investors
Risks associated with 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 we believe 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 United States
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 the consolidated financial statements. 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 Dutch pension law.
The pension fund is under the supervision of the Dutch Central Bank (De Nederlandsche Bank
or DNB). According to the law and or contractually agreed funding arrangements, Ahold may
be required 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.
Other financial risks include:
Foreign currency translation risk arising from various currency exposures, primarily with respect
to the U.S. dollar, relating to cash flows, including loan and interest payments, lease payments,
dividends and firm purchase commitments, and the value of assets and liabilities denominated
in foreign currency
Credit risk related to cash and cash equivalents, short-term deposits, and derivative financial
instruments
Interest rate risk, arising primarily from debt
For further information relating to these financial risks, see Note 30to the consolidated financial
statements, which are incorporated and repeated here by reference.