According to the World Health Organization, over 2 billion people will be over 60 years of age by 2050 – almost a quarter of the world’s population. This demographic change poses far-reaching challenges for society, governments, business and
I want to acknowledge and say thank you to our customers, for the trust they continue to place in us; our shareholders, for their support and confidence; and finally, our team of over 26,000 colleagues whose dedication to serving our customers is second to none.
Second quarter  Aegon Asset Management sets up a new EUR 120 million innovation fund in the
Regulation We operate in a highly regulated industry. Over the past decade, regulation has become increasingly complex. Much of this new regulation was influenced by the 2008-2009 financial crisis.
• Life insurance • Accident & health insurance • Individual investment accounts • Annuities • Retirement plan services • Stable value solutions • Retail and institutional investment management solutions
Investments In exchange for products and services, customers pay fees or premiums. On certain pension products, savings and investments, customers make deposits. By investing this money, we make returns for our customers.
Aegon’s basic business model has four steps: product development and pricing, distribution, investments and payment of claims and benefits. This model drives value creation for our customers, employees, business partners and investors, as well as for the wider community.
Because of the nature of this business, value created is often financial, but it may also be social, economic or environmental:  Through our products and services, we offer customers protection. We pay claims and benefits, provide returns on savings and investments, and help build long-term financial security.
See page 432 for details of Aegon’s calculation for direct and indirect economic value generated, as well as economic value retained.
1 Companies may lose this ‘license’ if they do not create sufficient value for the societies in which they operate (or destroy value through, for example, damage to the natural environment or financial wrongdoing)
Trust in financial companies has improved in recent years, but it is still lower than trust in, for example, healthcare providers or technology companies. Even so, people are more likely to trust their friends or peers than companies or institutions. The fact is, profits or a recognizable brand name are no longer enough.
For our business: trust in our brand helps us attract new customers and retain existing ones. It also helps bring in new talent, and opens up business opportunities. In short, without trust, we cannot grow our business. Losing this trust would severely weaken our financial performance and undermine long-term growth of our business.
With more transactions online, data protection is becoming increasingly important. Regulators are also tightening up data privacy requirements.
For our stakeholders: for customers, breaches in security may cause personal loss (both financial and emotional). There may also be consequences for relations with suppliers and intermediaries. For investors, any loss of business or reputation could result in lower returns. PSD2 will increase consumers’ control over financial data, but also their responsibility for this data.
Degree of influence or control: We cannot influence customer behavior directly. Our responsibility is to respond to changes in customer needs, in terms of products, distribution and levels of customer service.
‘unlikely’ or ‘extremely unlikely’, including those with the highest 1 ‘Social and environmental impacts of business activities and investments’ is also included in Aegon’s materiality assessment. In the latest assessment, this topic ranked relatively low in importance both to management and our stakeholders. For more information about investment risk related to climate, see the Aegon Responsible Investment Report, available online. For details of our materiality assessment, see page 17.
models, which make use of these new technologies. In the UK, for example, we have created Aegon Retirement Choices (ARC).
Im po rt an ce t o st ak eh ol de rs
– volatile stock markets and low interest rates, particularly in Europe. Most of this restructuring is now behind us; we are already seeing the results in lower costs and better returns for our shareholders.
Digital technology and our mobile-first approach will help us get closer to customers and drive sales of additional products. We are the only US provider with a top-ten position in workplace-sold pension administration, voluntary employee benefits and long-term care2. We are focusing on ‘wealth and health’ – a particularly important issue in the US. Americans spend over USD 10,000 a year on healthcare, more than double the OECD average3.
effect on our return on equity. We plan to increase returns to investors. Aegon has increased dividends for shareholders in each of the past seven years. Meanwhile, through retained earnings, we expect to reduce our gross financial leverage ratio to the lower end of our current 26%-30% target range. In 2018, we redeemed more than EUR 1 billion in debt and capital instruments; at the same time, we issued EUR 643 million in new debt at a lower rate. This results in lower debt service charges as well as increased financial flexibility for the Group as a whole.
NPS is embedded in our sales and marketing processes; we also use the measure to help determine executive pay.
just over 27% of our customer base. These customers have online access to accounts, products and services.
1 Chart shows NPS performance benchmarked against peers for all Aegon businesses in the Netherlands and UK, plus our retirement, life insurance and mutual funds businesses in the US. Results from Knab, our online bank in the Netherlands, have also been incorporated. Figures show percentage of businesses in top two quartiles, weighted by customer numbers. Figures for 2017 and 2016 have been restated; this is to reflect changes in weighting and to exclude results from Hungary (which had been included in previous years).
Diversity, of course, goes beyond gender. Our aim is to create a productive and open working environment, in which all employees are valued for their contribution and able to realize their full potential. We have mentoring programs; we support Company-wide groups like Aegon Proud and
Procurement Policy, which sets out environmental, social and governance standards for our suppliers. As part of our approach, we require some of our suppliers to sign a Supplier Sustainability
or interest payments – on their investments. These payments are determined at the moment the bond is issued.
Affordable housing EUR 4.9 billion Financing for affordable housing for families on low incomes in the US1, UK and the Netherlands
Care homes for the elderly EUR 324 million Financing for care homes and assisted living facilities for the elderly in the Netherlands and UK
Community investment We support local communities through donations and volunteer work. This brings us closer to our customers and gives our employees an opportunity to share their knowledge and expertise. In 2018, we donated a total of EUR 9.3 million. Most went to our three focus areas: health, welfare and literacy. Where possible, we align our community investment with our purpose as a company. In the Netherlands, we’re part of a ‘From Debt to Opportunity’ project; this project is working with 7,000 in-debt families across the country.
On May 18, 2018, Vereniging Aegon exercised its options rights to purchase in aggregate 1,489,200 common shares B at fair value
Fund, BlackRock, Inc. and Franklin Resources, Inc. hold a capital or voting interest in Aegon of 3% or more.
December 31, 2018, and has voting rights for 232,925,689 shares, representing 8.7% of the votes as at December 31, 2018.
He was appointed as a member of Aegon’s Executive Board in 2003, overseeing the Company's international growth strategy. In April 2007, Mr. Wynaendts was named Aegon’s Chief
Inc., before joining Barclays Bank as Chief Executive of the Insurance Business in 2004, and HBOS as Managing
He was appointed to Aegon’s Supervisory Board in May 2015, and his current term ends in 2019. He is Chairman of the Supervisory
activities, identifying any matters about which it considers action or improvements are needed, and making recommendations as to the steps to be taken. For more information about the functioning of the Audit Committee, please see the Audit
Head of Internal Audit;  Reviewed the internal control framework, among others with respect to the Sarbanes Oxley Act; and  Discussed the internal control statement with the
In 2017, the Supervisory Board adopted a diversity policy for the Executive, Management and Supervisory Board.
The Supervisory Board is aware that the current composition of the Executive and Supervisory Board does not meet the
Each of these fees is a fixed amount. Members of Aegon’s Supervisory Board do not receive any performance or equity-related compensation, and do not accrue pension rights with the Company. These measures are designed to ensure the independence of Supervisory
Conditional variable compensation 2018 In 2018, Mr. Wynaendts and Mr. Rider both had an (at target)
Mr. Rider;  Up to 100% of their annual fixed compensation if the results of the performance indicators exceeded their target levels.
EUR 459,000 and 84,921 shares for Mr. Rider;  If at an aggregated level the threshold target was not reached, no variable compensation related to 2018 would be made available.
The results of the financial and non-financial Group performance indicators led to a performance score of 54.8%
• 97% of employees completed mandatory Code of Conduct training (down from 99% the previous year).
• Percentage compliance with terms of Aegon’s Global Information Security Policy
It prescribes a mandatory set of conditions for how Aegon employees should conduct business, comply with all applicable laws and regulations, and exercise sound judgment in reaching ethical business decisions in the long-term interests of our stakeholders.
In addition, as of January 1, 2019, amendments to the Solvency II
systemic impact from its distress or failure, will continue to be overseen by the IAIS and reported to the FSB.
EIOPA activities on systemic risk in the insurance sector During the last few years, EIOPA has published a series of reports on systemic risk in the insurance sector. Thus far, these report have not led to concrete regulatory changes, but might have an impact on the further development of the regulatory framework for insurance companies in Europe, in particular the Solvency II framework and potentially the development of specific regulatory tools, aimed at systemic risk in the insurance sector, as well as EU wide regulatory initiatives respect of recovery and resolution of insurance and reinsurance companies, which is currently still developed at national level by EU member states. International Capital Standards (ICS).
Aegon is evaluating the impact of IBOR transitions on the business model and operating model of our reporting units.
Occupational Pensions Authority (EIOPA). The Solvency II capital ratios of the Group and Aegon the Netherlands do not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past, as the potential liability cannot be reliably quantified at this point.
risk-based capital requirement. As of January 1, 2016, under the Solvency II requirements, the activities of Aegon Americas life insurance and reinsurance companies have been consolidated into the Aegon Group Solvency II figures through Deduction &
Aegon United Kingdom 145% – 185% Solvency II Capital Ratio 1 Capitalization target ranges follow the revised capital management policy as of the second quarter of 2017
These ranges are both in excess of the minimum regulatory requirements contained in the applicable regulations, and in excess of the minimum requirements stated in the table above.
How we safeguard long-term value creation Capital and liquidity management82 83
reserves) and universal life insurance with secondary guarantees (subject to Regulation AXXX reserves) to support lower-risk statutory reserves at a lower cost for policyholders and shareholders;  Managing and segregating risks; and  Monetizing embedded value.
Americas The investment choices of Aegon USA's companies are subject to regulation dependent upon the laws of the applicable state in which each such company is domiciled. Each state prescribes the nature, quality and percentage of various types of investments that may be made by the companies. Such laws generally permit investments in government bonds, corporate debt, preferred and common stock, real estate and mortgage loans, while limiting investment in other classes of investments.
External reinsurance counterparties are in general major global reinsurers (approximately 60% of reinsurance premium) with more local reinsurers ensuring a balance between regional and global considerations. The key way in which reinsurance is used and the role that it plays by region is as follows: Corporate Center and Blue Square Re Global coordination takes place through Aegon Corporate
Reinsurance Use Committee (GRUC) is a global body that shares and discusses updates and matters of interest among local and global reinsurance managers. The GRUC also oversees
Aegon performs an emerging risk process and a materiality assessment. These processes are meant to ensure ongoing appropriateness of the risk universe, to ensure completeness of Aegon’s risk assessment and to provide input for ongoing strategy development.
Other charges at the Holdings amounted to EUR 57 million in 2018 and were driven by IFRS 9/17 implementation expenses for the Group.
States. Aegon’s shareholders’ equity, excluding revaluation reserves, amounted to EUR 16.2 billion on December 31, 2018, or EUR 7.86 per common share.
Aegon’s capital position. Gains on interest rate swaps were the main driver of the EUR 24 million fair value gains in 2017 at the holding.
Other charges Other charges amounted to EUR 68 million in 2017. The book gains on the divestments of UMG (EUR 208 million) and the majority of the run-off businesses in the Americas
Income tax Income tax amounted to a charge of EUR 76 million in 2017, and included a EUR 554 million one-time benefit from US tax reform driven by a reduction in net deferred tax liabilities. As a result of this benefit and the tax exempt gain on the sale of UMG, the effective tax rate on total income for 2017 amounted to 3%. The effective tax rate on underlying earnings before tax amounted to 27%.
Dividends from and capital contributions to business units Aegon’s business units remitted over EUR 1.8 billion to the Group during 2017, including EUR 1.4 billion from the Americas,
 Underlying earnings before tax from Variable Annuities increased by 15% to USD 469 million in 2018 compared with
Accident and health insurance premiums 2,388 2,440 (2) 2,115 2,204 (4)
USD 393 million in 2016, primarily driven by the benefit of expense savings and increased fee income compared with 2016. This was the result of higher fee revenue from higher asset balances with favorable equity market performance more than offsetting net outflows.
Board which is regarded as Aegon’s chief operating decision maker. For Europe, the underlying businesses are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details will be provided for these operating segments in this section. Management is of the opinion that presenting the information for the entire European area is beneficial to the users of the financial information as it aligns to how Aegon management is looking at the information following convergence in Europe from a regulatory standpoint and financial markets perspective.
Santander. property & casualty insurance and accident & health insurance sales increased compared with 2016 to EUR 53 million in 2017, also as a result of higher sales from the joint ventures with Santander.
compared with 2016 to USD 55 million in 2017.  Underlying earnings before tax from the high net worth businesses in Hong Kong and Singapore increased to USD 67 million in 2017, compared with USD 61 million in 2016. This increase was mainly the result of favorable mortality experience and favorable intangible adjustments related to anticipated investment yields compared with 2016.  Underlying earnings before tax in Aegon Insights increased to USD 10 million in 2017 compared with USD 1 million in 2016 due to an accident & health reserve release, an expense release in Indonesia, and lower operating expenses as a result of discontinuing the outbound telemarketing business.
 In the high net worth businesses in Hong Kong and Singapore, new life sales were down 4% to USD 84 million in 2017, compared with USD 88 million in 2016. This decrease was mainly the result of lower sales of universal life products due to increased competitive environment.
Net income Net income in 2018 increased by 119% compared with 2017 to EUR 105 million. This was partly driven by higher underlying earnings before tax in 2018 compared with 2017. In addition, 2017 included a provision related to the settlement with the SEC
Notes to the consolidated financial statements 1 General information Aegon N.V., incorporated and domiciled in the Netherlands, is a public limited liability company organized under Dutch law and recorded in the Commercial Register of The Hague registered under number 27076669 and with its registered address at Aegonplein 50, 2591
The consolidated financial statements of Aegon N.V. were approved by the Executive Board and by the Supervisory Board on March 21, 2019. The financial statements will be put for adoption to the Annual General Meeting of Shareholders on May 17, 2019.
2.1.1 Adoption of new IFRS-EU accounting standards New standards and amendments to standards become effective at the date specified by IFRS-EU, but may allow companies to opt for an earlier adoption date. In 2018, the following amendments to existing standards issued by the IASB became mandatory, but are not currently relevant or do not significantly impact the financial position or financial statements: Accounting standard/amendment/interpretation IASB effective date Endorsed by EU Impact for Aegon
IFRS 16 Leases, which replaces IAS 17 Leases has been issued by the IASB in January 2016 and endorsed by the European Union in October 2017. It will be mandatorily effective for annual reporting periods beginning on or after January 1, 2019. IFRS 16 introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments, which will replace the current ‘Operating lease obligations’ disclosed under note 48 Commitments and Contingencies. Lease costs will be recognised in the form of depreciation of the right-of-use asset and interest on the lease liability, as oppose to the treatment under IAS 17 where expenses are recognised when occurred in ‘Administration expenses’. From a lessor perspective, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17, only with additional disclosure requirements. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. Aegon has assessed the impacts of IFRS 16 during 2018, and has completed the implementation of the standard.
Aegon performed this analysis at December 31, 2015, and concluded that it meets the requirements for the temporary exception as 94% of its liabilities are connected with insurance activities. As a result, Aegon elected to defer implementation of IFRS 9 until
d. Software and other intangible assets Software and other intangible assets are recognized to the extent that the assets can be identified, are controlled by the Group, are expected to provide future economic benefits and can be measured reliably. The Group does not recognize internally generated intangible assets arising from research or internally generated goodwill, brands, customer lists and similar items.
statement as incurred. Available-for-sale assets are recorded at fair value with unrealized changes in fair value recognized in other comprehensive income. Financial assets that are designated as hedged items are measured in accordance with the requirements for hedge accounting.
All property is initially recognized at cost. Such cost includes the cost of replacing part of the real estate and borrowing cost for longterm construction projects if recognition criteria are met. Subsequently, investments in real estate are measured at fair value with the changes in fair value recognized in the income statement. Real estate held for own use is carried at its revalued amount, which is the fair value at the date of revaluation less subsequent accumulated depreciation and impairment losses. 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.
Cash flow hedges are hedges of the exposure to variability in cash flows that is attributable to a particular risk of a forecasted transaction or a recognized asset or liability and could affect profit or loss. To the extent that the hedge is effective, the change in the fair value of the derivative is recognized in the related revaluation reserve in shareholders’ equity. Any ineffectiveness is recognized directly in the income statement. The amount recorded in shareholders’ equity is released to the income statement to coincide with the hedged transaction, except when the hedged transaction is an acquisition of a non-financial asset or liability. In this case, the amount in shareholders’ equity is included in the initial cost of the asset or liability.
In Aegon the Netherlands, the expense basis makes an allowance for planned future cost savings, which are included in the liability adequacy test.
Moreover, concentration of financial risks are measured in Aegon business planning cycle. As part of business planning, the resilience of Aegon’s business strategy is tested in several extreme event scenarios. In the Adverse Financial scenario, financial markets are stressed without assuming diversification across different market factors. Within the projection certain management actions may be implemented when management deems this necessary.
Credit risk concentrations – Credit rating 2018 2 Government bonds Corporate bonds RMBSs CMBSs
Of the portfolio 1.25% (2017: 0.06%) is in delinquency (defined as 60 days in arrears). In 2018, Aegon Americas recognized
in the sector were overshadowed by the anticipation of monetary policy tightening, political related turmoil and expectations of a less benign macroeconomic climate and resulted in widening of credit spreads.
The fair values of Aegon Americas' available-for-sale (AFS) RMBS instruments were determined as follows: Level II Level III Total 2018 Level II Level III Total 2017
The underlying assets of the asset backed securities have been pooled together and sold in tranches with varying credit ratings.
There are no individual issuers rated below investment grade in the Banking sub-sector which have unrealized losses greater than
Within the Energy sub-sector, Aegon Americas and Aegon the Netherlands hold EUR 3,802 million (December 31, 2017: EUR 4,020 million) of AFS bonds, of which EUR 3,592 million (December 31, 2017: EUR 3,813 million) is held by Aegon Americas and
For Europe, the underlying businesses (the Netherlands, United Kingdom, Central & Eastern Europe, Spain & Portugal) are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details will be provided for these operating segments in this segment note.
Aegon believes that its performance measure underlying earnings before tax provides meaningful information about the underlying results of Aegon’s business, including insight into the financial measures that Aegon’s senior management uses in managing the business. Among other things, Aegon’s senior management is compensated based in part on Aegon’s results against targets using underlying earnings before tax. While many other insurers in Aegon’s peer group present substantially similar performance measures, the performance measures presented in this document may nevertheless differ from the performance measures presented by other insurers.
Change in valuation of liabilities for investment contracts 12 13 (19) (18)
Impairment charges/(reversals) on non- financial assets and receivables 19 15 1 - - 16 1 - - - 36
Impairment charges/(reversals) on non- financial assets and receivables 7 (2) 31 (1) - 29 - - - - 36
In addition, there is a negative impact on Non-life insurance from product exits in the US and currency translation adjustments.
Included in fee and commission income is EUR 215 million of fees on trust and fiduciary activities (2017: EUR 190 million; 2016: EUR 55 million).
Net fair value change on account of policyholder financial assets at fair value through profit or loss (11,326) 20,524 15,121
in the liabilities for insurance contracts following the completion of the Part VII transfer to Rothesay Life. Also EUR 17 million
Long Term Incentive Plans Selected senior employees within Aegon, who have not been classified as ‘Identified Staff’, can be granted the conditional right to receive Aegon shares at the start of a performance year. The grant price for these shares is equal to the volume weighted average price (VWAP) on the Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of a plan year. The actual allocation of these shares to eligible employees depends on Aegon Group performance, the employee’s unit performance and individual performance on predefined financial and non-financial performance indicators and targets, as well as the continued employment of the employee.
Number of shares conditionally granted 2 - - - 6,722,418 - 6,722,418
Furthermore, other charges include a loss of GBP 81 million (EUR 93 million) from the divestment of Aegon Ireland Plc. For more details on the divestment of Aegon Ireland Plc. refer to note 51 Business combinations.
The weighted average applicable statutory tax rate for 2018 is 23.7% (2017: 29.7%; 2016: 35.7%). The decrease in the weighted average applicable statutory tax rate compared to 2017 is mainly due to the high contribution of income before tax in the Netherlands versus income before tax in the United Kingdom and the United States.
base. In the UK, the corporate income tax rate will decrease from 19% to 17% with effect from April 1, 2020. The minor impact of this tax rate change was included in the 2016 change in tax rate/base. In Hungary, the corporate income tax rate decreased from 19%
Income tax related to equity instruments and other Income tax related to equity instruments 33 38 44 44
Interim dividend 2017 The interim dividend 2017 was paid in cash or stock at the election of the shareholder. Approximately 57% of holders of common shares elected to receive the cash dividend. The remaining 43% have opted for stock dividend. The cash dividend amounted to EUR 0.13 per common share, the stock dividend amounted to one new Aegon common share for every 36 common shares held.
Interim dividend 2016 The interim dividend 2016 was paid in cash or stock at the election of the shareholder. Approximately 58% of holders of common shares elected to receive the cash dividend. The remaining 42% have opted for stock dividend. The cash dividend amounted to EUR 0.13 per common share, the stock dividend amounted to one new Aegon common share for every 28 common shares held.
Of the investments in real estate EUR 530 million (2017: EUR 633 million) is held by Aegon Americas and EUR 2,150 million (2017: EUR 1,494 million) is held by Aegon the Netherlands.
For the year ended December 31, 2018, Aegon recognized EUR 2 million of hedge ineffectiveness on cash flow hedges (2017: EUR 0 million; 2016: EUR 5 million gain). In 2018, EUR 62 million loss was reclassified from equity into investment income (2017: EUR 113 million loss, 2016: EUR 37 million loss). The amount of deferred gains or losses to be reclassified from equity into net income during the next 12 months is expected to be EUR 9 million gain.
At December 31, 2018, the remaining average amortization period was 4 years (2017: 4 years).
(2017: 15,345,680) own common shares B with a par value of EUR 0.12 each.
Non-cumulative subordinated notes Total 1 Share options and incentive plans include the shares and options granted to personnel which are not yet vested.
These notes were recognized as compound financial instruments and separated into an equity component and a liability component.
Non-life insurance - Unearned premiums and unexpired risks 5,341 5,447 - Incurred but not reported claims 820 830
EUR 500 million Senior Unsecured Notes 1.00% December 8 2016/23 496 495
EUR 500 million Conditional Pass-Through Covered Bond 1, 9 0.375% Annual 2017/24 497 497
Present value of wholly or partly funded obligations 4,027 - 4,027 4,389 - 4,389
of contributions were paid into the scheme. The 2017 contributions included a one off payment of EUR 34 million in addition to the schedule of contributions.
100 basis points decrease in discount rate 313 412 100 basis points increase in price inflation 119 169 100 basis points decrease in price inflation (192) (248)
Aegon did not recognize deferred corporate income tax assets in respect of deductible temporary differences relating to Financial assets and Other items for the amount of gross EUR 40 million; tax EUR 8 million (2017: gross EUR 43 million; tax EUR 8 million).
All financial agreements are periodically monitored to assess the likelihood of a breach of any financial covenant and the likelihood thereof in the near future. No breach of any such covenant occurred during 2018.
Liabilities carried at fair value Investment contracts 1 Includes impairments and movements related to fair value hedges, Gains and losses are recorded in the line item Results from financial transactions of the income statement.
EUR 151 million (2017: EUR 588 million). Since the transfer, all such assets have been valued using valuation models incorporating significant non market-observable inputs or uncorroborated broker quotes.
Other loans – held at amortized cost 2,164 6 1,991 166 2,164
The objective for such reviews is to demonstrate that Aegon can corroborate detailed information such as assumptions, inputs and methodologies used in pricing individual securities against documented pricing methodologies. Only third-party pricing services and brokers with a substantial presence in the market and with appropriate experience and expertise are used.
Guaranteed minimum withdrawal benefits (GMWB) in the United States and United Kingdom which are offered on some variable annuity products and are also assumed from a ceding company; minimum investment return guarantees on insurance products offered in the Netherlands, including group pension and traditional products; variable annuities sold in Europe. Additionally, Aegon offers guarantees on variable annuities sold through its joint venture in Japan.
Forward Rate of 4.25% from the last liquid point. The uniform last liquid point for all Aegon’s major currencies (EUR, USD and GBP)
The expected returns are based on risk-free rates, such as the current London Interbank Offered Rate (LIBOR) swap rates and associated forward rates, the Overnight Index Swap (OIS) curve or the current rates on local government bonds. Market volatility assumptions for each underlying index are based on observed market implied volatility data and/or observed market performance.
On September 10, 2018, Aegon completed the acquisition of Robidus, a leading income protection service provider in the Netherlands.
The book gain consisted of a loss on the reinsurance transaction which is more than offset by the reclassification of gains from Other
United Kingdom  Aegon Investment Solutions Ltd., Edinburgh;  Scottish Equitable plc, Edinburgh;  Cofunds Limited, London.
On June 6, 2016 Aegon N.V. repurchased 17,324,960 common shares B from Vereniging Aegon for the amount of EUR 1,968,332, based on 1/40th of the Value Weight Average Price of the common shares of the 5 trading days preceding this transaction.
Mr. Rider has been part of the Executive Board. The conditional variable compensation award of Mr Rider in 2017 was EUR 802 on an annualized basis. 2 Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Conditional variable compensation is disclosed for the period that Mr. Button has been part of the Executive Board and are reflective of his time with Aegon until December 1, 2016. Amounts are based on USD, converted to EUR, based on annual average exchange rates. Expenses recognized under IFRS-EU accounting treatment in the income statement for Mr. Button for 2016 amount to EUR 1,237.
Differences due to the effect of: Non deductible expenses (5) (11)
For further information on the non-cumulative subordinated notes and their subordination refer to note 14 Other equity instruments.
18 Commitments and contingencies Aegon N.V. has guaranteed and is severally liable for the following:  Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation and Commonwealth General Corporation.
The consolidated financial statements comprise:  the consolidated statement of financial position as at December 31, 2018;  the following statements for 2018: the consolidated income statement, consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated cash flow statement; and  the notes to the consolidated financial statements, comprising the significant accounting policies and other explanatory information.
(2017: EUR 4 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
We analysed the extensive reports received from the component auditors and performed regular site visits to attend closing meetings and/or meet local management. The group engagement team visited the United States for Americas, the Netherlands for the operating segments Netherlands and Asset Management, United Kingdom, Hungary for Central & Eastern Europe, Spain for Spain & Portugal and
Compared to 2017, the outsourcing strategy is a key audit matter introduced per 2018 as a result of the significance of its impact during 2018. The US Tax Reform was a key audit matter specific to 2017 as a result of the significance of its impact during 2017 but does not affect 2018 in a similar manner and is therefore no longer a key audit matter in 2018. We combined the key audit matter relating to the valuation of insurance contracts and insurance contracts for account of policyholders with the key audit matter relating to the valuation of deferred policy acquisition costs and value of business acquired as these matters and our audit work performed are closely related. The key audit matters are related to the nature of the Company and are therefore expected to occur year over year.
Our audit work and observations Our audit focused on the application of complex valuation models and the judgments applied in the assumption setting process.
(2017: 83%) of the Group’s total assets. The majority of the portfolio consists of more traditional investments with a straightforward valuation. The areas that involved significant audit effort and judgment were the valuation of instruments that are valued based on models and assumptions that are not observable by third parties and/or for which valuation is in some instances provided by external experts or data vendors. These investments are generally considered model-based level II and level III as included in Note 47 ‘Fair value’. Those investments have a higher potential risk to be affected by error or management bias. Therefore, these areas are considered a key audit matter. Our focus considered both the positions that are presented at fair value on the balance sheet and those positions carried at amortized cost on the balance but for which fair value is required to be disclosed. The risk was not uniform for all investment types and industries and is considered higher for financial instruments traded in the absence of an active market as the fair value of those instruments is estimated by using other market observable data, such as corroborated external quotes and present value or other valuation techniques using unobservable data.
Our audit work and observations We gained an understanding of the outsourced services covered by the activities at the third-party. We updated our understanding of how the Group uses the services of the third-party in the Group’s operations, including the nature of the relationship between the Group and the third-party, the relevant contractual terms for the activities undertaken by the third-party, the nature and materiality of the outsourced services that affected the financial reporting processes, the nature of the outsourced services and the significance of these services to the Group.
by the Supervisory Board for the years 2017 and 2018 following the passing of a resolution by the shareholders at the annual meeting held on 19 May 2017 representing a total period of uninterrupted engagement appointment of 5 years.
Materiality affects the nature, timing and extent of our audit procedures and the evaluation of the effect of identified misstatements on our opinion.
Schedule I Summary of investments other than investments in related parties
Other investments at fair value through profit or loss 2,325 3,002 3,002
Annuity and investment products are also offered through institutions, including large broker-dealer research and advisory platforms, and large registered investment advisers. Together these comprise the Individual solutions segment.
Advice Center Aegon USA distributes directly to customers through the Transamerica Advice Center. The Advice Center provides advice, guidance and education to retirement plan participants, building loyalty and strengthening Transamerica’s relationships with these customers. With
In the institutional segment of the defined contribution market, Aegon USA's main competitors are Fidelity, TIAA, Empower, Prudential
On April 18, 2018, the SEC issued a proposal to create a best interest standard of conduct applicable to broker-dealers and associated persons. Broker-dealers are currently required to make suitable recommendations, while investment advisors are regulated as fiduciaries, and thus required to put customer interests above their own. The SEC’s proposed Regulation Best Interest (the ‘SEC
Aegon Bank uses the direct channel primarily for savings, whereas Aegon Schadeverzekering uses an online channel and independent brokers to sell its products. Aegon’s online bank, Knab, helps its customers to make smart decisions by providing them with a clear overview of their finances, and advises them pro-actively on products and services that can help them achieve their financial goals, such as through giving mortgage advice and offering a range of insurance solutions.
For the majority of company and industry customers, Aegon the Netherlands provides a full range of pension products and services.
CAPPITAL offers the same plans for large companies. Aegon PPI and Cappital will merge to form Aegon Cappital, the largest premium pension institution in the Netherlands. Formal decision-making is in progress, with completion expected in the second half of 2019.
The defined contribution (PPI) market is set to grow significantly due to the shift from defined benefit plans to defined contribution plans and the demand for transparent and cost-effective pension products. As a result, significant economies of scale will be required to effectively serve this market, and the number of providers is expected to shrink within a few years. Aegon the Netherlands has identified this market as an opportunity for growth and intends to invest in maintaining its leadership position.
Aegon Schadeverzekering N.V. conducts non-life insurance activities. Prudential supervision is exercised by the home state supervisory authority (DNB in the Netherlands). Insurance companies in the Netherlands may conduct their activities on a cross-border basis or through a branch office based on the mutual recognition of (prudential) supervision in the EU (the so-called 'European passport').
Aegon the Netherlands does not have material cross-border insurance business or business conducted through branch offices elsewhere in the EU.
Workplace channel Aegon is building and diversifying its workplace distribution capability to cover a range of intermediaries from Independent Financial
Union, either directly or through a branch. Separate licenses are required for each branch of the insurance company where it conducts business. The regulatory body that issued the license (the PRA in the UK) is responsible for monitoring the solvency of the insurer.
Financial Supervision (ASF). The mandatory pension system is subject to the Privately Administered Pension Funds Act (411/2004)
On December 21, 2018, Aegon Spain and Banco Santander signed an agreement to further expand its partnership in Portugal.
Competition The Spanish insurance market is highly competitive. For Aegon Spain's traditional life, unit-linked variable life and pension products, the major competitors are retail bank-owned insurance companies. The life market is dominated by Grupo VidaCaixa, with a 28% market share, and Zurich, with a 9% market share, followed by Mapfre, with a 8% market share. Aegon Spain's market share is less than 1%.
In India, Aegon Life now distributes its products predominantly via its e-sales channels, utilizing its own website and e-commerce partners, as well as its own direct sales force.
In Japan, Aegon Sony Life offers variable annuities in JPY, USD and AUD. These products typically provide a guaranteed minimum death benefit, together with a lifetime withdrawal benefit and an accumulation benefit with or without a minimum guarantee.
insurers such as AIA, Great Eastern Life, Singapore Life, Generali, AXA, and FWD, are however increasingly developing very competitive offerings for the same market segment.
The IRDAI is active in introducing new regulations that focus on protecting policyholders' interests and exploring avenues to support growth in the industry. Steps initiated by the IRDAI during 2018 included the issuance of regulations with regards to Insurance brokers and corporate governance guidelines on key managerial persons. IRDAI has also issued 'circulars' that provide additional information about Insurance repositories and electronic issuance of insurance policies, point of sale guidelines, transfer of unclaimed amount by policyholders to senior citizen fund and a roadmap towards risk based supervision of insurance sector.
Overview – Aegon Asset Management  Aegon Asset Management  Aegon Asset Management  Aegon Asset Management
The majority of third-party business sourced through affiliates consists of funds sold by Aegon insurers through which the policyholder's return is determined by the investment return of the fund. These funds have various legal structures, and are usually managed against a benchmark or peer group target. The main asset classes include fixed income, equities, real estate, mortgage loans and alternatives. In the United States and the United Kingdom, a significant element of Affiliate Sales is conducted on an open architecture basis, where Aegon Asset Management competes with external fund managers.
Interest rate volatility or sustained low interest rate levels may adversely affect Aegon’s profitability and shareholders’ equity.
IFRS and Solvency II reporting, prove to be sufficient. If actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, Aegon’s income would be reduced. Furthermore, if less favorable claims experience became sustained,
The sensitivity of Aegon’s net income and shareholders’ equity to changes in various underwriting risks is provided in the notes to the consolidated financial statements, note 36 “Insurance contracts” of Aegon’s Annual Report 2018.
(Models) or information or data supplied by third parties (Data) for the management of, or to assist in the management of, investment products offered to clients. Examples of such investment products include volatility controlled funds, mutual funds, separately managed accounts, and other types of advisory accounts. Models and Data are used to construct sets of transactions and investments, to provide risk management insights, and may be used to assist in hedging investments. If Models and Data prove to be incorrect or incomplete, any decisions made, in whole or part, in reliance thereon expose the investment product to additional risks. For example, by utilizing Models or Data, certain investments may be bought at prices that are too high, certain other investments may be sold at prices that are too low, or favorable opportunities may be missed altogether. Similarly, any hedging based on faulty Models and Data may prove to be unsuccessful. The applicable investment product bears the risk that Models or Data used will not be successful and the product may not achieve its investment objective.
may incorporate higher capital thresholds into their quantitative analyses, thus requiring additional capital for Aegon’s regulated subsidiaries in order for Aegon Group and/or its regulated subsidiaries to maintain their desired credit ratings.
Regulatory changes include or may include capital standards and prudential standards for non-bank companies deemed to be systemically important financial institutions (SIFIs) that are more stringent than the standards applicable to non-SIFIs. While as indicated above, Aegon was designated in 2015 by the FSB as a G-SII, Aegon has not been designated a SIFI in the United States.
Recovery and Resolution Directive also contains provisions that, in certain specific circumstances, where both Aegon Bank N.V. and
Insurance companies and their affiliated regulated entities are also routinely subject to litigation, investigation and governmental review concerning product fees and costs, including transparency and adequacy of disclosure of initial costs, ongoing costs, and costs due on policy surrender as well as changes to costs over time. Disputes and investigations initiated by governmental entities and private parties may lead to orders or settlements including payments or changes to business practices even if Aegon believes the underlying claims are without merit. Several US insurers, including Aegon subsidiaries, have also been named in class actions as well as individual litigation relating to increases in monthly deduction rates (''MDR'') on universal life products. Plaintiffs generally allege that the increases were made to recoup past losses rather than to cover the future costs of providing insurance coverage. In one such class action against Aegon’s subsidiary pending in the US federal district court for the Central District of California, the parties agreed to settle the case. In January 2019, a court approved the aforementioned settlement. While less than 1% of policyholders opted out, they represent approximately 43% of the value of the settlement fund. In the first individual case against Aegon’s subsidiary to reach trial (in 2017), a jury found that the increase was improper.
Changes in accounting standards may affect Aegon’s reported results, shareholders´ equity and dividend.
Aegon may not be successful in managing its exposure to climate risk and adequately adapting investment portfolios for the transition to a low-carbon economy
For the purposes of this section, a 'US holder' is a beneficial owner of common shares that is, for US Federal income tax purposes:  A citizen or individual resident of the United States;  A corporation created or organized in or under the laws of the United States or any state of the United States (including the District of Columbia);  An estate, the income of which is subject to US Federal income taxation regardless of its source; or  A trust, if a court within the United States is able to exercise primary supervision over its administration and one or more US persons have the authority to control all of the substantial decisions of such trust.
Other non-financial information Other non-financial information Other non-financial data Other non-financial data Other non-financial data Other non-financial data
Total shareholder return (19.0%) 7.0% (26 pp) 7.0% 1 Does not include impact of share buy-backs. Aegon’s final dividend for 2018 is subject to approval by the Company’s General Meeting of Shareholders, due to take place in May 2019. Figures include both interim and final dividends for each year. Calculation reflects IFRS accounting of inventory effects of share repurchases relating dividends paid in stock.
Community investment as % of net income 1.4% 0.4% 1 pp 1.5% 203-1
Number of new customers ● ● ● ● ● ● ● NA
Claims, benefits and plan withdrawals ● ● ● ● ● ● ● NA
Basis of preparation • Description of materiality approach to defining content
102-26 Role of highest governance body in setting purpose, values and strategy
102-44 Key topics and concerns raised Page 16 (Engagement/Dilemmas - Stakeholder engagement)
Material topics: • Reputation & trust Strategy: clean energy and sustainable real estate
Page 21 (Our strategy) Page 20 (Climate change) Page 36 (Wider community)
development, performance, position and impact of its activity relating to, as a minimum, environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters”.
Note: For information on Aegon’s broader approach, see also Diversity and Inclusion (page 32 and 67)
Contribution to target 13.2 • Support for Dutch national climate agreement, working to reduce carbon emissions
Quality education Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all
Fungibility & Transferability is the ability to up-stream and transfer capital between jurisdictions. This ability differs between jurisdictions as it depends on the legal framework of each jurisdiction.
It includes agent's commissions, underwriting expenses, medical and credit report fees, marketing expenses and all other direct and indirect expenses of the departments involved in such activities.