Throughout their working lives and into retirement, millions of people around the world rely on AEGON to help them secure their long-term financial futures.
AEGON in recent years has undergone a significant transformation. In response to the changing global market environment, we have sharpened our focus on AEGON’s core business of life insurance, pensions and asset management. Moreover, we have taken decisive measures to reduce our exposure to the volatility of financial markets, strengthen our financial position, implement substantial cost reductions and align our organization to better respond to the needs of our customers and the expectations of our shareholders. Indeed, these strategic actions have enabled us to put the financial crisis firmly behind us, while setting our sights toward sustainable growth.
China, India and Japan. Under the new structure headquartered in Hong Kong, AEGON’s businesses in
All of these actions to reallocate capital, increase returns, reduce costs and better leverage our global resources are aimed at enabling AEGON to achieve sustainable earnings growth, with an improved riskreturn profile, and generate sustainable cash flows and dividends to our shareholders going forward.
Marco Keim began his career with accountants Coopers & Lybrand /
Otto Thoresen joined Scottish Equitable in 1978, where he qualified as an actuary and worked in a number of roles, including marketing manager.
� Reducing credit exposure through the run-off of the company’s institutional spread-based business in the United States and de-emphasizing fi xed annuities.
Extractive Industry Transparency Initiative, which aims to strengthen governance in the international oil, gas and minerals sector. AEGON supports the
Sustainability World and European indexes for the insurance industry, as well as the FTSE4Good, indexes which measure the performance of leading companies against recognized sustainability standards. AEGON
As part of new pension legislation in Hungary, mandatory pension fund assets have been taken over by the Hungarian State during the first quarter of 2011.
In Spain, the financial sector is undergoing significant consolidation and restructuring. Consequently, a number of the country’s savings banks are in the process of either merging or entering into so-called integration agreements (SIPs). AEGON remains committed to the
Repaying the Dutch State In December 2008, AEGON secured EUR 3 billion in additional core capital from the Dutch State through the issuance of convertible core capital securities to
Vereniging AEGON. This support was part of a broader program of support for banks and insurance companies in the Netherlands during the recent financial crisis.
Commission review process, the Dutch Ministry of Finance agreed to amend the terms and conditions of the convertible core capital securities provided to AEGON: � Terms were improved on an amount of EUR 500 million repurchased in August 2010.
New reporting format In May, AEGON introduced a new reporting format to bring its financial reporting more in line with the way the company manages its businesses. Under the new format,
Share listings AEGON’s common shares are listed on three stock exchanges. The company’s primary listing is in
February 2011, which we have completed via an accelerated book-build and which yielded EUR 0.9 billion, enabled us to repurchase EUR 750 million nominal value of core capital in March 2011. Repurchasing the remaining portion of core capital - using internal resources, including any divestments - is a key priority.
Underlying earnings before tax Underlying earnings before tax increased 66% to
EUR 555 million in 2010, mainly as a result of strategic decisions. In the United States, the value of new business was impacted by the decision to de-emphasize the sale of fixed annuities. In the United Kingdom the main reason for the decline was repricing of immediate annuities.
Capital position At the end of 2010, AEGON’s excess capital above AA
Both individual and group pensions, usually sponsored by, or obtained via, an employer.
Sales and deposits AEGON experienced a 4% increase in new life sales in the Americas during the course of 2010. Strong retail new life sales in the United States and Latin America were partly offset by lower life reinsurance sales.
AEGON’s businesses increased substantially in 2010. This was mainly the result of improved financial markets and business growth. Net income also improved, mainly due to a decrease in impairment charges.
United Kingdom increased 30% to GBP 61 million during 2010, as a result of growth of the business and improved financial markets. Earnings from the life business increased to GBP 60 million due to growth of the annuity book in previous periods and lower expenses following the closure of the employee benefits business.
AEGON aims to grow its New Markets to higher underlying earnings before tax despite downturns in earnings in Central & Eastern Europe and losses in Asia due to investments in growth.
Operating expenses Operating expenses increased to EUR 562 million for 2010, as compared to EUR 227 million in 2009. The increase was mainly due to the inclusion of AEGON
Value of new business The value of new business for New Markets decreased 3% to EUR 116 million as compared to the previous year.
� Establishing a fi rm framework through which the riskreturn trade-off associated with these risks can be assessed.
� Risk balance: Manage the concentration of risk and encourage risk diversifi cation within AEGON.
Liquidity risk AEGON has a strong liquidity management strategy in place. Since the early 1990s, AEGON has been constantly refining and developing its approach to liquidity management. As part of this approach, AEGON regularly considers the most extreme liquidity stress scenarios, including the possibility of prolonged “frozen” capital markets, an immediate and permanent rise in interest rates, and policyholders withdrawing liabilities at the earliest conceivable date. In addition, the company has highly developed liquidity stress planning in place. In 2010, AEGON further increased its holdings of cash and highly liquid assets as a precaution against liquidity risk. AEGON’s liquidity management strategy ensures the company will not be a forced seller of assets even in a severe stress scenario. Stress tests show that available liquidity would more than match the company’s liquidity requirements for at least the next two years, even if market conditions were to significantly deteriorate from current conditions.
AEGON’s earnings depend, to a significant degree, on the extent to which claims experience is consistent with assumptions used by the company to price products and establish technical liabilities. Changes in, among other things, morbidity, mortality, longevity trends and policyholder behavior could have a considerable impact on AEGON’s income. AEGON believes it has the capacity to take on more underwriting risk (providing it is correctly priced) in line with the company’s broader strategy to capitalize on growth opportunities in its main life insurance and pension markets.
earnings and capital position. These plans also cover extreme event scenarios, such as the possibility of pandemics in one or more of the company’s main markets.
Governance structure AEGON’s risk management framework is represented across all levels of the organization. This ensures a coherent and integrated approach to risk management throughout the company. Similarly, AEGON has a number of company-wide risk policies in place, which detail specific operating guidelines and limits. These policies are designed to keep overall risk-specific exposures to a manageable level. Any breach of policy limits or warning levels triggers immediate remedial action or heightened monitoring. Further risk policies may be developed at a local level to cover situations specific to particular regions or operating units.
The Chief Risk Officer also has an individual responsibility in this regard and has direct access to the Chairman of the Supervisory Board Risk Committee.
In broad terms, Solvency II will apply to insurance and reinsurance companies in Europe and to groups with
AEGON N.V. has regular access to international capital markets under a USD 6 billion debt issuance program.
AEGON maintains back-up credit facilities with international lenders to support outstanding amounts under these commercial paper programs. The company’s principal arrangement is a USD 5 billion syndicated facility consisting of a USD 3 billion back-up credit facility which matures in 2012 and a USD 2 billion revolving letter of credit facility of which USD 1.5 billion matures in 2015 and USD 0.5 billion matures in 2017.
Until AEGON has repurchased 3/4 of the core capital securities, approval from these representatives is required for certain decisions 1, including: � The issuance and repurchase of shares and debentures.
The Board also had an extensive discussion with local management in the United Kingdom, who presented their views on the situation of AEGON UK and their plans to improve the company’s operations.
Management framework, its risk exposure and compliance with company risk policies. In 2010, recurring items on the agenda were the quarterly Risk Dashboard and the Board Risk List. Other topics the Risk Committee discussed with AEGON’s Executive Board and senior management were market consistent pricing, capital,
The Compensation Committee also reviewed the company’s Remuneration Policy for the members of the
Resignation Cecelia Kempler In 2011, AEGON announced that Cecelia Kempler would be stepping down as a member of the
Chairman from Dudley G. Eustace in April 2010. His current term as a member of the AEGON
Jumbo Supermarkten B.V. (not listed) as well as a member of the Board of Directors of BP plc.
Adjustments to policy In 2008, AEGON conducted a review of pay for members of its Supervisory Board. The review found that base fees were generally lower than prevailing market levels.
The chart below gives each of these components as a maximum percentage of total compensation for 2010.
Jan J. Nooitgedagt 1 CFO & member EB 704,083 525,000 0.6 1 Please note that Mr. Nooitgedagt was appointed Chief Financial Offi cer in April 2009. His 2009 salary was prorated, based on an annual salary for that year of EUR 700,000.
2 The Dutch law currently provides for a threshold of EUR 50 million. It is expected that the law will be amended and that the threshold will be increased to EUR 100 million. The Articles of Association of AEGON N.V. already provide for a threshold of EUR 100 million. During the General Meeting of Shareholders in 2010 it was confi rmed that the threshold of EUR 100 million in market value will not be effective until the Dutch law has been amended.
The General Meeting may, in addition, bring forward a resolution to appoint someone not nominated by 1 The 1983 Merger Agreement, as amended, is published on AEGON’s website www.aegon.com. 2 The Preferred Shares Voting Rights Agreement is published on AEGON’s website (www.aegon.com).
Suspending or dismissing Board members Members of AEGON’s Supervisory and Executive Boards may be suspended or dismissed by the General Meeting of Shareholders with a two-thirds majority of votes cast, representing at least one half of AEGON’s issued capital, unless the suspension or dismissal has first been proposed by the company’s Supervisory Board. A member of the Executive Board may also be suspended by the
Issue and repurchase of shares New shares may be issued up to the maximum of the company’s authorized capital, following a resolution adopted by the General Meeting of Shareholders. Shares may also be issued following a resolution of the
Diluted earnings per share after conversion of convertible core capital securities 1, 2 0.68 – –
Purchase of investments (other than money market investments) (42,691) (49,022) (56,394)
The revised IFRS 3, applicable prospectively to all new acquisitions undertaken after January 1, 2010, continues to require the application of the acquisition method to business combinations, with some significant changes. For example, all payments to purchase a business will be recorded at fair value at the acquisition date, with contingent payments classified as liabilitty subsequently re-measured at fair value through profit or loss. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related transaction costs will be expensed.
The adoption of IFRS 3 (revised) does not change the accounting treatment, including the accounting for contingent consideration, for past acquisitions. The adoption of this standard did not have any impact during the current period as there were no acquisitions.
� IFRS 1 (revised) First time adoption of IFRS – additional exemptions.
� Amendment to IFRS 2 Share Based Payments (Group cash settled and share based payment transactions.
� IFRS 1 (amendment) First Time Adoption – Limited Exemption from Comparative IFRS 7 Disclosures for First Time Adopters.
� The line item ’Run-off businesses’ is introduced which includes earnings of certain business units where management has decided to exit the market and to run-off the existing block of business. Currently, this line item includes the earnings of the institutional spread-based business and structured settlements (payout annuities)
� Earnings from the Company’s associates in insurance companies in Spain, India, Brazil and Mexico are reported on an underlying earnings basis.
Software and other intangible assets are recognized to the extent that the assets can be identified, are controlled by the
Group’s risk management and investment strategy and financial assets containing an embedded derivative that is not closely related and that cannot be reliably bifurcated. In addition, in certain instances the Group designates financial assets to this category when by doing so a potential accounting mismatch in the financial statements is eliminated or significantly reduced.
Investments in real estate includes property held to earn rentals or for capital appreciation, or both. Investments in real estate are presented as investments. Property that is occupied by the
Depreciation is calculated on a straight line basis over the useful life of a building. Land is not depreciated. On revaluation the accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount. Increases in the net carrying amount are recognized in the related revaluation reserve in shareholders’
The portion of DPAC that is determined not to be recoverable is charged to the income statement.
Life insurance contracts typically include derivative-like terms and conditions. With the exception of policyholder options to surrender the contract at a fixed amount, contractual features that are not closely related to the insurance contract and that do not themselves meet the definition of insurance contracts are accounted for as derivatives. If the embedded derivative cannot be reliably bifurcated, the entire insurance contract is carried at fair value through profit or loss.
Non-life insurance contracts are insurance contracts where the insured event is not life-contingent. For non-life products the insurance liability generally includes reserves for unearned premiums, unexpired risk, inadequate premium levels and outstanding claims and benefits. No catastrophe or equalization reserves are included in the measurement of the liability.
104 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 2.20 - 2.22
At inception investment contracts without discretionary features are designated as at fair value through profit or loss if by doing so a potential accounting mismatch is eliminated or significantly reduced or if the contract is managed on a fair value basis. Some investment contracts with embedded derivatives that have not been bifurcated are also carried at fair value through profit or loss. All other contracts are carried at amortized cost.
Group’s shares. The cost is recognized in the income statement, together with a corresponding increase in shareholders’
using valuation techniques for which all signifi cant inputs are based on observable market data; and
The majority of valuation techniques employ only observable market data, and so the reliability of the fair value measurement is high. However, certain financial instruments are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable and, for such financial instruments, the derivation of fair value is more judgmental. An instrument in its entirety is classified as valued using significant unobservable inputs if, in the opinion of management, a significant proportion of the instrument’s carrying amount and / or inception profit (‘day 1 gain or loss’)
Other investments at fair value 841 (141) (22) 230 (35) (2) (29) – – 842 –
Investment contracts for account of policyholders (301) 31 – (287) 20 – 16 – – (521) –
AEGON’s non-euro currencies relative to the euro as included in the table below are due to the translation of subsidiaries and joint-ventures in the consolidated financial statements.
The table that follows shows the Group’s maximum gross credit exposure from investments (credit protection not taken into account) in general account financial assets, as well as general account derivatives and reinsurance assets. Please refer to note 48 and note 49 for further information on capital commitments and contingencies and on collateral given, which may expose the Group to credit risk.
considers it remote that a loss will be incurred due to the attachment point on the tranches and the amount of Margin.
AEGON operates a Credit Name Limit Policy under which limits are placed on the aggregate exposure that it has to any one counterparty. Limits are placed on the exposure at both group level and individual country units. The limits also vary by a rating system, which is a composite of the main rating agencies
EUR 1,610 million (2009: EUR 1,805 million) and the market value was EUR 1,302 million (2009: EUR 1,202 million).
of CMBS. The unrealized loss on CMBS is EUR 56 million
Despite advancements in the availability of financing for commercial real estate, as evidenced by the gradual reopening of the CMBS markets, the lending market remains limited as lenders continue to be more conservative with underwriting standards. Moreover, property transactions have increased but still remain low relative to historical standards. While liquidity has improved within the CMBS market, a broad re-pricing of risk has kept credit spreads across the subordinate CMBS tranches at wide levels.
ABS-CDOs are primarily secured by pools of corporate bonds and leveraged bank loans. The unrealized loss is a function of decreased liquidity and increased credit spreads in the market for structured finance and monoline guaranteed securities.
(2009: 36% related to XL, 25% to MBIA, 39% to AMBAC).
Services non-cyclical – 14 – – 14 6 1 Includes investments of Holding and other activities.
The maturity analysis below shows the remaining contractual maturities of each category of financial liabilities (including coupon interest). When the counterparty has a choice of when an amount is paid, the liability is included on the basis of the earliest date on which it can be required to be paid. Financial liabilities that can be required to be paid on demand without any delay are reported in the category ‘On demand’. If there is a notice period, it has been assumed that notice is given immediately and the repayment has been presented at the earliest date after the end of the notice period. When the amount payable is not fixed, the amount reported is determined by reference to the conditions existing at the reporting date.
146 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 4 under insurance policies. Currently AEGON uses gender as a risk factor pricing for both general and life insurance policies.
The reconciliation of this measure to the income before tax is shown below. AEGON believes that underlying earnings before tax, together with the other information included in this report, provides a meaningful measure for the investing public to evaluate AEGON’s business relative to the businesses of its peers.
Investments for account of policyholders 49,920 21,749 48,826 5,355 – (5) 125,845
AEGON has entered into interest rate swap agreements that effectively convert certain fixed-rate assets and liabilities to a floating-rate basis (generally to six months or less LIBOR).
The majority of cash is not subject to any restrictions. However, the Dutch Central Bank requires AEGON The Netherlands to hold 2% of its assets relating to banking activities in an account with the Dutch Central Bank. This amount on deposit is reassessed on a monthly basis and carries interest at approximately 1.0% (2009: 1.0%). The balance at the end of the year was EUR 111 million (2009: EUR 98 million).
AEGON N.V., may purchase as many class B preferred shares as would enable Vereniging AEGON to prevent or correct dilution to below its actual percentage of voting shares, unless
In 2009, Vereniging AEGON exercised its option rights to purchase in aggregate 33,860,000 class B preferred shares at par value to correct dilution caused by AEGON’s EUR 1 billion equity issue as completed in August 2009.
EUR 1.0 billion Senior Notes 7.00% April 29 2009 / 12 998 996
(Gains) / losses on curtailment (29) – (29) – – –
Actual return on plan assets and reimbursement rights 337 – 337 374 – 374
AEGON USA has defined benefit plans covering substantially all its employees that are qualified under the Internal Revenue
Assumptions used to determine benefi t obligations at year-end: Discount rate 5.25% 6.00%
AEGON USA provides health care benefits to retired employees, which are predominantly unfunded. The post-retirement health benefit liability amounts to EUR 185 million (2009: EUR 165 million).
The assets of the scheme are held under trust separately from those of the Group. The assets of the scheme are held in policies affected with Scottish Equitable plc. The scheme is closed to new entrants. Under IAS 19, the defined benefit plan has a deficit of EUR 247 million at December 31, 2010 (2009: EUR 339 million).
Acquisitions through business combinations – – – – – – 4 4
AEGON did not recognize deferred corporate income tax assets in respect of deductible temporary differences relating to deferred acquisition costs, insurance contracts, available for sale financial assets and other items for the amount of gross
Included in interest income is EUR 122 million (2009: EUR 42 million; 2008: EUR 10 million) in respect of interest income accrued on impaired financial assets. The interest income on financial assets that are not carried at fair value through profit or loss amounted to EUR 5,854 million
Realized gains and losses on fi nancial investments comprise: 2010 2009 2008
Realized gains and losses on fi nancial investments relate to: 2010 2009 2008
Executive Board and the Management Board, as well as other senior managers within AEGON, have been granted the right to receive AEGON shares if certain performance indicators are met and depending on continued employment of the individual employee to whom the rights have been granted. The shares were granted in May at the average share price on the NYSE
The liability related to share appreciation rights is valued at fair value at each balance sheet date. Refer to note 28 for details.
Coupons and premium on convertible core capital securities (63) (148) –
The Financial Services Authority (FSA) regulates insurance companies in the United Kingdom under the Financial Services and Markets Act 2000 and sets minimum solvency standards.
For AEGON UK, the published measure continues to be the most stringent requirement. At the end of 2010, AEGON UK’s aggregate Pillar 1 capital ratio was approximately 152%
This includes portfolios of investments in limited partnerships and limited liability companies (primarily hedge funds) for which the performance is assessed internally on a total return basis. In addition, some investments that include an embedded derivative that would otherwise have required bifurcation, such as convertible instruments, preferred shares and credit linked notes, have been designated at fair value through profit or loss.
Changes in the fair value of investment contracts for account of policyholders designated at fair value through profit and loss were not attributable to changes in AEGON’s credit spread.
In addition to the guarantees shown in the table, guarantees have been given for fulfillment of contractual obligations such as investment mandates related to investment funds.
At December 31, 2010, the letter of credit arrangements amounted to EUR 3,489 million (2009: EUR 3,492 million); as at that date no amounts had been drawn, or were due under these facilities.
AEGON has been involved in over the last twelve months have not had any significant effects on the financial position or profitability of AEGON N.V. or the Group. However, there can be no assurances that AEGON will be able to resolve existing litigation in the manner it expects or that existing or future litigation will not result in unexpected liability.
EUR 3.3 million from the FSA due to systems and controls failings, some of which have led to customer detriment.
stake as of December 31, 2008. The total purchase price amounted to EUR 27 million for the 40% stake. Acquired assets included EUR 2 million cash positions. Goodwill of EUR 63 million was recognized. Since the acquisition date, the company has attributed EUR 0 million to net income in 2008. If the acquisition had been as of January 1, 2008, contribution to net income and total revenues would amount to EUR 0 million and
On April 1, 2010, AEGON completed the sale of its funeral insurance business in the Netherlands to Dutch investment firm
Common shares held by Supervisory Board members Shares held in AEGON at December 31 2010 2009 2008
On March 15, 2011, AEGON repurchased EUR 750 million in principal amount of convertible core capital securities from the Dutch state. The total payment to the Dutch state amounted to EUR 1.125 billion of which EUR 750 million related to the repurchase of 187.5 million convertible core capital securities and EUR 375 million related to the premium attached to this repurchase.
December 31, 2010, the consolidated income statement, statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended and notes, comprising a summary of the significant accounting policies and other explanatory information.
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the Report of the Executive Board in accordance with Part 9 of Book 2 of the
Exchange differences on monetary items are recognized in the income statement when they arise, except when they are deferred in equity as a result of a qualifying cash flow or net investment hedge. Exchange differences on non-monetary items are recognized in equity or the income statement accordingly consistently with other gains and losses on these items.
A liability for non-cumulative dividends payable is not recognized until the dividends have been declared and approved.
Revaluation account includes unrealized gains and losses on available for sales assets and the positive changes in value that have been recognized in net income / (loss) relating to investments (including real estate) and which do not have a frequent market listing.
Transactions in 2009: Sale: 1 transaction, price EUR 5.25 – (32,654,191)
At December 31, 2010, the letter of credit arrangements amounted to EUR 3,489 million (2009: EUR 3,492 million); as at that date no amounts had been drawn or were due under these facilities.
We have audited the accompanying company financial statements 2010 of AEGON N.V., The Hague (as set out on pages 226 to 241), which comprise the balance sheet as at December 31, 2010, the income statement for the year then ended and the notes, comprising a summary of the significant accounting policies and other explanatory information.
When a vote in the Executive Committee results in a tie, the General Meeting of Members has the deciding vote.
(320) 88 105 117 (10) Individual savings and retirement products 132 134 117 117 500
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or liability.
� Regulatory changes relating to the insurance industry in the jurisdictions in which we operate.