Americas AEGON companies in the United States can trace their roots back to the mid-nineteenth century. Today, AEGON has businesses across the United States, as well as in Canada and Mexico. Transamerica is one of the best known names in the US
by expanding into new markets that offer prospects for sustainable, profitable growth.
AEGON is well positioned to take advantage of new opportunities opening up in the industry.
The vast majority of AEGON’s shareholders are located either in North America or Europe. Approximately 86% of the company’s common shares are held by institutional investors. These investors include Vereniging AEGON, the company’s single largest shareholder, with 22.9% of
At the end of 2008, AEGON’s core capital stood at EUR 9.1 billion –
Business and economic conditions also worsened, leading to a decline in sales of certain products.
Generally, AEGON offers non-life insurance cover only when it serves the company’s distribution objectives to do so. The company offers some limited general insurance in the
in 2008 to USD 604 million. This was a reflection primarily of a rise in sales of fixed annuity products. The company’s internal rate of return for the year amounted to 12.4%, down from 13.0% in 2007 and well above
More than three quarters of AEGON’s unit-linked insurance customers had already benefited from these improvements. In all, AEGON The Netherlands estimates the total cost of these reductions and improvements at approximately EUR 520 million.
IFRS for entities within the EU, as well as local regulatory solvency measurements for non-EU entities.
Securities 1, as well as other equity reserves. The other equity securities accounted for EUR 4,645 million at the end of 2008. AEGON has full discretion to defer the coupons on the Junior perpetual Capital Securities. Group equity was EUR 13,760 million at December 31, 2008
insurance financial strength ratings and ratings outlook of the Group’s primary life insurance companies in AEGON’s major country units are shown in the following table: Ratings As of March 2009
Furthermore, natural disasters, terrorism and fires could disrupt AEGON’s operations and result in significant loss of property, key personnel and information.
Details of AEGON’s corporate governance structure as well as a summary of the company’s compliance with the Dutch Corporate
Chief Risk Officer and occasionally the Group Treasurer and AEGON USA’s Chief Investment Officer. The Risk
During its meetings in 2008, the Risk Committee prepared and agreed its Risk Committee Charter, and discussed the risk governance structure, risk tolerance and risk level policies and compliance, as well as operational risk management. Furthermore, the
Kornelis J. Storm. Mr. Storm is not regarded as independent within the definition of the Code since he served as Chairman of AEGON’s Executive Board prior to his retirement in April 2002. Mr. Storm joined the
Robert J. Routs, Dirk P.M. Verbeek and Ben van der Veer
In January 2009, AEGON announced that Mr. Streppel would be retiring after more than ten years as AEGON’s Chief
Chairman of the Belgian and Dutch operations of Ernst & Young, as
qualified members for its Executive Board; To provide competitive, performance-related ��
of their variable compensation if AEGON matches the pre-set performance targets; If AEGON’s performance exceeds the targets, however, ��
compensation may be adjusted, but only to a level between 75% and 125% of the originally calculated entitlement 1.
Jan J. Nooitgedagt has been nominated as Mr. Streppel’s successor. Mr. Nooitgedagt’s appointment to the
Table 1 - Fixed compensation executive board member Amounts in EUR 2008 2007 % change
AEGON also solicits proxies from New York Registry shareholders in line with common practice in the
and the Dutch State agreed, however, that these more favorable severance payment arrangements would be waived. As a result, AEGON is currently in compliance with this Code provision.
These causes include: The acquisition by a third party of an interest in ��
Vereniging AEGON retains its full voting rights on the preferred shares for a period limited to six months.
New shares may be issued up to the maximum of the company’s authorized capital pursuant to a resolution of the General Meeting of Shareholders. Shares may also be issued following a resolution by the Executive
In its approach to sustainability and corporate responsibility, AEGON places great importance on local knowledge and local decision-making. Country and business units are encouraged to focus on issues specific to their local situations. AEGON does, however, set out a number of basic principles, which apply to all country and business units. This approach ensures that these common principles become an integral part of AEGON’s business activities, wherever those activities are located.
timely and transparent information so that investors, customers and other stakeholders can make the right financial decisions for themselves and their families.
Note 51 Securities lending and repurchase activities and assets accepted and pledged as collateral 209
Basic earnings per share (EUR per share) 1 45 (0.92) 1.47 1.87
Movements in foreign currency translation and net foreign investment hedging reserves – – – (170) – – (170) – (170)
Consolidated and separate financial statements (Revised) 1; IFRS 8 Operating segments; ��
The IASB issued IFRS 8 as part of the convergence project with the US Financial Accounting Standards Board. This new standard replaces IAS 14 Segment reporting and adopts a management approach to segment reporting as required in
Group’s operations: Amendments to IAS 32 and IAS 1 Puttable financial ��
VOBA is adjusted to equal the effect that the realization of the gains or losses would have had on VOBA. The adjustment is recognized directly in shareholders’ equity. VOBA is derecognized when the related contracts are settled or disposed of.
The amortized cost of a debt instrument is the amount at which it is measured at initial recognition minus principal repayments, plus or minus the cumulative amortization of any difference between the initial amount and the maturity amount, and minus any reduction for impairment. The effective interest rate method is a method of calculating the amortized cost and of allocating the interest income or expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the debt instrument or, when appropriate, a shorter period to the net carrying amount of the instrument.
Interests held by the Group in venture capital entities, mutual funds and investment funds that are managed on a fair value basis, are also accounted for as investments held at fair value through profit or loss.
For debt instruments classified as available-for-sale, the asset is impaired to its fair value. Any unrealized gain or loss previously recognized in shareholders’ equity is taken to the in the income statement in the impairment loss. After impairment the interest accretion on debt instruments that are classified as available-forsale is based on the rate of return that would be required by the market for similar rated instruments at the date of impairment.
Group after deducting all of its liabilities and the Group has an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation. In addition to common shares and preferred shares, the Group has issued perpetual securities and convertible core capital securities. Perpetual securities have no final maturity date, repayment is at the discretion of AEGON and for junior perpetual capital securities
Group. They are deducted from shareholders’ equity, regardless of the objective of the transaction. No gain or loss is recognized in the income statement on the purchase, sale, issue or cancellation of the instruments. If sold, the difference between the carrying amount and the proceeds is reflected in retained earnings. The consideration paid or received is recognized directly in shareholders’ equity. All treasury shares are eliminated in the calculation of earnings per share and dividend per common share.
Arrangements that do not take the form of a lease but convey a right to use an asset in return for a payment are assessed at inception to determine whether they are, or contain, a lease.
States, Canada and some of the smaller country units, is the annual long-term growth rate of the underlying assets. As equity markets do not move in a systematic manner, assumptions as to the long-term growth rate are made after considering the effects of short-term variances from the longterm assumptions (a reversion to the mean assumption). The reconsideration of this assumption may affect the original
Where quoted market prices are not available, other valuation techniques, such as option pricing or stochastic modeling, are applied. The valuation techniques incorporate all factors that market participants would consider and are based on observable market data when available. All models are validated before they are used and calibrated to ensure that outputs reflect actual experience and comparable market prices.
Factors included in the analysis depend upon the type of collateral but for subprime mortgages they include delinquencies, prepayment assumptions, the percentage of borrowers with mortgage insurance, the percentage of borrowers in states more at risk for declining home values
As an insurance company, AEGON is in the ‘business of risk’
In addition, this integrated framework facilitates the sharing of best practices and the latest research on methodologies. The risk management functions are applied locally and are tied to the speed of business, while corporate oversight remains independent of the business activity providing oversight and peer review.
Each sensitivity analysis reflects the extent to which the shock tested would affect management’s critical accounting estimates and judgment in applying AEGON’s accounting policies 1. Marketconsistent assumptions underlying the measurement of nonlisted assets and liabilities are adjusted to reflect the shock tested. The shock may also affect the measurement of assets and liabilities based on assumptions that are not observable in the market. For example, a shock in interest rates may lead to changes in the amortization schedule of deferred policy acquisition costs or to increased impairment losses on equity investments. Although management’s short-term assumptions may change if there is a reasonable change in a risk factor, long-term assumptions will generally not be revised unless there is evidence that the movement is permanent. This fact is reflected in the sensitivity analyses provided below.
AEGON has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US
The sensitivity analysis in the table below shows an estimate of the effect of a parallel shift in the risk free yield curves on net income and equity. Increases in interest rates have a negative effect on IFRS equity and net income in the current year because it results in unrealized losses on investments that are carried at fair value. The offsetting economic gain on the insurance and investment contracts is however not fully reflected in the sensitivities because many of these liabilities are not measured at fair value. Over time, the short-term reduction in net income due to rising interest rates would be offset by higher net income in later years, all else being equal.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 4
(2007: EUR 1,846 million). Of the EUR 2,255 million assets held-to-maturity, EUR 1,881 million are government bonds
Where credit events may be impacting the unrealized losses, cash flows are modeled using effective interest rates. AEGON
Bank of America Credit Card Trust. This is a master trust made up of several deals with all of AEGON's holdings carrying investment grade ratings. AEGON owns EUR 697 million of securities under the Bank of America Credit Card Trust name with an unrealized loss of EUR 304 million. The unrealized loss in the ABS credit card sector, including the Bank of America
AEGON holds EUR 8,367 million (2007: EUR 11,732 million) of bonds issued by banks. The unrealized loss on these bonds amount to EUR 2,355 million (2007: EUR 546 million). The capital bases of banks and other financial firms have been strained as they are forced to retain assets on their balance sheets that had previously been securitized and to write down certain mortgage-related and corporate credit-related assets.
About EUR 2.6 billion of the bonds in AEGON USA’s portfolio are wrapped by monoline insurers (2007: EUR 2.8 billion), of which
EUR 792 million of bonds (2007: EUR 800 million) in the
Interest charges and other – – – – 95 18 113
Other non–operating income / (charges) – – 90 – – (4) 86
The reconciliation of this measure to the Income before tax is shown below. AEGON believes that Operating 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.
Realized gains and losses on repurchased debt 36 – – (12)
Results from financial transactions exclude certain results on financial transactions (refer note 2.5). 1
Revenue from transactions between reporting segments were not material during the financial period, with the exception of the interest income on intercompany loans issued by a holding company in the Holdings and other activities segment amounting to EUR 645 million (2007: EUR 839 million and 2006: EUR 845 million) and transactions related to internal reinsurance business amounting to EUR 316 million
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 5
Hungary, Turkey and Poland, will be finalized when the purchase accounting is complete.
The program is designed to purchase asset positions that are already subject to review by management, but may not be available under the same terms and conditions in the cash bond market. AEGON holds financial derivatives for trading purposes.
EUR 11 million and EUR 5 million respectively. No portion of derivatives was excluded when assessing hedge effectiveness.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 10
On December 1, 2008, AEGON’s core capital was increased through a transaction with the State of the Netherlands in view of the ongoing uncertainty regarding the financial and economic environment during the year. Via Vereniging
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 19 - 20
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON GROUP | NOTE 21 - 23
AEGON’s credit spread had a positive impact of EUR 225 million on income before tax and EUR 156 million on shareholders’ equity.
Year that the rate reaches the rate that it is assumed to remain at 2013 2013
Target allocation of plan assets for retirement benefit plans for the next annual period is: Equity instruments 50% 67%
Net fair value change on for account of policyholder financial assets at fair value through profit or loss (27,490) 4,380 7,953
Investments for account of policyholders comprise of financial assets and investments in real estate. Refer to note 8 for further information. Financial assets for account of policyholders are classified as at fair value through profit or loss. Investment income on investments for account of policyholders is included in investment income. Refer to note 32 for further information.
impairment charges / (reversals) comprise: 2008 2007 2006 Impairment charges on financial assets, excluding receivables 1 1,115 135 142
Tax effect of profit / losses from associates (2) (1) (2)
The dividend per common share paid in 2008 (final 2007 and interim 2008) and 2007 (final 2006 and interim 2007) was
In the United States and United Kingdom, a guaranteed minimum withdrawal benefit (GMWB) is offered directly on some variable annuity products AEGON issues and is also assumed from a ceding company. Variable annuities allow a customer to provide for the future on a tax-deferred basis and to participate in equity or bond market performance.
Gains and losses recognized in the income statement on financial assets and financial liabilities classified as at fair value through profit or loss can be summarized as follows: note 50 COMMiTMenTs AnD COnTinGenCies inVesTMenTs COnTRACTeD
AEGON has established adequate litigation policies to deal with the claims defending when the claim is without merit and seeking to settle in certain circumstances. This and any other litigation 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.
Non-cash collateral that can be sold or repledged in the absence of default 259 9,648
cash collateral on securities borrowed and derivative transactions and EUR 8 million (2007: EUR 66 million) on reverse repurchase agreements, refer to note 13.2.
EUR 6 million of goodwill and EUR 15 million cash and cash equivalents. The company is accounted for as a joint venture.
The two tables below show the number of shares and options conditionally granted based on LTI plans related to financial years prior to 2008.
of total outstanding share capital at the balance sheet date. At the balance sheet date, the following members of the Executive
Members of the Supervisory Board do not have any share options or share appreciation rights in AEGON N.V. at
Civil Code, and for the preparation of the Report of the
Transactions in foreign currencies are translated to the functional currency using the exchange rates prevailing at the date of the transaction.
Board, is subject to approval of the Supervisory Board and must be resolved by the General Meeting of Shareholders. Moreover, repayment on preferred shares needs approval of the related shareholders. There are restrictions on the amount of funds that companies within the Group may transfer in the form of cash dividends or otherwise to the parent company. These restrictions stem from solvency and legal requirements.
Repurchased and sold own shares – – – – – – (1,438) – (1,438)
Total net income / (loss) – – – – – 2,551 – (3,633) (1,082)
Changes in equity from relation with shareholders (7) (5) – – – (2,512) 1,328 – (1,196)
USD 500 million floating CMS rate 3 Quarterly, July 15 2014 402 402
Coupon rate Coupon date Year of first call 2008 2007Perpetual cumulative subordinated bonds
The repayment periods of borrowings vary from within one year up to a maximum of 23 years. The interest rates vary from 4.125 to 9.000% per annum.
The decline in world financial markets and its effects on the
exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments.
Past service cost is the increase in the present value of the defined benefit obligation for employee service in prior periods, resulting in the current period from the introduction of, or changes to, post-employment benefits.
stochastic modeling is a statistical process that uses probability and random variables to predict a range of probable investment performances.