Results of operations 17 �� Worldwide 17 �� Americas 25 �� Netherlands 44 �� United Kingdom 54 �� New Markets 63
(IFRS), as adopted by the European Union, and Part 9 of Book 2 of the Dutch Civil Code.
‘the Company’, and is together with its member companies referred to as ‘Aegon Group’ or ‘the Group’. For such purposes,
EUR 500 billion for the first time in Aegon’s history. These achievements did not mean, however, that the year was without its challenges. Changes to our assumptions and updates to our actuarial models had a negative impact on underlying earnings, as did continued market volatility, and in particular, low interest rates. Yet while these factors had an effect, they did not distract us from continuing to successfully execute our strategy and generate strong financial results.
Aegon’s ambition is to become a leader in its chosen markets, and to this end we focus on four strategic priorities: optimize portfolio; enhance customer loyalty; operational excellence; and empower employees. The effective optimization of Aegon’s portfolio in 2014 resulted in a number of significant positive developments. The extension of our successful relationship with Banco Santander in Spain led to a further distribution agreement with the bank in Portugal. We sold our stake in
La Mondiale Participations in France and announced the sale of Aegon’s Canadian life insurance business, as neither met our strategic objective of becoming a market leader. Later in the year, Aegon’s growing asset management business and
La Banque Postale entered into exclusive talks to form a new asset management strategic alliance in France, and we announced a new joint venture partner, Tsinghua Tongfang, for our life insurance company in China.
something particularly important given the speed at which customer behavior is evolving and the emergence of new entrants in the market.
Preparation for the introduction of Solvency II, which will come into effect on January 1, 2016, was a key priority for 2014.
On behalf of the Management Board, I would like to express my thanks and appreciation to everyone at Aegon for their individual and collective contributions to the results presented in this report. Furthermore, I would also like to express my gratitude and commitment to our many shareholders whose confidence and support enables us to deliver on our promises.
As we look to the future, Aegon is well positioned to take advantage of the many opportunities that exist in the markets in which it operates. While we can expect a number of continued headwinds – such as low interest rates – the withdrawal of governments and employers from providing retirement security means that the underlying demand for the pensions, life insurance and asset management products and services that we offer is only set to rise. By continuing to execute our strategy, we can be confident that we will not only continue to help millions of people across the world secure their financial future, but also deliver excellent value to shareholders.
Canada, joining Aegon in 1999 as Director of Product Development and Risk Management at Aegon USA’s Institutional Markets business unit. He was appointed Corporate Actuary of Aegon
Center. In 2013, Mr. Button was appointed as CFO and member of the Executive Board of Aegon. He is also a member of the
Transfer functions. He joined Aegon’s US institutional business in 2000, where he was Chief Actuary. Prior to joining Aegon, he was a consultant at Tillinghast-Towers Perrin, and an asset liability manager at Manulife Financial.
Marco Keim (1962, Dutch) Chief Executive Officer of Aegon the Netherlands Member of the Management Board Marco Keim began his career with accountants Coopers &
Mr. Keim was appointed CEO. In June 2008, he became CEO
Mark Mullin (1963, American) Chief Executive Officer of Aegon Americas Member of the Management Board Mark Mullin has spent more than 20 years with Aegon in various investment and business management positions in both the
United States and Europe. Mr. Mullin has served as President and
Advisors, and as head of the Company’s annuity and mutual fund businesses. He was named President of Aegon Americas in 2009, and became President and CEO of Aegon Americas and a member of the Management Board the following year.
Aegon’s ambition is to become a leader in all its chosen markets.
Aegon believes that everyone deserves to retire with dignity and peace of mind, and its purpose is to help people take responsibility for their financial future. To achieve this, the
These actions have enabled Aegon to achieve a solid capital position, deal effectively with economic and market volatility, and position its businesses for future growth. At the same time,
Aegon has invested in key areas of growth, such as emerging markets in Central & Eastern Europe, Asia and the Americas, while also restructuring its businesses to achieve greater operational efficiency and deliver a higher level of customer service. Better leveraging the broad expertise that exists within
To support Aegon’s overarching ambition of becoming a leader in all its chosen markets, the Company is implementing four strategic priorities: �� To optimize its portfolio by investing in businesses that offer attractive returns and strong prospects for growth and, if necessary, closing or divesting businesses that do not meet
Aegon’s risk-return requirements, or contribute to its long-term ambitions; �� To enhance customer loyalty by improving customer service, investing in new distribution capabilities, strengthening its brands and expanding the Company’s online presence to connect better and more frequently with its customers; �� To deliver operational excellence by improving efficiency and reducing costs, innovating and making better use of its resources around the world; and �� To empower employees by providing the tools, training and internal culture necessary to better serve the developing needs of Aegon’s customers, while also enabling employees to realize their full potential.
In 2014, Aegon made clear progress toward each of these priorities, helping position the Company’s businesses for the future, and meet the risks and opportunities presented by long-term industry trends.
a personalized retirement platform that informs people about their retirement readiness and options available to them; �� Introducing direct-to-consumer platform Retiready in the UK.
Intelligence Council and invested in technology to improve the analysis of customer data and statistics, providing valuable customer insights.
Using a common measurement for customer loyalty. Aegon has implemented the Net Promoter Score (NPS) throughout its businesses, enabling the continuous implementation of feedback received from customers, brokers and agents.
Offering high-quality products and services recognized by third parties, for example: �� Transamerica Retirement Solutions recognized as a ‘Best in
Insurance Awards. The award recognized Mongeral Aegon’s new digital distribution strategy, which integrates traditional distribution channels with their online store, broker-partners stores, business partners stores and the EuPlanejo360°
Nejlepší banka, Best bank and insurance company 2014 awards in the ‘Best life insurance company 2014’ and
Solutions & Pensions divisions; �� Pursuing value over volume through a strict pricing discipline.
This approach secured profitable, sustainable growth, while ensuring that customer benefits be fully assessed and taken into account through an updated Pricing & Product
Development Policy before any new product or service is introduced; �� Simplifying Aegon’s offering through product rationalization; �� Establishing Aegon’s enterprise IT strategy and the global IT
AsiaNet in Hong Kong (November, 2013) and its rapid expansion to Singapore, Indonesia and Australia in 2014, and by increasing the frequency of ‘Town Hall’ employee meetings; �� Running Leadership Development Centers (e.g. Aegon
people in the workplace and society, in the Netherlands; �� Undertaking the third annual Global Employee Engagement
Survey with updated questions; �� Preparing the implementation of HR information system
Global growth for 2015 is expected to remain stable, with the global economy still facing significant downside risks.
Overall growth in the region reached 2.7% in 2014, and is expected to remain at around this level in 2015.
While growth5 in emerging markets is still higher than in developed markets, it has decreased since 2011, standing at 4.7% in 2014, and is expected to increase slowly in the coming years. As in Europe, growth in emerging markets varies considerably between countries. China was able to sustain high growth (7.4%) in 2014, which is expected to only slow very slightly to 7.1% in 2015. In India, output also continued to increase in 2014, and is expected to rise to over 6.3% in 2015.
In Brazil, economic growth was disappointing, and the economy contracted in the first half of 2014. Overall, its growth for the year stood at only 0.3% in 2014, but is expected to exceed 1.3%
The S&P 500 Index and the DAX in Germany continued to rise6 in 2014, whereas the FTSE 100 declined. Driven by the prospect of a more stimulative monetary policy in the eurozone7, - which was announced by the European Central Bank in January 2015 -, the euro lost ground against the US dollar (-11.1%) and the British pound (-6%). The low interest rate environment continued.
Long-term industry trends The insurance and pensions industry is going through a period of significant change. Aegon, with input from key stakeholders, has identified a number of key trends that will shape the life insurance and pension landscape in the years ahead.
7 Source: Exchange rate data from the European Central Bank. 8 Source: Bond data in this paragraph: Bloomberg.com.
The demands of customers young and old are changing fundamentally: less trust in financial institutions, changing views on retirement, and shifting product and distribution demands, are all changing the way financial institutions operate.
Digitization is driving change Aegon’s competition is shifting to new technologies: competitors and new entrants are experimenting with new value propositions to provide better services to customers, and delivery systems are becoming more agile and efficient.
Traditional distribution models remain important with new channels developing: customers are increasingly focusing on purchasing insurance products online, but will continue to purchase complex life insurance face-to-face.
Regulatory requirements are increasing: a number of governments have implemented sudden changes in policy and are issuing new regulations on solvency, transparency and customer protection.
Aegon’s main operating units are separate legal entities and operate under the laws of their respective countries. The shares of these legal entities are directly or indirectly held by three intermediate holding companies incorporated under Dutch law: Aegon Europe Holding B.V., the holding company for all European activities; Aegon International B.V., which serves as a holding company for the Aegon Group companies of all non-European countries; and Aegon Asset Management Holding B.V., the holding company for some of its asset management entities.
The Company fosters an entrepreneurial spirit within its businesses and encourages the innovation of products and services. New products and services are developed by local business units with a continuous focus on helping people take responsibility for their financial future. Aegon uses a multi-brand, multichannel distribution approach to meet its customers’ needs.
Brazil; the Netherlands; the United Kingdom; and New Markets, which includes a number of countries in Central & Eastern Europe and Asia, in addition to Spain, France, Variable Annuities Europe, and Aegon Asset Management.
Accounting policies that are critical to the presentation of the financial statements and that require complex estimates or significant judgment are described in the notes to the financial statements.
Selected consolidated balance sheet information In million EUR (except per share amount) 2014 2013 1) 2012 1) 2011 1) 2010 1)
(Subordinated) Borrowings and trust pass-through securities 15,049 12,009 13,416 9,377 7,886 1 As described in note 2.1.2 amounts have been retrospectively restated for the voluntary change in accounting policy on deferred policy acquisition costs and the use of prospective mortality tables.
Dividends Aegon declared interim and final dividends on common shares for the years 2010 through 2014 in the amounts set forth in the following table. The 2014 interim dividend amounted to
Aegon’s class A and class B preferred shares was calculated on the basis of the paid-in capital on the preferred shares using a rate equal to the European Central Bank’s fixed interest percentage for basic refinancing transactions plus 1.75%, as determined on Euronext Amsterdam’s first working day of the financial year to which the dividend relates. Apart from this, no other dividend was paid on the preferred shares. This resulted in a rate of 2.75% for the year 2012. Applying this rate to the weighted average paid-in capital of its preferred shares during 2012, the total amount of annual dividends Aegon made in 2013 on its preferred shares for the year 2012 was EUR 59 million.
Aegon’s common shares traded on Euronext Amsterdam and, as a result, are likely to impact the market price of Aegon’s common shares in the United States. Such fluctuations will also affect any US dollar amounts received by holders of common shares upon conversion of any cash dividends paid in euros on
Products with mortality, morbidity and longevity risks, including traditional and universal life, in addition to endowment, term, and whole life insurance products.
Accident and health business, including supplemental health, accidental death and dismemberment insurance, critical illness, cancer treatment, credit/disability, income protection, travel and long-term care insurance.
�� Spain & Portugal Distribution partnerships with Santander in Spain & Portugal and with Liberbank in Spain. Includes life insurance, accident and health, general insurance and investment products.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 10 8 25%
This Annual Report includes the non-IFRS financial measure: underlying earnings before tax. The reconciliation of this measure to the most comparable IFRS measure is presented in the table above as well as in note 5 of the consolidated financial statements. This non-IFRS measure is calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s joint ventures in the Netherlands,
Gross deposits (on and off balance) Amounts in EUR millions 2014 2013 %
Total life insurance gross premiums 6,461 3,982 4,859 2,015 (70) 17,246 (351) 16,896
Growth in variable annuities and pensions was more than offset by the impact of a charge for actuarial assumption changes and model updates, unfavorable mortality in the life business and the impact of lower interest rates. �� In the Netherlands, underlying earnings before tax increased 23% to EUR 558 million in 2014 compared with 2013, primarily generated by mortgage production.
Realized gains on investments Realized gains on investments amounted to EUR 697 million and were primarily related to a rebalancing of the fixed income portfolio in the Netherlands and the United Kingdom, and the divestment of a private equity investment in the Netherlands.
Impairment charges Net impairments improved by EUR 88 million to EUR 34 million in 2014 compared with 2013. In the United States, gross impairments were more than offset by recoveries mostly related to investments in subprime residential mortgage-backed securities.
European direct marketing activities (EUR 36 million), a provision for the implementation of the fee cap on pensions in the
EUR 21 million, mainly driven by a negative impact from model updates of EUR 32 million.
Polish government due to legislative changes. New life sales increased 7% compared with 2013 to EUR 2.0 billion, mostly driven by higher universal life production in the United States and
The gross leverage ratio improved to 28.7% on December 31, 2014 compared to the end of 2013, which was mostly as a result of deleveraging. Excess capital in the holding decreased to EUR 1.2 billion on December 31, 2014 compared to 2013
(EUR 2.2 billion), as dividends from business units were more than offset by the impact of cash used for deleveraging, interest payments and operating expenses.
issued in 2007 and with a principal amount of USD 1,050 million, equal to approximately EUR 780 million. This transaction was largely financed by the issuance of EUR 700 million subordinated notes with a coupon of 4% on April 25.
On October 16, 2014, Aegon announced the sale of its Canadian operations to Wilton Re for CAD 600 million (EUR 423 million).
EUR 350 million, in line with IFRS book value. The proceeds will increase the group’s IGD solvency ratio by approximately 5 percentage points. This transaction was closed on March 3, 2015.
Underlying earnings before tax rose from business growth, deleveraging, the positive effects of favorable equity markets and the net positive impact of one-time items. These positive one-time items were only partly offset by the loss of earnings due to divestments in Spain and Aegon Asset Management and the impact of unfavorable currency exchange rates. �� Underlying earnings before tax in the Americas improved slightly to EUR 1,314 million. Growth in Variable Annuities and Pensions offset the impact of unfavorable currency exchange rates, lower earnings from Fixed Annuities, higher sales and employee related expenses, and additional investments in technology. At constant currencies, underlying earnings increased by 5%.
Central & Eastern Europe due to the introduction of the insurance tax in Hungary and the divestments in Spain and
�� Total holding costs decreased 50% to EUR 113 million, mainly as a result of lower net interest costs following debt redemptions, lower operating expenses and a gain of
EUR 1,294 million. The loss was mainly driven by equity macro hedges (EUR 590 million) and long-term economic assumption changes (EUR 405 million) in the Americas and a loss of
In 2013, to reflect the low interest rate environment, Aegon lowered its long-term assumption for 10-year US Treasury yields by 50 basis points to 4.25% and extended the uniform grading period from 5 years to 10 years. Aegon also changed its assumed returns for US separate account bond fund to 4% over the next 10 years and 6% thereafter from its previous assumptions of 4% over the next 5 years and 6% thereafter. In addition,
Realized gains on investments Realized gains on investments amounted to EUR 500 million and were driven primarily by adjustments to the asset mix in the Netherlands during the second half of the year to bring it in line with the new regulatory yield curve, as well as normal trading activity.
Other charges Other charges amounted to EUR 52 million, which is a 68%
improvement from 2012 and included a charge of EUR 192 million related to a write-off of intangibles related to the Polish pension fund business following a legislation change coming into force in January 2014. In addition, 2013 included a charge of
Run-off businesses The results of run-off businesses improved to EUR 21 million, mainly due to a deferred policy acquisition cost (DPAC) true-up of EUR 11 million in BOLI/COLI (bank/corporate owned life insurance).
The effective tax rate on underlying earnings for 2013 was 21%.
EUR 7.2 billion as higher gross deposits more than offset lower new life sales. Gross deposits increased 12% to EUR 44.3 billion, driven by variable annuities and mutual funds in the United
The combined risk-based capital ratio of Aegon’s life insurance subsidairies in the United States was approximately 440% of the
With Profit fund, was approximately 150% at the end of 2013.
USD 550 million in junior perpetual capital securities with a coupon of 6.875% issued in 2006. The redemption was effective
Eastern Europe. Capital contributions of EUR 0.5 billion were paid to Aegon’s operating units, including EUR 0.4 billion to the United Kingdom.
Accident and health insurance premiums 2,490 2,372 5% 1,874 1,787 5%
Underlying earnings before tax Underlying earnings before tax in 2014 decreased 14% to
�� Underlying earnings before tax from Life & Protection decreased 72% compared to 2013 to USD 199 million as growth from the business was more than offset by the negative impact of assumption changes and model updates
(USD 400 million), unfavorable mortality and the impact of lower interest rates. The actuarial assumption updates were primarily related to updated mortality assumptions for the older ages. The model updates were primarily related to changes to modeled premium persistency.
USD 174 million. Excluding this benefit, underlying earnings before tax were up due to higher fee income from higher account balances. Underlying earnings before tax from mutual funds increased 42% to USD 47 million compared to 2013, primarily driven by higher net inflows and favorable markets. Underlying earnings before tax from fixed annuities was down 20% to USD 172 million compared to 2013 as the product is no longer being actively sold. Furthermore, underlying earnings before tax from fixed annuities was adversely impacted by assumption changes amounting to
Increase is primarily driven by adverse impact from actuarial assumption changes and model refinements recorded in 2013. In Latin America underlying earnings before tax were down to USD 5 million.
Gross deposits increased 12% in 2014 to USD 42.3 billion compared with 2013. Gross deposits in variable annuities, retail mutual funds and retirement plans were all higher in 2014.
Variable annuity gross deposits were up 20% to USD 10.2 billion
compared with 2013, mainly due to continued focus on key distribution partners and distribution expansion through alternative channels. In 2014, retirement plan gross deposits were also higher compared with 2013, driven by plan takeovers and the focus on retirement readiness by growing customer participation and contributions.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 655 1,647 (60%) 493 1,282 (62%)
Company’s use of the U.S. Social Security Administration’s death master-file and restructuring charges of USD 48 million.
Underlying earnings before tax 2013 underlying earnings before tax increased 5% to
Retirement increased 10% to USD 662 million, as higher earnings from variable annuities and mutual funds more than offset lower earnings from fixed annuities. Earnings from variable annuities were up 29% to USD 414 million, primarily driven by higher net inflows and favorable equity markets.
Gross deposits in variable annuities, retail mutual funds and retirement plans were all higher than in 2012. Variable annuities gross deposits were up 59% to USD 8.5 billion in 2013, which was primarily driven by Aegon’s continued focus on key distribution partners. The increase in retirement plan deposits was driven by plan takeover deposits and focusing on retirement readiness by growing customer participation and contributions.
Like other Aegon companies, Aegon USA uses a variety of distribution channels to help customers access its products and services as best suits their needs. Aegon USA has longstanding relations with banks across the United States, and also distributes products and services through agents, broker-dealers,
Aegon Canada On October 16, 2014, Aegon announced that it reached a decision to sell its Canadian operations to Wilton Re, subject to regulatory approval. Based in Toronto, Aegon Canada offered a range of insurance products and financial services, primarily through its Transamerica Life Canada and Canadian Premier Life subsidiaries. As of December 31, 2014, Aegon Canada had approximately 550 employees.
‘Aegon USA’ throughout this document refers to the operating subsidiaries in the United States, through which Aegon USA
US state, in addition to the District of Columbia, Puerto Rico, the Virgin Islands and Guam.
In 2014, Aegon’s subsidiary companies in the United States contained three divisions operating through one or more of the Aegon USA life insurance companies: �� Life & Protection; �� Individual Savings & Retirement; �� Employer Solutions & Pensions.
Aegon USA to manage and improve the efficiency of the organization and operating processes, identify business synergies, and pursue cross-selling opportunities. Coordinated support services complement operations by providing functional support in systems technology, investment management, regulatory compliance, and various corporate functions. Products are also offered and distributed through one or more of Aegon
Aegon USA Aegon USA uses a variety of sales and distribution channels in the United States. These include: �� Affinity groups; �� Banks; �� Benefit consulting firms; �� Direct to consumer; �� Independent and career agents; �� Independent marketing organizations; �� Institutional partners; �� Regional and independent broker-dealers; �� Registered Representatives (RR); �� Third-party administrators (TPAs); �� Wirehouses; and �� Worksite.
In addition, Aegon USA provides a range of online products and services, together with using direct and worksite marketing. In general, Aegon USA companies are focused on particular products or market segments, ranging from lower income to high-net-worth individuals, and from small to large corporations.
Aegon Canada Transamerica Life Canada (TLC) provides life insurance and other protection products to Canadian consumers. By working through a variety of distribution channels, TLC has acquired a national network of thousands of independent advisors. These advisors provide middle market Canadians with individual life insurance and protection products. Canadian Premier offers simplified life, group creditor and accident and sickness coverage. Distribution channels include: �� Agencies owned by Transamerica Life Canada; �� Bank and credit union affinity partners; �� Bank-owned national broker-dealers and mutual fund dealers; �� Independent and career agents; and �� Independent managing general agencies.
Universal life insurance is flexible permanent life insurance that offers the low-cost protection of term life insurance as well as a savings element, which is invested to provide a cash value buildup. The death benefit, savings element and premiums can be reviewed and altered as a policyholder’s circumstances change. A version of this product has ‘secondary guarantees,’
Variable universal life insurance is cash-value life insurance that offers both a death benefit and an investment feature.
which function like mutual funds and can provide exposure to stocks and bonds. This exposure offers the possibility of an increased rate of return over a normal universal life or permanent insurance policy.
IUL offers both market-paced growth potential in the indexed accounts and downside protection. It’s an appealing alternative to regular Universal Life – for which interest is credited at a fixed rate – and Variable Universal Life, in which the cash value is directly exposed to the ups and downs of the market.
Supplemental health insurance products are sold through affinity relationships and licensed agents, and directly to consumers.
Products include accidental death, other injury, critical illness, hospital indemnity, Medicare supplement, Medicare Part D, retiree medical and student health. Specialty insurance lines include travel and creditor (installment, mortgage or guaranteed auto protection) products.
Long-term care (LTC) insurance products provide benefits to policyholders that require care due to a chronic illness or cognitive impairment. LTC insurance serves as an asset protection tool by reimbursing policyholders for costly expenses associated with LTC services, and it may also help a family better manage the financial, health and safety issues that are associated with LTC.
The affinity group markets to members/customers under the endorsement of affinity relationships such as associations, employers, financial institutions, retailers and other sponsor groups. Life, supplemental health and specialty accident products are offered through a variety of direct response marketing channels.
(term life, universal life, variable and indexed universal life and whole life), long-term care and supplemental health products to the middle market. The broker/dealer offers financial products and services that help clients create and protect wealth.
The brokerage group offers life and long-term care insurance products and services through independent brokerage distributors and financial institutions to affluent, emerging affluent and middle income individuals, families and businesses.
The L&P division is active in the worksite market via Transamerica
In addition, TEB offers stop-loss insurance to employers to protect against catastrophic losses under self-funded health plans.
Transamerica Direct is the business unit that directly targets both broad market and strategic segments via multiple channel touch points and the newest technologies, in order to provide new and existing customers with easy access to the insurance, investment and retirement solutions they want.
Through its insurance companies, broker-dealers and investment advisors, Aegon USA offers a wide range of savings and retirement products and services for individual investors, including mutual funds and variable and fixed annuities.
In general, fee income is sensitive to withdrawals and equity market movements.
– depending on which is greater. The guaranteed minimum income benefit feature, which has not been offered on new business since 2003, provides for minimum payments if the policyholder elects to convert to an immediate payout annuity.
The guaranteed amount is calculated using the total deposits made by the policyholder, less any withdrawals, and sometimes includes a roll-up or step-up feature that increases the value of the guarantee with interest or with increases in the account value.
An immediate annuity is purchased with a single lump sum premium payment, and the benefit payments generally begin within a year of purchase. The benefit payment period may be for a fixed period, for as long as the beneficiary is alive, or for a combination of the two. Some immediate annuities and payout options under deferred annuities also offer the owner or beneficiaries the option to surrender the annuity to have access to the account value if needed for unexpected events.
(TCI), the underwriting and wholesaling broker-dealer, distributes variable annuities and mutual funds through major wirehouse firms, regional broker-dealers, and a large bank network.
Transamerica Financial Advisors (TFA) provides a range of financial and investment products, operating as a retail broker-dealer registered with the Financial Industry Regulatory
Transamerica Retirement Solutions is a leading provider of retirement plans in both the institutional market (mid- to large-sized organizations) and the emerging market (small US
investment choices, including bond and equity investment choices, and cash equivalent choices. A fixed account cash vehicle may also be available on most plans. The investment choices are selected by the client or by the client’s financial advisor.
Guaranteed Investment Contracts (GICs) in the United States, primarily to tax-qualified institutional entities such as 401(k)
Transamerica Retirement Solutions’ institutional market clients are generally organizations with 250 to 100,000 employees, and between USD 20 million and USD 2 billion in retirement assets.
For those individual plan participants who are in transition due to losing or changing jobs, or planned retirement, Transamerica
Retirement Solutions provides personal retirement services by telephone through a team of experienced registered representatives and investment advisors. In addition,
Latin America Aegon’s business in Latin America comprises a 50% interest in Mongeral Aegon Seguros e Previdência S.A., a Brazilian independent life insurer, and a 49% interest in Seguros Argos
Akaan-Aegon S.A.P.I. de C.V. to explore financial service opportunities. This organization is in the startup process and will initially focus on third-party asset management.
GICs and FAs are spread-based products issued on a fixed-rate or floating-rate basis. They provide the customer with a guarantee of principal and a specified rate of return. Some spread products were issued by pledging – selling with the intent to repurchase
– or lending investment securities that serve as collateral for these products. Practically all of the liabilities represented by the fixed-rate contracts were effectively converted to a floatingrate via swap agreements, and contracts issued in foreign currencies were converted at issuance to US dollars through swap agreements to eliminate currency risk. Credited interest on floating-rate contracts normally resets on a monthly basis to various market indices. The term of the contract may be fixed
– generally from six months to ten years – or have an indefinite maturity. Market-indexed contracts provide a return based on the market performance of a published index designated in the contract. Futures or swap contracts are used to hedge the market risk on market-indexed contracts and effectively convert such contracts to a floating-rate.
Payout annuities Payout annuities are a form of immediate annuity. Aegon USA
has since 2003 no longer issued these contracts, but continues to administer the closed block of business. These contracts were typically purchased as a result of a lawsuit or claim, with the injured party receiving special tax treatment. Rather than paying the injured party a lump sum, the payments were structured as a lifetime annuity with mortality risk, a period certain annuity, or a combination of both.
United States. BOLI/COLI helps institutional customers fund long-term employee benefits such as executive compensation and post-retirement medical plans. The corporation insures key employees, and is the owner and beneficiary of the policies.
Competition Competitors of Aegon Americas’ companies include other large and highly-rated insurance carriers, in addition to certain banks, securities brokerage firms, investment advisors, and other financial intermediaries marketing insurance products, annuities and mutual funds. Aegon USA leverages long-term relationships with many institutions to offer them product lines such as variable annuities, life insurance, mutual funds, and 401(k) products.
In the United States, the Life & Protection division faces competition from a variety of carriers. Leading competitors include AIG, Genworth, John Hancock, Lincoln National, MetLife, and Prudential. In Canada, the primary competitors are Industrial-
Aegon USA markets variable universal life, mutual funds, and variable annuities to middle-income clients with equity investment objectives. Variable annuity sales are often driven by the competitiveness of the living benefits offered by competitors, with most product development focusing on guaranteed lifetime withdrawal benefits, which guarantee lifetime withdrawals of a certain amount under certain conditions. There is continued interest, and strong competition among providers, in guaranteed lifetime withdrawal products.
It maintains an effective wholesaling force, and focuses on strategic business relationships and products with competitive features, benefits and pricing. Aegon USA’s primary competitors in the variable annuity market are AIG, Jackson National, Lincoln
In the defined contribution market, Aegon USA’s main competitors are Fidelity, Mass Mutual, New York Life, Principal
Regulation and supervision Aegon USA Aegon USA’s insurance companies are subject to regulation and supervision in the states and jurisdictions in which they transact business, maintain offices or otherwise have a business presence.
Act (Model Act) provides for various actions should an insurer’s adjusted capital, based on statutory accounting principles, fall below certain prescribed levels (defined in terms of its risk-based capital). The adjusted capital levels of the Aegon USA insurance companies currently exceed all of the regulatory action levels as defined by the Model Act. Any modification of these adjusted capital levels by the regulators or rating agency capital models may impact Aegon USA. The statutory accounting (reserve)
requirements for term and universal life products are widely acknowledged to be very conservative. These continue to cause capital strain for the life insurance industry and, in volatile market conditions, funding for these reserves is challenging.
20 states, including Iowa, had passed the SVL as of the end of 2014. As adoption by a supermajority of states is required for
In addition to the US Congress, non-traditional insurance regulators are increasingly involved in insurance matters traditionally reserved for state regulation. The Dodd-Frank Wall
The FIO is also authorized to monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry.
The Dodd-Frank Act has entrusted to the Board of Governors of the Federal Reserve Board (the ‘Federal Reserve’) a significant regulatory role with respect to life insurers that are either designated as systemically significant (‘SIFIs’) or have a bank within the group. The Federal Reserve is responsible for prudential supervision of SIFIs, including development of enhanced capital standards for insurer SIFIs. In late 2014, the
Federal Reserve, FIO and representatives of state regulators, is developing international capital and supervisory standards for internationally active insurance groups (‘IAIGs’), such as Aegon.
FIO and the Federal Reserve will impact Aegon USA and the regulation of insurance in the United States, or life insurers in the United States or internationally, is still to be determined.
In addition, proposals to place restrictions on direct mail are considered from time to time by the US Congress and states.
Proposed Federal Reserve Board disclosures regarding credit insurance provided in connection with a loan, if enacted as proposed, would adversely impact the market for credit insurance.
Insurers (ACLI) is litigating the District of Columbia’s attempt to introduce such an assessment. There is no assurance that the
ACLI will be successful in its challenge or that other states will not seek to institute similar tax assessments.
The SEC, the FINRA and other regulators have from time to time investigated certain sales practices involving variable annuities and transactions in which an existing variable annuity is replaced by, or exchanged for, another annuity. Certain separate accounts of Aegon USA insurers are registered as investment companies under the Investment Company Act of 1940, as amended (the
Some Aegon USA companies offer products and services to individual retirement accounts (IRAs) – pension and welfare benefit plans that are subject to the federal Employment
Service (IRS). Accordingly, the DOL and IRS have jurisdiction to regulate the products and services sold by these Aegon
The DOL has indicated that it will re-propose regulations regarding the scope of an “investment advice fiduciary” in IRAs and defined contribution plans, and the consequent ability of service providers to IRAs and defined contribution plans to provide investment advice under current compensation models, in addition to further define the nature of a plan sponsor’s obligations regarding certain plan participants’
Implementation of these and other regulations in the manner proposed could increase the cost and administrative burdens experienced by those Aegon USA companies that provide services to and through IRAs and defined contribution plans.
federal legislation has also been proposed that is designed to increase savings in employer retirement plans and to facilitate managing those retirement savings as income in retirement through annuities. The likelihood that these legislative proposals will be passed or the regulatory guidance finalized cannot be predicted at this time. The proposed legislation and guidance, if enacted and finalized as proposed, would however increase the awareness of the benefits of annuitization and/or would significantly reduce the administrative burden of offering annuities within a retirement savings plan or as a distribution option from the plan.
Congress that adversely impacted foreign-owned companies, such as proposals containing a corporate residency provision that would redefine some historically foreign-based companies as US corporations for US tax purposes, and proposals that limit the deductibility of interest on debt paid to a non-US affiliate.
Act are promulgated and the studies completed. For example, the Dodd-Frank Act established the Federal Stability Oversight
Aegon USA companies administer and provide both asset management services and products used to fund defined contribution plans, individual retirement accounts, 529 plans and other savings vehicles. Changes to defined benefit plans by sponsors in reaction to the financial economic environment and the enactment of funding relief provisions may impact the services Aegon USA companies provide to these plans.
In addition, legislative and regulatory proposals are considered from time to time that relate to the disclosure and nature of fees paid by defined contribution plan sponsors and their participants. Other proposals that may be considered relate to the nature of education, advice or other services Aegon
USA companies provide to defined contribution plan sponsors and their participants. Finally, as noted above, proposals to change the structure, or remove or decrease the US federal tax preferences of pension and annuity products, either as part of tax reform or pursuant to deficit reduction, would directly impact the cost and competitiveness of pension and annuity products and pension services sold to ensure Americans’ financial and retirement security. Aegon USA companies also provide plans used to administer benefits distributed upon termination of defined benefit plans.
Any proposals that seek to either restrict fees and services to, or investment advice in, employer plans, or change the manner in which Aegon USA companies may charge for such services in a way that is inconsistent with business practices, will adversely impact the Aegon USA companies that provide administration and investment services and products to employment based plans.
Companies Act (Canada). The primary regulator is the Office of the Superintendent of Financial Institutions. In addition,
TLC and CPL are subject to the laws, regulations and insurance commissions of each of Canada’s ten provinces and three territories in which it operates. The laws of these jurisdictions generally establish supervisory agencies with broad administrative powers that include granting and revoking licenses to conduct business, regulating trade practices, licensing agents, establishing reserve requirements, determining permitted investments, and establishing minimum levels of capital.
Asset liability management Aegon USA’s insurance companies are primarily subject to regulation under the laws of the states in which they are domiciled. Each state’s laws prescribe 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. Limits are generally placed on other classes of investments.
This strategy takes into account currency, yield and maturity characteristics. Asset diversification and quality considerations are also taken into account, along with considerations of the policyholders’ guaranteed or reasonably expected excess interest sharing. Investment-grade fixed income securities are the main vehicle for ALM, and Aegon USA’s investment personnel are highly skilled and experienced in these investments.
Aegon USA’s companies manage their asset liability matching through the work of several committees. These committees
Reinsurance ceded Ceding reinsurance does not remove Aegon’s liability as the primary insurer. Aegon could incur losses should reinsurance companies not be able to meet their obligations. To minimize its exposure to the risk of such defaults, the creditworthiness of
Aegon USA insurance companies also enter into contracts with company-affiliated reinsurers, both within the United States and overseas. These contracts have been eliminated from the
Net income Net income from Aegon’s businesses in the Netherlands increased 26% to EUR 491 million in 2014 compared with 2013. Higher underlying earnings before tax and realized gains more than offset an increase in other charges in 2014 compared with 2013.
‘banksparen’ products more than offset higher term sales related to new mortgage production. Pensions sales increased 31% in 2014 to EUR 218 million compared with 2013, mainly the result of a single large new contract for Dutch mineworkers.
Share in underlying earnings before tax of associates 2 2 -
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax - 3 -
EUR 118 million. This loss in the guarantee portfolio was mainly the result of the tightening of Aegon’s credit spread and model refinements. 2013 impairment charges amounted to EUR 32 million and other charges were EUR 36 million, which mainly included charges of EUR 25 million related to
�� Non-life earnings improved to a loss of EUR 20 million in 2013. Higher investment income and lower claims on disability products more than compensated for lower profitability of the general insurance business. Distribution recorded a profit of EUR 18 million, up 13% from 2012.
Commissions and expenses Commissions and expenses decreased by 4% in 2013 compared with 2012. Operating expenses decreased by 2% compared with 2012, to EUR 732 million, as realized cost savings and lower employee benefit expenses offset investments in the business.
Pensions sales declined 17% compared with 2012 as signing multiple new contracts was more than offset by the nonrecurrence of a very large transaction in 2012. Production of mortgage loans in 2013 amounted to EUR 3.2 billion, up EUR 2.7 billion from 2012.
EUR 24 million up from EUR 21 million in 2012. General insurance production declined 13% to EUR 26 million. Production was negatively impacted by the focus on profitable business.
Gross deposits decreased to EUR 1.3 billion, as a higher production of banksparen products was more than offset by a decline in traditional savings deposits.
Endowment insurance includes several products that accumulate a cash value. Premiums are paid at inception or over the term of the contract.
Minimum interest guarantees exist for all generations of accumulation products written, except for universal life type products – for which premiums are invested solely in equity funds. Older generations contain a 4% guarantee; in 1999 the guarantee decreased to 3%; and in 2013 the guarantee decreased to 0%.
Various profit-sharing arrangements exist. Bonuses are either paid in cash (usually for a pension, as described later) or used to increase the sum insured. A common form of profit sharing is to set bonus levels by reference to external indices based on pre-defined portfolios of Dutch government bonds. The bonds included in the portfolios have differing remaining maturities and interest rates. Together they are considered an approximation of the long-term rate of return on high-quality Dutch financial investments.
Annuity insurance includes products in the accumulation phase and products in the payout phase. Payout commences at a date determined in the policy, and usually continues until death of the insured or the beneficiary. Premiums are paid at inception of the policy or during the accumulation phase of the policy.
The contracts contain minimum guarantees of 3% or 4%, and prior to 1999, of 4%. Interest rebates are given on both single and regular premium annuity insurance, and may be based on a portfolio of Dutch government bonds – although other calculation benchmarks may also be applied. There are also profit-sharing schemes set by reference to external indices based on pre-defined portfolios of Dutch government bonds.
Before 2013, Aegon the Netherlands also offered interest-only, unit-linked and savings mortgage loans, and is continuing to do so for existing mortgage loans that are being renegotiated.
Aegon the Netherlands offers flexible savings accounts with cash withdrawal with limited restrictions, and deposit accounts with a pre-determined maturity.
‘Banksparen’ is a savings product in which amounts are deposited in a ‘locked’ bank account that is exempt from capital gains tax.
Kroodle, one of the world’s first insurance companies to operate primarily through Facebook. It enables customers in the Netherlands to purchase insurance and manage their accounts through their Facebook profile.
Launched in 2008, onna-onna is a non-life brand that offers motor, travel, home and liability insurance, focusing on female customers.
Pensions The Pensions business provides a variety of full-service pension products to pension funds and companies.
contractual interest rate of 3% or 4%. At present, the contracts offered to clients hold a maximum guarantee of 3%. If profit sharing turns into a loss, the minimum guarantee becomes effective, but the loss in any given year is carried forward to be offset against future surpluses. In general, the guarantee is dependent on the life of the insured in order that their pension benefit is guaranteed. Large group contracts also receive part of the technical results for mortality risk and disability risk.
Aegon the Netherlands is not allowed to automatically prolong a contract at the end of a contract period.
Netherlands also offers defined contribution products allowing for single and recurring premiums from customers. Profit sharing is based on investment returns on specified funds. All positive and negative risks, such as investment risk and longevity risk, are attributed to the employees.
A decrease in the number of company and industry pension funds in the Netherlands will continue over the next few years. By law, the assets and liabilities of a terminated pension fund must be transferred to another pension provider. Aegon the Netherlands offers a pension fund buy-out product for its terminating pension funds. It takes on the guaranteed or non-guaranteed liabilities, with or without annual pension increases, and receives a lump-sum premium upfront. All risks related to the transferred benefits are carried by Aegon the Netherlands.
Non-life The non-life business consists of general insurance and accident and health insurance.
Competition Aegon the Netherlands faces strong competition in all of its markets from insurers, banks and investment management companies. The main competitors are Nationale Nederlanden,
life market for many years, and was ranked number one in 2013 based on gross premium income. The life insurance market in the Netherlands comprises pensions and life insurance. The top six companies by gross premium income accounted for approximately 90% of total premium income in 20131. Based on gross premium income in 20131, Aegon the Netherlands is ranked number one in the pension market and sixth in the individual life insurance market. Aegon the
ABN AMRO are the largest mortgage loan providers in this market.
In recent years, several regulatory changes have limited opportunities for Aegon Netherlands in the Dutch insurance market – notably in the life insurance market where the tax deductibility of certain products has been reduced, which has also caused a shift to bank saving products (‘banksparen’).
Furthermore, low economic growth and financial market volatility has made customers more reluctant to commit to long-term contracts. These changes have increased competition, resulting in a greater focus on competitive pricing, improved customer service and retention, and product innovation.
Regulation and supervision Two bodies are responsible for the supervision of financial institutions in the Netherlands: �� De Nederlandsche Bank (DNB), the Dutch Central Bank; �� Autoriteit Financiële Markten (AFM), the Dutch Authority for the Financial Markets.
Netherlands. The objectives of the AFM are to promote orderly and transparent processes within financial markets, integrity of relations between market players, and consumer protection.
Union country, either directly or through a branch. Separate licenses are required for every branch of the insurance company where it conducts business. The regulatory body that issued the license (DNB in the Netherlands) is responsible for monitoring the solvency of the insurer.
Every life and non-life insurance company licensed by, and falling under the supervision of, DNB must file audited regulatory reports on at least an annual basis. These reports, primarily designed to enable DNB to monitor the solvency of the insurance company, include a (consolidated) balance sheet, a (consolidated)
Under Solvency I, life insurance companies are required to maintain certain levels of capital in accordance with EU
General insurance companies are required to maintain shareholders’ equity of equal to or greater than 18% of gross written premiums a year, or 23% of the three-year average of gross claims.
Solvency II will be effective from January 1, 2016. In anticipation of Solvency II, the Dutch Ministry of Finance has taken measures to achieve a more risk-based and forward-looking supervision of insurance companies. The most important change in the supervision of Dutch insurance companies in the run up to
Netherlands is not compliant with the solvency requirements or does not expect to remain compliant with the applicable solvency requirements with a one year horizon, it requires the approval of the Dutch Central Bank to pay dividend or redeem capital. Originally the TSC consisted of scenarios based on
The TSC was replaced by Solvency II (SCR) calculations effective from January 1, 2015, but without imposing Solvency
Financial supervision of credit institutions Aegon Bank N.V. is supervised by the DNB and required to file monthly regulatory reports and an audited Annual Report.
Credit institutions are required to maintain solvency and liquidity ratios in line with the requirements of the Financial Supervision
This will pay out if in 20 years the mortality rates have decreased more than a pre-determined percentage compared to the base scenario at the moment of signing the contract. Aegon the
Netherlands or Deutsche Bank can activate an early termination clause to terminate the contract after ten years. The payout is maximized at a pre-determined percentage that is higher than compared to the base scenario. This transaction was the first transaction in Continental Europe to be based on population data, and it is the first longevity swap to be targeted directly at capital markets.
Netherlands, while offering protection for significant future mortality improvements – thereby lowering the required capital for Solvency II purposes.
For marine insurance there is also an ‘excess of loss’ contract in place with a retention level of EUR 2 million for each event.
Underlying earnings before tax Underlying earnings before tax in the United Kingdom increased 24% to GBP 92 million compared with 2013. Higher underlying earnings before tax in Pensions more than offset lower underlying earnings before tax from the Life business.
GBP 77 million compared with 2013. This was mostly due to lower investment income as a result of selective de-risking of the asset portfolio backing annuities in preparation for
�� Underlying earnings before tax from Pensions increased to GBP 14 million in 2014 compared with a loss of
GBP 10 million in 2013. This increase was mostly driven by improved persistency following the introduction of the
Income tax attributable to policyholder return (27) (32) 16% (32) (40) 20%
Income before tax on shareholders return 9 111 (92%) 11 137 (92%)
Net income Net income decreased to GBP 65 million compared to 2012.
Commissions and expenses Commissions and expenses increased 5% compared to 2012 as a consequence of higher operating expenses. Operating expenses increased 22% compared to 2012 to GBP 328 million, as expenses related to investments in technology and business transformation costs of GBP 64 million were incurred.
Excluding these costs, expenses were 2% lower compared to 2012. Commissions declined due to the sale of Positive Solutions and the impact of the implementation of RDR on Pension business commission.
Production New life sales were up 13% to GBP 860 million compared to 2012, reflecting strong platform growth and higher sales in group pensions following the implementation of RDR on
Gross deposits amounted to GBP 239 million, driven by platform savings products, as the platform gained momentum in the market.
Overview of United Kingdom In the United Kingdom, Aegon is a major provider of corporate and individual pensions, protection products, annuities, and savings products. Aegon UK has over two million customers, approximately 2,400 employees, and GBP 60.5 billion in revenue-generating investments. Aegon UK’s main offices are in Edinburgh and London.
Aegon UK is focused on two core growth markets in the United
Organizational structure Aegon UK plc is Aegon UK’s holding company. It was registered as a public limited company at the beginning of December 1998.
Aegon UK’s leading operating subsidiaries are: �� Scottish Equitable plc. (trading as Aegon); and �� Aegon Investment Solutions Ltd.
Retiready provides an ‘upgrade’ solution for those existing Aegon customers without access to advice (be it through choice or for economic reasons), enabling them to choose to upgrade to new Self-Invested Pension Plan (SIPP) and Individual Savings
Accounts (ISA) products supported by a wealth of tools and support including Score, Shop, Insight, Support and Coach.
Since the initial launch, the Retiready capability has been both extended and broadened, and now provides digital engagement for every existing Aegon customer. This service is now in the process of being rolled out to all customers, and this will continue throughout 2015. In addition, the Retiready service is being actively marketed to directly acquire new customers.
1 Source: The ARC platform won Best Workplace Savings Platform at the 2014 Platforum awards and ‘Best New Platform’ and ‘Best Use of Platform Technology’ at the Aberdeen UK Platform Awards 2013.
The target market is wealthier customers over the age of 40, where Aegon UK’s underwriting expertise helps it to provide a customer-centric proposition. Aegon UK also write significant volumes in the mainstream protection market, for instance,
UK offer a range of protection products for small and mediumsized companies that wish to insure key personnel. This is a key market for Aegon, and the Company is currently protecting around 400,000 customers, with approximately 40,000 new customers each year.
In the United Kingdom, funds in pension plans are normally converted into a source of income at retirement, usually through the purchase of an immediate annuity.
Sales and distribution Individual protection products are distributed through intermediated advice channels, including wealth advisors, banks, and protection specialist advisors. Annuity products comprise internally vested immediate annuities and those available through intermediated advice channels.
Platform Aegon Retirement Choices (ARC) efficiently and effectively helps advisors and their customers with the transition from work to retirement through a technology-driven platform. Aegon
One of Aegon UK’s largest product lines is providing pension plans for companies. Aegon UK offers group pension solutions on- and off-platform, depending on the needs of the employer and employee. In the United Kingdom, auto-enrolment will continue to have a dramatic effect on the workplace savings market, increasing the number of employees that save through their employers’ pension arrangements.
The move away from ‘defined benefit’ (DB) arrangements, which provide a guaranteed percentage of salary on retirement, toward ‘defined contribution’ (DC) plans, in which the employer, employee or both make contributions on a regular basis, has continued to accelerate in recent years. DC plans are similar to personal pensions, with contributions paid into a plan owned by individual employees and then invested. In general, at retirement, employees can choose to take a percentage of tax-free cash from their pension plan, using the remainder to either purchase an annuity or invest it in a separate drawdown policy.
As a result of this trend, the market for new DB plans has contracted considerably in recent years, largely due to concerns over long-term liabilities.
Many DC and ‘master trust’ pension schemes are managed by a third party with an insurance contract. These are typically trust-based pensions for which the corporate customer (an employer) requires investment solutions that are specific to every individual pension scheme. These solutions typically require a non-branded investment portal and the provision of fund blending to create scheme default funds. In addition, a growing number of corporate customers want target dated lifestyle fund solutions for their members as they approach retirement. Aegon
UK provides a low cost service that uses electronic messaging to automate the process and minimize risk.
Aegon UK is building and diversifying its workplace distribution capability, having started partnering with Mercer and Barclays in the first half of 2013. ARC is distributed through intermediated advice channels.
Competition Aegon UK faces competition from three main sources: life and pension companies, retail investment firms, and retail platform service companies.
Over the past few years, the life and pension market has been increasingly concentrated among the largest companies and those perceived to be financially strong. Aegon UK’s competitors include Legal and General, Standard Life, Lloyds
Bank and Aviva. In the platform market, service companies such as Cofunds, Funds Network and Skandia are among Aegon UK’s largest competitors.
income statement, extensive actuarial information, and detailed information regarding the investments of the insurance company. The PRA’s regulatory reporting is based on a single entity focus, and is designed to highlight risk assessment and risk management.
The PRA may request additional information it considers necessary and may conduct an audit at any time. The PRA may also make recommendations for improvements. Finally, the PRA
Management Investment Committee (MIC), which meets each month to monitor capital requirements and ensure appropriate matching of assets and liabilities.
For its with-profit business, Aegon UK’s guiding philosophy is to match guarantees with appropriate investments. The nature of with-profit businesses, however, typically prevents perfect matching, and the role of the MIC is therefore to monitor the capital implications of any mismatching. Reports covering the impact of a range of possible investment scenarios on the solvency of each of the funds are produced on a regular basis.
For non-profit business, considerable interest rate risk arises from Aegon UK’s large book of annuities in payment. Assets are purchased to provide a close expected match to liability outflows, with regular reporting to the MIC on the capital implications of any mismatching.
With-profit fund The invested assets, insurance and investment contract liabilities of Aegon UK’s with-profit fund are included in ‘for account of policyholder assets and liabilities’. Assets and liabilities are always equal, as an excess of assets over liabilities regarding guaranteed benefits and constructive obligations is classified as an insurance or investment contract liability. All assets in the
Life’, which are written by Aegon Ireland plc, and the product guarantees within Investment Control and Income for Life, which are reinsured to Aegon Ireland plc, all Aegon UK contracts with investment guarantees are written in policyholder-owned funds
In previous years, Scottish Equitable sold guaranteed annuity products in the United Kingdom. Certain policies also have a guaranteed minimum rate of return, guaranteed minimum pension, or guaranteed death or other benefits. Guaranteed rates of return apply only if the policy is kept in force to the dates specified, or only according to the events described in the policy conditions. The costs of all guarantees are borne by the with-profit funds, and therefore impact payouts to with-profit policyholders.
Scottish Equitable plc.’s with-profit fund, except routine yearly fund management charges, and costs and expenses that the
The protection business is heavily reinsured. A reinsurance panel is in place to provide reinsurance, predominantly on a quota share basis across the range of benefits. A facultative reinsurance panel is also used to assist the placement of the very large cases. Longevity reinsurance is in place for a number of in-force tranches of annuity business. Financial reinsurance has been used historically across the unitized business with the final repayments made in 2014.
Re, Pacific, RGA, Scor, Swiss Re, and XLRe. In addition, internal reinsurance is in place with Blue Square and Transamerica.
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (8) (5) (60%)
New regulation on the Hungarian foreign currency mortgage portfolio was the main driver behind this increase in impairments.
Underlying earnings before tax In New Markets, underlying earnings before tax decreased 14%
in 2014 to EUR 196 million compared with 2013, as higher earnings in Aegon Asset Management, Variable Annuities
Europe and Central & Eastern Europe were more than offset by a decrease in earnings in Asia and Spain & France. �� Underlying earnings before tax from Central & Eastern
EUR 57 million in 2013. This increase was primarily driven by higher underlying earnings before tax in Hungary, which more than offset the negative impact of higher surrenders in
EUR 34 million in 2013. This decrease in underlying earnings before tax was primarily the result of a charge from model updates in 2014 of EUR 26 million, primarily related to changes to modeled premium persistency, in the high net worth business. In addition, 2013 included a gain of EUR 22 million related to actuarial assumption changes and model refinements.
�� Underlying earnings before tax from Spain & France decreased 15% in 2014 to EUR 28 million compared with 2013. Positive results from the joint venture with Banco
Santander in Spain were more than offset by the impact of the divestment of partnerships and continuing investments in order to grow the business. �� Underlying earnings before tax from Variable Annuities
Commissions and expenses Commissions and expenses decreased by 2% in 2014 to
EUR 984 million compared with 2013. Operating expenses increased by 4% in 2014 to EUR 684 million compared with 2013. The increase in operating expenses, despite favorable exchange rates in 2014 compared with 2013, was mainly the result of the joint venture with Banco Santander in Spain, and higher marketing and sales expenses to support growth.
Production New life sales in 2014 increased 19% to EUR 271 million compared with 2013. �� In Central & Eastern Europe, new life sales in 2014 remained stable at EUR 107 million. This was mostly the result of higher sales in Turkey, Hungary and the Czech Republic, due to improved distribution productivity and growth of the tied-agent network, which were offset by adverse currency movements and lower sales in Poland.
Results 2013 New Markets Net income in 2013 decreased to EUR 127 million as gains from divestments were more than offset by a write down of intangible assets in Poland following legislative changes and lower underlying earnings before tax as increases in underlying earnings before tax in Asia and Variable Annuities Europe were more than offset by decreases in Central & Eastern Europe, Spain and Aegon Asset Management.
In 2013, gains from divestments in Spain were offset by a write down of intangible assets in Poland as the Polish parliament approved legislation to overhaul the existing state pension system. This resulted in an impairment of intangible assets related to the Polish pension business for an amount of
EUR 57 million compared to 2012, which was primarily driven by the introduction of the insurance tax in Hungary and lower non-life results in Hungary from adverse claim experience.
EUR 21 million for the year. �� Results from Variable Annuities Europe amounted to
New premium production from accident and health insurance business increased 2% to EUR 43 million compared to 2012, mainly driven by the direct marketing unit in Asia. New premium production from Aegon’s general insurance business was up 40
Gross deposits in New Markets amounted to EUR 14.3 billion, up 31% compared to 2012. Gross deposits in Aegon Asset
Gross deposits in Asia more than tripled to EUR 587 million driven by strong sales of variable annuities in Japan, while deposits in Central & Eastern Europe declined following pension legislation changes.
Overview of sales and distribution channels Aegon operates through a number of different sales channels in Central & Eastern Europe. These include tied agents, insurance brokers, call centers, online channels and – particularly in Hungary, Poland, Romania and Turkey – retail banks.
Terms as ‘surrender fees’ for the unit-linked policies with regular premiums. The decision was in response to the changing environment relating to customer protection, and was in line with the regulator’s recommendation.
In both the Czech Republic and Slovakia, Aegon focuses on the unit-linked segment, besides selling term life products and offering a wide range of riders covering accidental death, disability, critical illness risks and providing a daily hospitalization allowance to insured clients.
Asigurari S.A.’s life portfolio in Romania, which consists mainly of traditional life and unit-linked policies.
Loan Association. The new entity provides a saving product combined with a preferential loan option, which is subsidized by the state during the saving period.
Mortgage loans Aegon Hungary first offered mortgage loans to retail customers in 2006. In the early years, mainly Swiss franc denominated home mortgage loans were provided by Aegon Hungary
The mortgage loan business has been affected by several legislative changes in recent years. According to laws enacted in 2014, financial institutions have to retrospectively apply exchange rates of the Hungarian Central Bank (MNB), instead of the exchange rates they applied in the past, to foreign currency denominated loans. In addition, following a decision made by the
Furthermore, due to other legislative changes also enacted in 2014, most foreign currency denominated loans have to be converted into Hungarian forint-based loans at fixed exchange rates in 2015, with subsequent interest charges maximized by law.
Pensions Aegon’s pension business in Central & Eastern Europe experienced considerable growth before the financial crisis of 2008, mainly due to the region’s strong economic growth, and the reform of pension systems in many of the countries in the region.
(formerly mandatory) pension system. One of the most important measures was that private pension members were required to choose whether to remain enrolled in the private pension fund
(on condition of termination of entitlement to the state pension for employment years after 2011) or opt out of private pension funds, transferring accumulated savings to the state held pension system. As a result, approximately 3% of members decided to remain enrolled in the private pension system and 97% moved to the state pension system.
In Slovakia, Aegon announced its withdrawal from the voluntary pension business in 2011, and exited the market in 2013. Since
In addition, as a result of the legislation enacted in 2013, it is no longer mandatory to join a private pension fund (Pillar II).
As of 2013, in Turkey, in accordance with legislative changes enacted in 2012, a reduction is applied to the maximum chargeable level of entrance fees, administration fees, and asset management fees. From 2013, pension contributions have no longer been subject to tax incentives; instead, members receive 25% of their contributions in the form of direct support from the state.
In the Czech Republic, as of January 2013, former pension companies have been transformed into management companies managing newly launched Pillar II and Pillar III pension funds.
Aegon elected not to enter Pillar II in the Czech market. Aegon operated a transformation fund throughout 2013. On December 30, 2013, Aegon disposed of its pension line of business, thereby exited the Czech pensions market.
Administrator Company took over the management of Eureko private pension fund. The Eureko fund merged with Vital, the
Pillar II private pension fund managed by Aegon. As a result it became the fourth largest such fund in the country1.
Aegon is not a significant market participant in those markets in which it was relatively recently incorporated: Aegon Slovakia
Regulation and supervision In Central & Eastern Europe, a single insurance company may only be licensed for, and conduct, either a life insurance business or non-life insurance business – not both. In Hungary, however, insurance companies established before 1995 are exempt from this rule. This exemption therefore applies to Aegon Hungary.
and have the right to investigate prudential activities and conduct, financial position and solvency, and compliance with all relevant laws.
Act (411/2004) (as primary legislation), and complemented by individual regulations (as secondary legislation). In Poland, this activity is supervised by the KNF and governed by the
Reinsurance ceded Aegon takes out reinsurance for its life and non-life businesses in Central & Eastern Europe. The aim is to mitigate insurance risk. Aegon’s companies in the region only work through large multinational reinsurers that have well-established operations in the region – in accordance with Aegon’s Reinsurance Use
From 2013, Aegon Hungary began a long-term arrangement with Aegon’s internal reinsurer, Blue Square Re, for property, catastrophe and motor third-party liability risks. In the first phase, Blue Square Re takes the risk, and, in the second phase,
Blue Square Re retrocedes the risk in the reinsurance market with some retention levels. In addition, in 2014, Aegon Turkey started to cede the mortality risk stemming from the bulk of its traditional life portfolio to Blue Square Re.
(EUR 0.8 million retention); �� Property per risk excess of loss treaty (EUR 1 million retention); and �� General third-party liability excess of loss treaty
–except for the life reinsurance treaties, which are made on a surplus and quota-share basis (including various riders).
Overview of Asia Aegon Asia operates in the Asia region through three major joint ventures in China, India, and Japan, in addition to a network of wholly-owned subsidiaries.
Organizational structure �� Aegon’s main operating companies in Asia are: �� Aegon-CNOOC Life Insurance Co. Ltd. (50%); �� Aegon Religare Life Insurance Co. Ltd. (26%); �� Aegon Sony Life Insurance Co. Ltd. (50%); �� SA Reinsurance Ltd. (50%); and �� Transamerica Life (Bermuda) Ltd.
National Offshore Oil Corporation (CNOOC), China’s leading offshore oil and gas producer. Aegon-CNOOC Life Insurance Co.
is licensed to sell both life insurance and accident and health products in China. Aegon-CNOOC has expanded its network of offices and business in China since 2003. Having obtained 12 provincial licenses, its geographic presence provides access to a potential market of over 640 million people, primarily in the booming coastal provinces of eastern China. On October 20, 2014, Aegon and Tsinghua Tongfang Co. Ltd (THTF) signed a joint venture agreement to replace CNOOC as Aegon’s partner in
(Aegon Religare) in India. Aegon Religare commenced operations in 2008. By August 31, 2014, Aegon Religare had a distribution network across 52 cities and 20 states in India, and had issued more than 391,000 policies to over 342,000 customers.
By September 2014, Aegon Sony Life had entered into distribution partnerships with two ’mega banks’ and sixteen regional banks, in addition to Sony Life’s Life Planner distribution channel which has over 4,000 professionals. The primary focus of Aegon Sony Life is annuity sales in Japan. Aegon and Sony Life also jointly established a reinsurance company, SA Reinsurance
Ltd. (SARe), to provide Aegon Sony Life with greater flexibility in the pricing and design of its annuity products. Launched in 2010, and based in Bermuda, SARe manages the guaranteed benefit risks of Aegon Sony Life’s products.
Aegon Direct and Affinity Marketing Services (ADAMS) is an independent direct marketing services company with operations in six countries in the Asia-Pacific region. The first ADAMS company was established in Australia in 1998, and has subsequently launched operations in Japan, Hong Kong, Thailand, India and
Aegon Religare offers a number of term plans, traditional individual participating products, traditional pension participating products and unit-linked plans.
Since 2010, SARe has reinsured all minimum guarantees offered on Aegon Sony Life’s variable annuity products.
ADAMS has multiple international business partners across Asia, including banks and non-financial institutions. It focuses on protection products that generate risk premiums, such as term life insurance, personal accident insurance, and supplemental health insurance.
India - Aegon Religare There were 24 licensed life insurers in India at the end of August 2014. The state-owned Life Insurance Corporation of India remains dominant with a 72%2 share of new business premiums
Japan - Aegon Sony Life The bancassurance channel is a key growth area in the Japanese insurance market. The largest share of the bancassurance single premium sector is the single premium whole life product.
Asia - ADAMS The potential use of direct marketing in the insurance industry is growing due to economic pressure on traditional distribution channels and changes in customer behavior. For this reason, multinational insurers across the region are increasing their marketing capabilities.
Response TV, product microsites, health portals, social media platforms, and mobile applications.
The IRDA is very active in introducing new regulations that focus on protecting policyholders’ interests and exploring avenues to support growth in the industry. Some steps initiated by the IRDA
In late December 2012, the FSA issued a new solvency margin risk standard that limits the assets used while broadening the measurement for solvency risk. More recently, the FSA has been strictly monitoring the solicitation of insurance products to the elderly. Aegon Sony Life has, as a result, enhanced its guidelines.
Asia - ADAMS Particularly in the market for direct distribution, there is an evolving regulatory environment for the use of personal data for marketing purposes. ADAMS remains abreast of any changes or proposed changes to regulations governing personal data in all of its markets. Where appropriate, ADAMS implements industry standard compliance programs, such as PCI Compliance in
Asset liability management China - Aegon-CNOOC An asset liability management meeting is held every month to monitor asset and liability mismatch risk, investment risk and solvency position. The dollar durations of liabilities and assets are calculated separately by block, and the dollar duration gap is analyzed. Based on the payment structure and term of insurance liabilities, Aegon-CNOOC usually purchases corporate bonds, government bonds, bank deposits, debt projects, or other fixed income assets to match this liability. Operating and shareholders’
Investment Management LLC. Comprehensive risk management procedures have been defined to ensure that the implementation of appropriate risk management activities is in accordance with
Hong Kong and Singapore - TLB The TLB assets are currently managed by Aegon USA Investment
Asia - ADAMS The ADAMS assets are managed by Aegon USA Investment
General Re and Munich Re in quota share. The group products are mainly reinsured by Hannover Re. Aegon-CNOOC also has modified co-reinsurance with Hannover Re to improve its solvency ratio, in addition to morbidity and mortality risk transfer. Aegon-CNOOC reviews the reinsurance structure regularly and adjusts it based on the claim experience and its risk acceptance capability.
India - Aegon Religare Reinsurance arrangements are regulated by the IRDA. Aegon
Religare primarily reinsures the mortality and morbidity risks of its policies sold with RGA Re. For specific products, reinsurance treaties are entered into with other major reinsurance companies such as Munich Re and Swiss Re.
Japan - Aegon Sony Life and SARe Aegon Sony Life reinsures 100% of its guarantees on variable annuities with SARe.
In April 2014, Aegon Sony Life entered into a Surplus Relief reinsurance contract on a local statutory basis only. Surplus
Asia - ADAMS ADAMS’s traditional business model primarily creates value by offshore reinsurance through an Aegon risk carrier, whereby riskbased premium is acquired for the group. ADAMS positions itself as an independent marketing services provider. This enables it to form partnerships with local insurers, particularly in locations where Aegon does not have a local presence. Increasingly,
Reaseguros (hereinafter, Aegon España) operated in Spain with two subsidiaries, Aegon Salud S.A.U. de Seguros y Reaseguros and Aegon Seguros y Reaseguros de Vida Ahorro e Inversión,
Liberbank, S.A.. On July 30, 2014, Aegon Spain signed a 25-year agreement to distribute both protection and general insurance products through Banco Santander’s network of branches in
Organizational structure Aegon main subsidiaries and affiliates in Spain and Portugal are: �� Aegon Espana S.A. de Seguros y Reaseguros; �� Aegon Administracion y Servicos A.I.E.; �� Aegon Santander Generales Seguros y Reaseguros (51%), in partnership with Banco Santander; �� Aegon Santander Vida Seguros y Reaseguros (51%), in partnership with Banco Santander; �� Aegon Santander Portugal Vida Companhia de Seguros S.A.
S.A. (51%), in partnership with Banco Santander Totta; and �� Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A.
Overview of sales and distribution channels The ongoing economic situation in Spain continues to have an effect on all channels, particularly bancassurance. The Spanish banking sector has undergone significant change since 2012, when a structural reform program was implemented. This resulted in the restructuring of the banking sector and triggered a wave of mergers and acquisitions aimed at consolidation
Banco Santander is the largest financial institution in Spain, with 4,548 branches nationwide. Aegon Spain agreement with
Banco Santander concerns the business lines of pure life risk and the general insurance products accident, home and commercial multi-risk insurance, and sickness. These are sold through two insurance entities: Aegon Santander Vida for pure life risk products; and Aegon Santander Generales for general insurance products. Aegon’s share in each entity is 51%.
Cantabria. It has a presence nationwide, and a leadership position in retail markets in several Spanish regions (Asturias, Cantabria,
Castilla La Mancha and Extremadura). Liberbank Vida y Pensiones currently distributes its products through 679 Liberbank, S.A.
Overview of business lines Aegon Spain focuses primarily on retail customers. It offers life insurance, pensions, general insurance, accident and health cover through different distribution channels, including its own channels (agents, brokers and direct), and bancassurance distribution through joint venture partnerships with Liberbank, S.A.
Life insurance & Pensions Aegon Spain’s life insurance business comprises both individual and group protection and savings products, with individual products forming the larger part of the business.
For Aegon Spain’s health and general insurance products, the main competitors are foreign and local companies. Mapfre leads the non-life insurance market with a 15.2% market share, followed by Grupo Mutua Madrileña with a 12.9% market share and Allianz with a 6.6% market share. The non-life market is more fragmented than the life market. Aegon Spain’s multi-risk business line is responsible for non-life and has a market share of 1.5%.
Regulation and supervision Direccion General de Seguros y Fondos de Pensiones (DGSFP)
requirements are based, respectively, on percentages of the reserves for the life insurance business and of the premiums and sum at risk for the health and general insurance business.
Business overview Results of operations – Spain 1 Source: Investigación Cooperativa entre Entidades Aseguradoras y Fondos de Pensiones (ICEA).
Overview of Variable Annuities Europe Variable Annuities Europe is a specialist provider of variable annuity products in the United Kingdom, Germany and France. It also offers offshore bonds in the United Kingdom.
Overview of sales and distribution channels In the United Kingdom, Aegon Ireland does not employ a direct sales force, but works with the local sales forces of the Aegon companies.
In the UK, Aegon Ireland variable annuities (or unit-linked guarantees) are sold via Aegon UK through banks, financial advisors and the Aegon Retirement Choices (ARC) platform
– an online service that enables financial advisors to manage their clients’ investment portfolios.
Aegon Ireland’s branch office in Frankfurt sells variable annuities and employs a direct sales and customer service team. Aegon
Ireland launched its first variable annuity product (guaranteed lifetime income) in Germany in August 2013. A second variable annuity product (guaranteed capital) was launched in April 2014. Key distribution channels are broker pools and financial advisor networks.
(guaranteed lifetime income), of which the guaranteed lifetime income option is reinsured to Aegon Ireland. It is sold through both La Mondiale’s own internal networks and platforms to financial advisors and banks. Aegon announced its decision to sell its 35% stake in La Mondiale Participation on November 24, 2014. The sale was finalized on March 3, 2015.
Offshore bonds Aegon Ireland offshore bonds are sold exclusively in the UK via
Aegon UK and are distributed through the ARC platform, other third-party platforms, banks, and financial advisors.
The various forms of guarantee enable customers to select the minimum benefit options that best suit their own capital or income needs.
The policyholder’s account value reflects the performance of the selected funds less charges, withdrawals or guarantee payments. The insurance provider earns administration and expense charges, in addition to guarantee charges for the guaranteed benefits.
These separate accounts are classified as investments for the account of policyholders.
The account value of offshore bond products reflects the performance of the funds. The insurance provider earns ongoing administration and expense charges on the policy. Collected surrender charges are typically applied to recoup deferred acquisition costs.
In the United Kingdom, Variable Annuities Europe has two competitors, Axa and MetLife, with MetLife leading the market.
Consolidated Life Directive in Ireland. Aegon Ireland is regulated by the Central Bank of Ireland. As an Irish authorized life insurance company, Aegon Ireland may undertake life insurance business in any member state of the European Economic Area on either a freedom of services (FOS) or freedom of establishment
structure (whereby the insurance affiliate seller delegates funds to Aegon Asset Management) or through competition with external asset managers in an ‘open architecture’ structure
(whereby the insurance affiliate seller may choose to delegate funds to an external fund manager other than Aegon Asset
Management). Aegon Asset Management also provides solutions to third-party retail and institutional customers that invest through collective investment schemes or segregated mandates.
The majority of affiliate sales business consists of funds sold by affiliate insurers where the policyholder return is determined by the investment return of the fund, and the risk is therefore borne by the policyholder rather than Aegon. The 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.
For third-party business, Aegon Asset Management is usually responsible for product design, marketing and distribution, although some third-party business is sourced through co-operative arrangements with insurance affiliates. The retail businesses typically sell collective investment vehicles (mutual funds) to customers through wholesale distributors and independent intermediaries. The main asset classes are fixed income and equities, and the funds are usually managed against a benchmark or peer group target. The institutional businesses typically sell tailored services to large corporations or pension funds. They employ a full range of asset classes, and manage the funds against objectives, targets and risk profiles agreed with clients. Aegon Asset Management offers both absolute and relative return products. Aegon Asset Management distributes its services and solutions internationally.
Competition in main locations Aegon Asset Management competes with other asset management companies on insurance platforms to acquire business from open-architecture Aegon insurance units and third parties. Aegon Asset Management’s competitors include global asset managers (both from financial conglomerates and stand-alone) and local specialists in the countries in which it operates. In general, competition varies according to the type of asset class and style of management.
In the Netherlands, Aegon Asset Management provides a wide range of investment solutions to retail and institutional clients through its affiliate insurance company. In the third-party institutional market, it competes with both fiduciary and balance sheet managers, together with global asset managers with an asset-only proposition. Competition continues to be strong in the pension fund industry due to both the ongoing consolidation of pension funds and the growing service requirements of pension fund clients. Aegon Asset Management has received strong net inflows into its Dutch mortgage fund.
Dutch Act on Financial Supervision. In Europe, regulation for asset management companies is different from that of insurers because it is based on different European Union directives.
Risk management General As an insurance group, Aegon manages risk on behalf of its customers and other stakeholders. As a result, the Company is exposed to a range of underwriting, operational and financial risks. Aegon’s risk management and control systems are designed to ensure that these risks are managed effectively and efficiently in a way aligned with the Company’s strategy.
Aegon for the risk and whether there is sufficient capacity to take the risk. Key inputs for Aegon’s risk preferences include expected returns, alignment between Aegon, counterparty and customer interests, the existing risk exposures and other risk characteristics such as diversification, the severity of the risk in an extreme market event and the speed at which risk can materialize in Aegon’s capital position, and IFRS net income.
In addition to the targeted risk profile, risk tolerances and limits are established to ensure that Aegon maintains, at all times, a solvency and liquidity position such that no plausible scenario would cause the Company to default on its obligations to policyholders. To accomplish this, Aegon has established a number of risk criteria and tolerances as part of its risk strategy: �� Financial strength: ensure Aegon meets long-term obligations to policyholders, thereby enabling Aegon to compete in key markets as a financially strong global insurer; �� Continuity: ensure that Aegon meets policyholder obligations, even under extreme event scenarios; �� Culture: encourage strong risk awareness by stressing the
Company is fair in its treatment of customers and other stakeholders; and �� Risk balance: manage the concentration of risk and encourage risk diversification within Aegon.
Aegon’s risk governance framework Aegon has a strong culture of risk management, based on clear, well-defined risk governance. The goals of this risk governance are: �� Minimize ambiguity by clearly defining roles and responsibilities and risk reporting procedures for decision makers; �� Institute a proper system of checks and balances, and ensure that senior management is aware at all times of material risk exposure; �� Manage risk in line with the targeted risk profile, including the avoidance of an over-concentration of risk in particular areas; �� Facilitate diversification by enabling management to identify diversification benefits from apparent risk-return trade-offs; and �� Reassure external stakeholders that Aegon has appropriate risk management structures and controls in place.
The Management Board oversees a broad range of strategic and operational issues. While the Executive Board remains Aegon’s statutory executive body, the Management Board provides vital support and expertise in safeguarding Aegon’s strategic goals.
The Management Board discusses and sponsors enterprise risk management, in particular the risk strategy, risk governance, risk tolerance, and material changes in risk methodology and risk policies.
The Supervisory Board Risk Committee is responsible for overseeing Aegon’s enterprise risk management framework, including risk governance and measures taken to ensure risk management is integrated properly into the Company’s broader strategy. The Supervisory Board Risk Committee oversees the
Company’s risk exposure as it relates to capital, earnings and compliance with Group Risk policies. It is the responsibility of the Executive Board and the Group’s Chief Risk Officer to inform the Supervisory Board of any risk that directly threatens the solvency, liquidity or operations of the Company. Details of members of the Supervisory Board Risk Committee can be found on pages 95, 98 and 99 of this Annual Report.
The GRCC focuses on managing Aegon’s overall solvency and liquidity position, while ensuring that risk taking is within the risk tolerance statements and Group Risk policies. The GRCC
Committees are set out in their respective charters and are similar in content to those of Group Risk, but tailored to local circumstances. Group Risk is responsible for the development, maintenance and oversight of compliance with the ERM
framework, including risk strategy, risk governance, risk tolerance, risk methodology and risk policies. Group Risk also maintains oversight of material risk, balance sheet and commercial decisions taken throughout the Company. Group Risk further identifies good risk management practices and facilitates implementation of these, in addition to ensuring that there is consistency in the application of these practices across the
Company. Furthermore, Group Risk prepares risk management information, including information about current risk exposures and issues, and additional sensitivity and scenario analyses, either at its own initiative or at the request of management.
Business unit Chief Risk Officers have a direct reporting line into the Group’s Chief Risk Officer or one of the regional Chief Risk
Lines of defense Aegon’s risk management structure is organized into three ‘lines of defense’ to ensure conscious risk-return decisions and limit the magnitude of potential losses within defined levels of certainty. The objective of this structure is to avoid surprises due to unidentified risks materializing or losses that exceed predefined risk tolerance levels and related limit structures.
The third line of defense, including the audit function, provides independent assurance and challenge regarding the effectiveness and integrity of enterprise risk management across the Company.
Risk overview 2014 Credit risk In 2014, credit spreads decreased to the lowest levels seen since the 2008 crises, and Aegon slightly reduced its exposure to credit risk. In the United Kingdom, callable bonds were sold and the proceeds and new business were invested largely in high-rated sovereign-linked paper. In the Netherlands, corporate bonds were sold and reinvested in highly-rated structured assets.
In the general account investment portfolio, Aegon retained minimum exposure to peripheral European countries.
statutory and IFRS accounting, this hedge showed a negative impact on income before tax of EUR 251 million in 2014 (2013: EUR 590 million).The Dutch operations further extended hedging of equity volatility risk in the existing equity hedge program.
Interest rate risk In 2014, long-term swap rates in the United States, United
The Company considers 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 liquidity stress planning in place. In 2014, Aegon retained significant holdings of cash and highly liquid assets as a precaution against potential adverse market developments. Stress tests show that available liquidity would more than match the Company’s liquidity requirements, even if market conditions were to significantly deteriorate.
Underwriting risk Aegon’s earnings depend, to a significant degree, on the extent to which claims experience is consistent with assumptions used to price products and establish technical liabilities. Changes in, among other things, morbidity, mortality, longevity trends and policyholder behavior may have a considerable impact on the
Operational risk Like other companies, Aegon faces risks resulting from operational failures or external events, such as changes in regulations, acts from personnel and natural or man-made disasters. Aegon’s systems and processes are designed to support complex products and transactions and to avoid such issues as system failures, financial crime and breaches of security. Aegon works on analyses on a continuous basis studying such operational risks and regularly develops contingency plans to deal with them.
Aegon faces a number of risks, some of which may arise from internal factors, such as inadequate compliance systems.
Liquidity and capital resources In line with its risk tolerance, the goal of Aegon’s capital and liquidity management is to promote strong and stable capital adequacy levels for its businesses on various capital metrics, and maintain adequate liquidity to ensure that the Company is able to meet its obligations.
The core aim is to establish the organization’s tolerance for risk to assist management in carrying out Aegon’s strategy within the Group’s available resources.
Guiding principles Aegon follows a number of guiding principles that determine its approach to capital and liquidity management: �� To promote strong capital adequacy in Aegon’s businesses and operating units; �� To manage and allocate capital efficiently in support of the strategy and in line with risk tolerance; �� To maintain an efficient capital structure with an emphasis on optimizing Aegon’s cost of capital; �� To ensure sufficient liquidity by enforcing stringent liquidity risk policies for both business units and the holding; and �� To maintain continued access to international money and capital markets on competitive terms.
Capital management Strategic importance Aegon’s capital management approach plays an important role in supporting the execution of Aegon’s strategic priorities.
As a matter of policy, Aegon maintains the capitalization of its business units based on the most stringent constraint: �� Local regulatory requirements; �� Standard & Poor’s requirements for very strong capitalization for rated entities; and �� Any additionally, self-imposed internal requirements.
Solvency II The introduction of Solvency II will mean a change in the regulatory capital requirements in EU-domiciled legal entities.
will not be effective until January 1, 2016, the draft Solvency II
capital requirements are expected to be taken into consideration by regulators in their supervision of EU-domiciled legal entities before the effective implementation date. As a result, Aegon is monitoring developments of the new capital regime and the impact it could have on business units and capitalization levels.
In assessing the potential impact of Solvency II, Aegon is assuming that the US solvency regime will be granted
Leverage metrics In line with the guiding principles of its capital and liquidity management, Aegon N.V. monitors and manages several leverage metrics: �� Various rating agency leverage metrics; �� Gross financial leverage ratio; and �� Fixed charge coverage.
Aegon’s fixed charge coverage is a measure of the Company’s ability to service its financial leverage. It is the ratio of underlying earnings before tax and prior to the payment of interest expenses on financial leverage to interest payments on financial leverage and preferred dividends. The fixed charge coverage includes the impact of interest rate hedging.
EUR 24.8 billion (EUR 23.1 billion at December 31, 2013), its gross financial leverage ratio was 28.7% (33.3%
To support its commercial paper programs and need for Letters of Credit (LOCs), and to enhance its liquidity position, Aegon maintains backup credit and LOC facilities with international lenders. The Company’s principal arrangement is a EUR 2 billion syndicated revolving credit facility maturing in 2019, and additional LOC facilities of USD 2 billion, of which USD 1.5 billion matures in 2015 and USD 0.5 billion matures in 2017. In addition, Aegon also maintains various shorter-dated bilateral backup liquidity and committed and uncommitted LOC facilities.
Aegon’s mortgage portfolios through securitizations and warehouse facilities, and the funding of US Regulation XXX and
Aegon enters into reinsurance agreements for risk and capital management purposes with several affiliated captive insurance companies (captives). All captives are fully consolidated for
All external financing provided to captives to support statutory reserves is disclosed in note 39 (Borrowings) to the consolidated financial statements to the extent that it has been funded. LOCs issued by third parties provided to captives to provide collateral to affiliated insurers are disclosed in note 48 (Commitments and contingencies). These LOCs have been provided by third parties for the benefit of the affiliated company whose liabilities are reinsured.
Liquidity management Strategic importance Liquidity management is a fundamental building block of
Aegon’s overall financial planning and capital allocation processes. Aegon aims to have sufficient liquidity to meet cash demands even under extreme conditions. The Company’s liquidity risk policy sets guidelines for its operating companies and the holding in order achieve a prudent liquidity profile.
At the holding company Aegon N.V., liquidity is sourced from internal dividends from operating companies and through the capital markets. The main sources and uses of liquidity at the holding company Aegon N.V. are dividends from subsidiaries, movements in debt, net expenses (including interest), funding operations, dividends to shareholders and the balance of acquisitions and divestitures. The ability of
100% of the Authorized Control Level (ACL) for US insurance entities, 100% Solvency I required capital for Dutch insurance companies, and 100% Solvency I Pillar 1 capital for insurance companies in the United Kingdom.
The minimum regulatory capital requirements for Aegon’s main subsidiaries and the actual capitalization levels as per December 31, 2014, are included in the following table: Capital requirements Legal/regulatory minimum capital requirement Actual capitalization Excess over legal/
100% Authorized Control Level (NAIC RBC ACL) ~1080% of combined ACL ~EUR 6.4 bln
The Netherlands2) 100% Solvency I ~215% Solvency I ~EUR 2.3 bln
United Kingdom3) 100% Solvency I (Pillar 1) ~140% Solvency I (Pillar 1) ~EUR 0.6 bln 1 Capitalization for the United States represents the internally defined combined risk-based capital (“RBC”) ratio of Aegon’s life insurance subsidiaries in the United States. The combined RBC ratio utilizes the NAIC RBC ratio excluding affiliated notes and taking into account excess or deficient amounts related to offshore life affiliates.
2 Excluding the banking activities. 3 Including the With Profits fund at unaudited June 30, 2014 values.
authority and judgment to restrict and/or prohibit the transfer of funds to the holding company to capital levels well above the minimum capital requirements contained in the applicable insurance regulations. The discretionary nature of the regulatory assessment of capital adequacy creates a natural ambiguity with regards to the exact level of capital required by local regulatory authorities. Precise capitalization levels effectively required by local insurance regulators are often not known in advance, in part because the views and risk tolerances of certain regulators for certain asset classes continue to develop over time, in line with the development and evolution of local, regional and global regulatory capital frameworks. In practice and for transfer of funds purposes, Aegon manages the capitalization of its subsidiaries in excess of the minimum regulatory capital requirements contained in the applicable regulations, as shown in the table on the previous page.
EUR 2.2 billion at December 31, 2013, a decrease that mainly reflects the deleveraging initiatives executed during 2014.
External dividends In order to enable equity investors to share in Aegon’s performance, Aegon aims to pay out a sustainable dividend, which may increase based on Aegon’s performance. After investments have been made in new business to generate organic growth, capital generated by Aegon’s operating subsidiaries is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating subsidiaries in line with Aegon’s capital management and liquidity risk policies.
Aegon’s operating subsidiaries are subject to local insurance regulations that could restrict dividends to be paid to the holding company. There is no requirement or assurance that
Aegon’s internal audit function assists the Executive Board in maintaining effective controls by independently and objectively evaluating the adequacy and effectiveness of the organization’s internal control and risk management systems. Criteria established under ‘Internal Control - Integrated Framework’, the
(COSO, 2013 framework), are used by Aegon’s internal audit function to analyze and make recommendations to the Executive
In addition, the Executive Board is responsible for Aegon’s enterprise risk management under the supervision of the
Finally, the compliance function plays a key role in monitoring the Company’s adherence to external rules and regulations and internal policies.
On the basis of the above, Aegon’s Executive Board states the following with respect to risks to the Company’s financial reporting: �� Aegon’s risk management and control systems provide reasonable assurance that the Company’s financial reporting does not contain any material inaccuracies; �� Aegon’s risk management and control systems functioned properly in 2014; and �� There are no indications to suggest that Aegon’s risk management and control systems will not continue to function properly in 2015.
The Supervisory Board is entrusted with supervising and advising the Executive Board on management of the Company, and overseeing Aegon’s strategy and the general course of its businesses.
Oversight and advice In performing their duties, members of the Supervisory Board are guided by the interests of Aegon and the Company’s stakeholders. The Supervisory Board is a separate corporate body, independent of the Executive Board. The Supervisory Board consists of nine members (for further details on the individual members of Aegon’s Supervisory Board, please see pages 98 and 99). The Supervisory Board makes recommendations to the
General Meeting of Shareholders concerning all appointments and reappointments to, and dismissals from, both the Executive
Executive Board in line with the Remuneration Policy adopted at the Company’s General Meeting of Shareholders. Overall accountability for Aegon’s remuneration governance also sits with the Supervisory Board, which is advised by its Compensation
Committee. This includes the responsibility for designing, approving and maintaining the Aegon Global Remuneration
Corporate governance Details of Aegon’s corporate governance structure and a summary of the Company’s compliance with the Dutch Corporate
Governance Code can be found on pages 107-111 of this Annual
Composition of the Supervisory Board and Executive Board Supervisory Board The composition of the Board is discussed regularly in meetings of the Board, and in particular by the Nominating Committee.
Board on May 21, 2014, at the end of his third and final term.
Ms. Corien M. Wortmann-Kool and Mr. Robert W. Dineen to the
All members of the Supervisory Board are considered independent under the terms of the Dutch Corporate Governance Code.
Button, Chief Financial Officer (CFO). Mr. Wynaendts’ current term of four years ends in 2015. Following the recommendation from the Nominating Committee, the Supervisory Board has decided to propose to the shareholders to reappoint him at the
Annual General Meeting of Shareholders on May 20, 2015, for a period of four years.
In compliance with the Dutch Corporate Governance Code, members of the Executive Board are appointed by shareholders for a term of four years, with the option of reappointment for additional four-year terms. The appointment schedule for members of the Executive Board is available on Aegon’s corporate website.
Most members attended all regular Board meetings, of which a detailed overview is provided in the table on the next page.
Ben van der Veer 7/7 6/6 6/6 1/1 2/2 - 1/1
Dona Young 7/7 6/6 6/6 4/4 - - 1/1 1 Where a Supervisory Board member retired from the SB or stepped down from a Committee or was appointed during the year, only meetings that were held during his / her tenure are taken into account.
Activities In 2014, Supervisory Board discussions included the following topics: �� Strategy, including Aegon’s sustainability program and business reviews; �� Acquisitions, divestments and restructuring of businesses; �� Executive Board and senior management succession planning; �� Executive remuneration; �� Governance and composition of the Supervisory Board; �� Technological developments and the application of these to enhance customer centricity; �� Human resources, including talent development and results of the global employee survey; �� Annual and quarterly results, dividend and Group Plan 20152017, including the 2015 budget and capital plan; �� Capital position and Solvency II; �� Enterprise risk management; �� Investor relations; �� Legal, regulatory and compliance issues and Aegon’s engagement with regulators; and �� Accounting changes.
Highlights One of the focus areas of the Supervisory Board in 2014 was IT
and technological developments in the broadest sense, ranging from IT security, use of data analytics, digitization and getting closer to customers through the application of new technologies.
Company’s progress with regards to customer centricity with senior management. The Board was kept appraised of the activities of Aegon’s Corporate Venture Fund, which aims to identify early trends and new technologies, thereby creating strategic benefits for the Company by accelerating Aegon’s digital transformation.
Supervisory Board and the Management Board had extensive discussions about industry trends and the impact of changing rules and regulations on the environment in which Aegon operates. The Board reviewed the progress of the execution of
Another key theme in 2014 was developments in Solvency II, the new European regulatory framework for insurers and insurance groups. This framework, which will enter into force on January 1, 2016, includes risk-based capital requirements, an Own Risk and
In December, the Board reviewed Aegon’s Sustainability Program, focusing specifically on developments in the US, noting that
Dutch harbor workers and employers – on removing restrictions on the capital of the harbor workers’ former pension fund
To remove the restrictions required prior approval by the court, which was granted in January 2015. Restrictions may be removed three months from the date of the court ruling in January 2015, after the appeal period expires.
Aegon N.V. In May, August and November, the Supervisory Board reviewed Aegon’s first, second and third quarter 2014 results respectively.
(USA), the Board and management reviewed the Group Plan 2015-2017, including the budget for 2015. The Board took note of the uncertainties and challenges in the coming years as described in the Plan, among others: increased regulatory requirements (e.g. Solvency II), low interest rates, digital developments and the changing distribution landscape.
The Board discussed the cash flow and capital projections, together with the continued focus on cost efficiency. The Plan provides for a continuation of investments in digital capabilities to increase customer connectivity. The Board supported the
Legal and compliance In 2014, the Supervisory Board and the Audit Committee discussed with management, the General Counsel and the
Global Head of Compliance and Operational Risk Management a number of compliance, regulatory and legal issues from Europe, the United States and Asia. In particular, the Board discussed the latest developments with regard to the issue of unit-linked policies in the Netherlands. The Board also followed up on specific issues with regulators in the United Kingdom and Poland.
Board discussed and adopted the plan, after it had been reviewed by the Risk Committee.
Framework and Capital Management Framework, and that it takes Aegon’s first-hand experience in managing through challenging periods in the past into account.
Supervisory Board Committees The Supervisory Board has four Committees to discuss and prepare items for decision by the full Board. Each Committee’s members are drawn from the Supervisory Board. The Committees report their findings to the Supervisory Board at Supervisory
The four Committees are the: �� Audit Committee; �� Risk Committee; �� Nominating Committee; and �� Compensation Committee.
Dutch business and strategy in the Netherlands, in addition to addressing financial, accounting and risk management topics.
The Audit Committee meetings were attended by Aegon’s CFO, the Corporate Controller, the Chief Risk Officer and the internal auditor. Representatives from Aegon’s external auditors EY and
Risk, Group Legal, Investor Relations and actuarial departments were present at some of the meetings.
The internal auditor attended six out of seven Audit Committee meetings in 2014, and provided quarterly updates on the activities of the internal audit function, together with details of progress on internal audits. The Audit Committee approved the Internal Audit Plan. The Audit Committee also held private sessions with the internal auditor and the external auditor to discuss their findings. Members of the Executive Board were not present at these sessions.
The Audit Committee also discussed Aegon’s compliance with the US Sarbanes Oxley Act, and regular reports from the Global Head of Compliance and Operational Risk
Risk Management (ERM) framework. The Committee also advises the Supervisory Board on the Company’s risk management strategy and policies. For this reason, the Committee regularly reviews the Company’s ERM framework, risk exposures and compliance with company risk policies.
Aegon’s Executive Board attended all meetings. Recurring items on the agenda in 2014 were the quarterly risk dashboard and the Board risk list. The Risk Committee also discussed risk priorities for 2014 and Aegon’s risk strategy. The Committee reviewed the Company’s Pricing Compliance report and discussed extreme event scenarios, business continuity management and the progress of the model validation project. It also approved the Recovery and Crisis Management Plan as referred to above.
The Nominating Committee Aegon’s Nominating Committee held three meetings in 2014.
The Nominating Committee discussed the composition of the Supervisory Board and its Committees, and current and upcoming vacancies. The Committee prepared decision-making on the proposal to appoint Ms. Corien M. Wortmann-Kool and
Profile as set by the Board and published on Aegon’s corporate website.
The Board expects to propose the appointment of one new member for a term of four years to shareholders at the
Committee during the year. The Committee was kept appraised of developments in employee engagement, talent management and international mobility. In February 2014 and again in
February 2015, the full Board discussed these topics extensively with the Global Head of Human Resources. As in previous years, the Board noted that Aegon continued to make progress to ensure proper succession planning is in place. The Board was pleased with the results of the Global Employee Survey, which was conducted in January 2015.
‘balanced composition’ was reduced. When identifying candidates for open positions, the Board actively searches for suitable female candidates. It also instructs external search firms to present female candidates. While this has had a positive effect, the requirement has not yet been met.
Committee has increased in recent years as a result of new regulations promulgated by the European Union – the Capital
Banking Authority. CRD III and IV have been implemented by way of the Decree on Sound Remuneration Policy (Regeling
Board Remuneration Policy, reviewing and/or approving the ex-ante assessments and ex-post assessments, any exemption requests under the remuneration policies, and changes to the list of Identified Staff. In addition, the Committee discussed the results of the review by the Internal Audit Department on the application in 2014 of the Remuneration Framework.
During the year, the Committee considered advice from independent external consultant, Towers Watson, on specific
A recurring topic was executive remuneration, particularly in the context of the draft legislation applicable to remuneration in the financial services sector in the Netherlands (‘Wet beloningsbeleid financiële ondernemingen’) announced at the end of 2013.
January 27, 2015 and came into effect on February 7, 2015.
Framework in 2015, in part in order to meet legal/regulatory changes, but also due to management’s wish to simplify the
The Committee also discussed developments with regard to pension accrual in the Netherlands, and the impact on remuneration of employees in the Netherlands.
Committee and the Supervisory Board, signed by the members of the Executive Board and the Supervisory Board, and submitted for adoption to the shareholders. The Supervisory Board recommends that the shareholders adopt the Annual Accounts.
Boards in order to meet Aegon’s strategic goals. In addition, the
Inc., in addition to being a senior adviser to Chrysalis Ventures
He was appointed to Aegon’s Supervisory Board in May 2014, and his current term will end in 2018. He has no other board memberships.
Board of TNT Express N.V. and member of the Board of Directors of PKC Group Oyj (not listed).
Mr. Verbeek was appointed to Aegon’s Supervisory Board in 2008 and his current term ends in 2016. He is also Chairman of the Supervisory Board of Robeco Groep N.V. (not listed) and a member of the Supervisory Board of Aon Groep Nederland
Board in 2003, and his current and final term will end in 2015.
Corien M. Wortmann-Kool (1959, Dutch) Member of the Risk Committee Member of the Compensation Committee Corien M. Wortmann-Kool was a Member of the European
Party) and is Vice-Chairman of the EPP. She was appointed to
Dona D. Young (1954, American) Member of the Audit Committee Member of the Risk Committee Dona Young is an executive/board consultant and retired Chairman, President and Chief Executive Officer of
Directors of Foot Locker, Inc. and a member of the Board of
The Aegon Group Global Remuneration Principles provide the foundation for remuneration policies and practices throughout the Aegon Group. They are applied regionally and/or locally.
Aegon’s remuneration policies are derived from the GRF, among which is the Remuneration Policy for the Executive Board.
These policies define specific terms and conditions for the employment of various groups of staff. In addition, all steps in the remuneration process, in addition to the involvement of
Over the course of 2014, in anticipation of the ‘Wet beloningsbeleid financiële ondernemingen’ (Wbfo, new legislation which has been adopted by the Dutch Senate on January 27, 2015 and which came into effect on February 7, 2015),
Aegon has aligned its GRF and related policies and practices to bring them into line with anticipated new regulations announced by the Dutch government. Amongst others, the legislation introduces caps on variable compensation that go beyond the maximums suggested by European legislation and requires a minimum level of non-financial performance indicators for determining variable compensation as well as limitations to financial retention and severance arrangements.
Aegon is compliant with the Wbfo as of the official date that the Wbfo has become effective in the Netherlands. This new legislation in the Netherlands will have a significant impact on policies and practices related to recruitment and retention of staff, not just in the Netherlands but also globally. As per the legislation, Aegon will also apply this legislation to its foreign subsidiaries. In particular, in the UK in addition to outside Europe, the Company is challenged to explain the competitiveness of
regulations, nor to the stricter Dutch legislation regarding the remuneration in the financial sector.
Staff’. Furthermore, where exceptions to the policies are made to reflect local practices or regulations, Risk Management and
Compliance are involved in order to ensure such exceptions do not undermine effective risk management and that sufficient mitigating measures are undertaken. Since 2011, in conjunction with Risk Management and Compliance, existing remuneration policies have been amended, including deferral and holding arrangements, payment in non-cash instruments, and specific ex-ante and ex-post measures.
In addition, the Risk Management and Compliance functions, together with the Human Resources and Finance functions, are responsible for the execution of the various ex-ante and ex-post measures that have been introduced by Aegon to ensure the
Aegon endeavors to seek an appropriate balance of ex-ante and ex-post assessments to ensure effectiveness in both the short- and long-term risk taking behavior of employees.
General compensation practices Aegon has a pay philosophy that is based on total compensation.
More detailed information is provided in the following sections regarding the compensation practice for the Supervisory Board and Executive Board.
Fees and entitlements Members of the Supervisory Board are entitled to the following: �� A base fee for membership of the Supervisory Board. No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings; �� An attendance fee for each extra Board meeting attended, be it in person or by video and/or telephone conference; �� A committee fee for members on each of the Supervisory
Compensation and Risk - can be found on page 95, 98 and 99.
Wft 2014) produced by the DNB. It was adopted at the General
Watson. The advisor does not, however, advise individual members of the Executive and Supervisory Boards.
Executive Board Remuneration Policy must also be referred to the General Meeting of Shareholders for adoption.
Swiss Re, and Zurich Financial Services. The peer group will be reviewed in 2015.
Consistent with the Executive Board Remuneration Policy, the total direct compensation for Executive Board members consists of fixed compensation and variable compensation. In particular, the variable compensation (both expressed as opportunity and actual payout levels) for Executive Board members at Aegon is lower than at peer and other non-financial companies.
Executive Board members’ commitment to the Company’s objectives and strengthens the Executive Board members’
financial indicators. Aegon believes these indicators provide an accurate and reliable reflection of both company and individual performance. The type of performance indicators are selected in accordance with the long-term goals of the Company. The level of the indicators should be challenging but achievable.
The variable compensation payout can be illustrated by the following example and the table below. For every 1,000 variable compensation that is allocated following the performance period, 400 is paid out/vested in the year following that performance year (N in the table below). This part will be paid 50% in cash (=200) and 50% in shares vesting immediately
(=200 /1 = 29 shares). The remaining 600 is deferred and vests according to a pre-defined schedule.
1 Based on VWAP December 15, 2013 – January 15, 2014.
At an aggregate level, payments are made as follows: �� 50% of the maximum variable compensation if the threshold target is reached; �� 80% if the pre-determined performance targets are met; and �� Up to 100% if the targets are exceeded.
Implementation of this authority is on the basis of criteria such as: �� Outcome of a re-assessment of the performance against the original financial performance indicators; �� Significant downturn in the Company’s financial performance; �� Evidence of misbehavior or serious error by the participant; �� Significant failure in risk management; and �� Significant changes in the Company’s economic or regulatory capital base.
Circuit breaker For each performance indicator, variable compensation is only paid if the threshold level set for that performance indicator is reached.
Executive Board members personal loans, guarantees or other such arrangements, unless in the normal course of business and on terms applicable to all employees, and only with the approval of the Company’s Supervisory Board.
employment with a notice period of three months. The Company must give six months’ notice if it wishes to terminate the employment of a member of its Executive Board.
Executive Board contain provisions for severance payments in the event that their employment be terminated as a result of a merger or takeover. The Supervisory Board has taken appropriate steps to ensure the contractual arrangements of members of the Executive Board are in line with the Executive Board
Chairman of the Executive Board. Mr. Wynaendts was appointed member of the Executive Board in 2003 for four years, and re-appointed in 2007. At the General Meeting of
Shareholders in 2011, Mr. Wynaendts was re-appointed for an additional four years. �� Darryl D. Button, Chief Financial Officer and member of the
Jan J. Nooitgedagt CFO & Member EB (retired)2) - 433,959 1 Mr. Button was appointed as CFO and member of Aegon’s Executive Board per May 15, 2013. Fixed compensation is disclosed for the period that Mr. Button has been part of the Executive Board 2 Mr. Nooitgedagt’s fixed compensation is reflective of his time with Aegon till retirement as per August 1, 2013
Conditional variable compensation awards 2014 Subject to the adoption of the annual accounts at the
The number of shares to be made available in 2014 is 27,105 for
Convocation Meetings are convened by public notice at least 42 days before the meeting. The convocation states the time and location of the meeting, the record date, the agenda items, and the procedures for admittance to the meeting and representation at the meeting by means of a written proxy. Those shareholders who alone or jointly represent at least 1% of Aegon’s issued capital or a block of shares worth at least EUR 100 million may request items be added to the agenda of a General Meeting of Shareholders.
In accordance with Aegon’s Articles of Association, such a request will be granted if it is received in writing at least 60 days before the meeting, and if there are no important interests of the
Board itself. Aegon aims to ensure that the composition of the Company’s Supervisory Board is well balanced in terms of professional background, geography and gender. A profile exists, outlining the required qualifications of its members. Supervisory
Board Members are no longer eligible for appointment after the age of 70, unless the Supervisory Board decides to make an exception. Remuneration of the members of the Supervisory
Committees The Supervisory Board also oversees the activities of several of its committees. These committees are composed exclusively of Supervisory Board members and deal with specific issues related to Aegon’s financial accounts, risk management strategy, executive remuneration and appointments. These committees are: �� Audit Committee; �� Risk Committee; �� Compensation Committee; and �� Nominating Committee.
1 For further details on how Aegon’s corporate governance practices differ from those required of US companies under New York Stock Exchange standards please refer to the NYSE listing standards in the Governance section of Aegon’s corporate website, aegon.com.
2 For more details, please see Major shareholders on pages 311-313.
The employment contract with Mr. Wynaendts contains a provision entitling him to severance payments, should his employment be terminated as a result of a merger or takeover.
Management Board Aegon’s Executive Board is assisted in its work by the Company´s
Capital, significant shareholders and exercise of control As a publicly listed company, Aegon is required to provide the following detailed information regarding any structures or measures that may hinder or prevent a third party from acquiring the Company or exercising effective control over it.
The financial rights attached to a common share B are onefortieth (1/40th) of the financial rights attached to a common share. The rights attached to the shares of both classes are otherwise identical. For the purpose of issuance of shares, reduction of issued capital and the transfer of common shares
B, the value or the price of a common share B is determined as one-fortieth (1/40th ) of the value of a common share. For such purposes, no account is taken of the difference between common shares and common shares B in terms of the proportion between financial rights and voting rights.
Dodge & Cox and FMR are holders of common shares which have no special rights attached to it. Based on its last filing with the
Dutch Autoriteit Financiële Markten on July 1, 2013 the Dodge &
Commission (SEC) shows that Dodge & Cox holds 242,671,430 common shares, representing 9.1% of the issued capital, and has voting rights for 236,832,861 shares, representing 8.8%
Markten on August 27, 2014 FMR stated to hold 113,707,413 commons shares, representing 4.2% of the issued capital, and stated to hold 107,092,451 voting shares, representing 3.9% of the votes. On February 13, 2015, FMR’s filing with the SEC shows that FMR holds 111,693,771 common shares, representing 4.2% of the issued capital and has voting rights for 14,662,935 shares, representing 0.5% of the votes.
Agreement1 entered into between Vereniging Aegon and Aegon ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be allowed to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds. In the event of a Special Cause Vereniging
amounting to 15% or more; �� A tender offer for Aegon N.V. shares; and
Shareholders. In this event, Vereniging Aegon retains full voting rights on its common shares B for a period limited to six months.
Vereniging Aegon would, for that limited period, command 32.6% of the votes at a General Meeting of Shareholders.
Aegon is entitled to acquire its own fully paid-up shares, providing it acts within existing statutory restrictions.
Exercise of option rights Senior executives at Aegon companies and some other employees are granted share appreciation rights and share options. For further details, please see note 14 of the notes to Aegon’s consolidated financial statements of this Annual Report. Under the terms of existing share plans Aegon cannot influence the exercise of granted rights.
January 1, 2009. It is the responsibility of both the Supervisory
Board and the Executive Board to oversee Aegon’s overall corporate governance structure. Any substantial change to this structure is submitted to the General Meeting of Shareholders for discussion.
Code II.2.8 For members of the Executive Board, the Dutch Corporate Governance Code requires that the maximum compensation in the event of dismissal is one year’s salary. If the maximum of one year’s salary is manifestly unreasonable for a member of the Executive Board who is dismissed during the first term of office, the board member will be eligible for severance pay not exceeding twice the annual salary.
Company. This new engagement agreement will be compliant with the best practice provision II.2.8 of the Dutch Corporate
Aegon’s CEO and CFO are specifically excluded from voting on issues directly related to Aegon or their position within it. Aegon’s Supervisory Board holds the view that, given the historic relationship between Aegon and Vereniging Aegon, it is not in the Company’s best interests to prevent Aegon’s
Code IV.1.1 The Dutch Corporate Governance Code states that the General Meeting of Shareholders may cancel the binding nature of nominations for the appointment of members to the Executive and Supervisory Boards with an absolute majority of votes and a limited quorum.
Board has decided that, in the absence of any hostile action, it will only make nominations for appointment of members to the
Corporate Governance Statement For an extensive review of Aegon’s compliance with the Dutch
Differences between Dutch and US company laws Dutch company law is different from US law in the following respects: Aegon, like most large Dutch public companies, has a two-tier governance system comprising an Executive Board and a Supervisory Board. The Executive Board is the executive body and its members are employed by the Company 1. Members of the Executive Board are appointed and dismissed by the
Company’s general course of affairs and the business connected with it. The Supervisory Board also assists the Executive Board by giving advice. Other powers of the Supervisory Board include the prior approval of certain important resolutions of the
Executive Board. Members of the Supervisory Board are appointed for a four-year term and may be dismissed by the
Shareholders. Resolutions entailing a significant change in the identity or character of the Company or its business require the approval of the General Meeting of Shareholders.
The current version of the Code of Conduct came into force in 2012 and gives a clearer commitment to a customer-centric approach. No waivers were granted in respect of the Code of
Aegon’s Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, the disclosure controls and procedures were effective in providing reasonable assurance regarding the reliability of financial reporting.
Management assessed the effectiveness of Aegon’s internal control over financial reporting as of December 31, 2014.
In making its assessment management used the criteria established in ‘Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Based on the assessment, management has concluded that, in all material aspects, the internal control over financial reporting was effective as at December 31, 2014. They have reviewed the results of its work with the Audit Committee of the Supervisory Board.
To: The annual General Meeting of Shareholders’ and Supervisory Board of Aegon N.V. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control - Integrated Framework 2013 issued by the Committee of
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i)
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Earnings per share (EUR per share) 19 Basic earnings per common share 0.49 0.30 0.74
Diluted earnings per common share B 0.01 0.01 1 Amounts for 2013 and 2012 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving.
Items that will not be reclassified to profit or loss: Changes in revaluation reserve real estate held for own use 9 (6) (5)
Items that may be reclassified to profit or loss: Gains / (losses) on revaluation of available-for-sale investments 6,759 (3,376) 4,191
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments (702) (435) (465)
Income tax relating to items that may be reclassified (2,018) 1,295 (1,058)
Total comprehensive income attributable to: Equity holders of Aegon N.V. 7,262 (2,538) 4,057
Non-controlling interests (1) (3) (1) 1 Amounts for 2013 and 2012 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving.
Other comprehensive income: Items that will not be reclassified to profit or loss: Changes in revaluation reserve real estate held for own use - - 9 - - - 9 - 9
Remeasurements of defined benefit plans - - - (1,156) - - (1,156) - (1,156)
Changes in cash flow hedging reserve - - 1,188 - - - 1,188 - 1,188
Movements in foreign currency translation and net foreign investment hedging reserves - - - (84) 1,752 - 1,668 - 1,668
Equity movements of joint ventures - - - - 10 - 10 - 10
Transfer from / to other headings - - - - - - - -
Repurchased and sold own shares - - - - - - - - -
Issuance and purchase of treasury shares - (67) - - - - (67) - (67)
Transfer from / to other headings - (3) 3 - - - - - -
Total other comprehensive income / (loss) - (4) (3,093) 379 (675) - (3,392) (5) (3,398)
Dividends paid on common shares - (240) - - - - (240) - (240)
Share options and share-based incentive plans - 30 - - - (3) 27 - 27 1 Issued capital and reserves attributable to equity holders of Aegon N.V. 2 Amounts for 2013 have been restated for the voluntary changes in accounting policies for deferred policy acquisition costs and longevity reserving.
Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes.
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 2012
At January 1, 2012 (as previously stated) 9,097 9,296 3,481 (979) (981) 4,720 24,634 14 24,648
Changes in accounting policies relating to Deferred policy acquisition costs 2) (1,411) 35 (39) (1,415) (1,415)
Changes in accounting policies relating to Policy longevity methodology 2) (1,076) (1,076) (1,076)
Net income / (loss) recognized in the income statement - 1,671 - - - - 1,671 1 1,672
Other comprehensive income: Items that will not be reclassified to profit or loss: Changes in revaluation reserve real estate held for own use - - (5) - - - (5) - (5)
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments - - (465) - - - (465) - (465)
Movements in foreign currency translation and net foreign investment hedging reserves - - - 6 (135) - (129) - (129)
Equity movements of joint ventures - - - - 27 - 27 - 27
Dividends paid on common shares - (148) - - - - (148) - (148)
Issuance of non-cumulative subordinated notes - - - - - 271 271 - 271
Net cash flows from operating activities 4,122 (2,011) (1,227) Purchase of individual intangible assets (other than VOBA and future servicing rights) (28) (22) (36)
Net increase / (decrease) in cash and cash equivalents 2) 4,766 (3,766) 1,751
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 under its registered address at Aegonplein 50, 2591 TV, The Hague, the Netherlands.
Certain amounts in prior years have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income, shareholders’ equity or earnings per share.
March 18, 2015. The financial statements will be put to the Annual General Meeting of Shareholders on May 20, 2015 for adoption.
IFRS 4 Insurance Contracts neither prohibits nor requires the deferral of policy acquisition costs, nor does it prescribe what acquisition costs are deferrable. Thus, in developing the new policy, Aegon considered and sought alignment with the proposed description of deferrable policy acquisition costs within the IFRS Insurance Contracts Phase II exposure draft (Exposure Draft). In the absence of detailed guidance in the Exposure Draft, Aegon also considered the recently adopted guidance in US GAAP (Accounting Standards
Update 2010-26 ‘Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts’), if not conflicting with IFRS 4 or the Exposure Draft. IFRS currently differs from US GAAP by not limiting the deferral to expenses from successful efforts only and in the detail of how that principle is applied. Under the new accounting policy, deferred policy acquisition costs include costs that are directly attributable to the acquisition or renewal of insurance contracts. The previous accounting policy was based on a broader definition of costs that could be deferred.
Mortality tables will be reviewed annually based on the prospective tables taking into account longevity trends. The new methodology will take into account the contractual cash flows related to the longevity risk assumed. Previously the methodology applied by Aegon the Netherlands considered realized mortalities based on retrospective mortality tables.
Details of the impact of the adjustments on previous periods of the financial statements are provided in the following tables.
Earnings per share (EUR per share) Basic earnings per common share 0.29 (0.04) 0.05 0.30 0.70 (0.03) 0.07 0.74
Basic earnings per common share B 0.01 - - 0.01 - - - -
Diluted earnings per common share 0.29 (0.04) 0.05 0.30 0.70 (0.03) 0.07 0.74
Diluted earnings per common share B 0.01 - - 0.01 - - - -
Net income attributable to equity holders of Aegon N.V. 846 (85) 93 854 1,581 (62) 152 1,671
Earnings attributable to common shareholders 596 (85) 93 604 1,327 (62) 152 1,417
Weighted average number of common shares outstanding (in million) 2,035 - - 2,035 1,907 - - 1,907
Total comprehensive income attributable to: 1 As reported in Aegon’s 2013 Annual Report dated March 19, 2014.
Equity and liabilities 1 As reported in Aegon’s 2013 Annual Report dated March 19, 2014. 2 As a result of the voluntary accounting changes the balance of the Dutch tax group as at December 31, 2013, and December 31, 2012, changed from a deferred tax liability to a deferred tax asset.
Remeasurement of defined benefit plans (706) - - (706) (1,085) - - (1,085)
In 2014, the Group changed the presentation of its borrowings. Aegon’s borrowings are now further defined separately as capital funding and operational funding. Capital funding includes debt securities that are issued for general corporate purposes and for capitalizing its business units. Capital funding is part of the Company’s total capitalization that is used for financing its subsidiaries and the cash held at the holding company. Operational funding includes debt securities that are issued for financing of dedicated pools of assets. These assets are either legally segregated or tracked as separate portfolios.The presentation of borrowings is changed to align more closely with the current methodology for the Group’s composition of total capitalization and the calculation of gross financial leverage. As a result, bank overdrafts and short-term deposits, which were previously classified within borrowings, are reclassified to Other liabilities. Comparative information has been reclassified accordingly. Refer to note 39 Borrowings and note 44
Other liabilities for more information. This change in presentation did not change net profit, total assets or total liabilities.
2.1.3 Future adoption of new IFRS accounting standards The following standards, amendments to existing standards and interpretations, published prior to January 1, 2014, were not early adopted by the Group, but will be applied in future years: �� IFRS 9 Financial Instruments*; and �� IFRS 15 Revenue from Contracts with Customers*.
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 will replace IAS 18 Revenue, as well as other IFRIC and SIC interpretations regarding revenue unless the contracts are within the scope of other standards (for example, financial instruments, insurance contracts or lease contracts). The standard outlines the principles an entity shall apply to measure
The subsidiary’s assets, liabilities and contingent liabilities are measured at fair value on the acquisition date and are subsequently accounted for in accordance with the Group’s accounting policies, which is consistent with IFRS. Intra-group transactions, including
Exposure or rights to variability of returns can be the result of, for example: �� General account investment of Aegon; �� Aegon’s investments held for policyholder; �� Guarantees provided by Aegon on return of policyholders in specific investment vehicles; �� Fees dependent on fund value (including, but not limited to, asset management fees); and �� Fees dependent on performance of the fund (including, but not limited to, performance fees).
Investment funds where Aegon acts as an agent are not consolidated due to lack of control. In particular, for some separate accounts, the independent board of directors has substantive rights and therefore Aegon does not have power over these separate accounts but acts as an agent.
The resulting exchange differences are recognized in the ‘foreign currency translation reserve’, which is part of shareholders’ equity. On disposal of a foreign entity the related cumulative exchange differences included in the reserve are recognized in the income statement.
Board which is regarded as the ‘chief operating decision maker’. The reportable segments are: �� Aegon Americas: Covers business units in the United States, Canada, Brazil and Mexico, including any of the units’ activities located outside these countries; �� Aegon the Netherlands: Covers businesses operating in the Netherlands; �� Aegon UK: Covers businesses operating in the United Kingdom; �� New Markets: Covers businesses operating in Central & Eastern Europe, Asia, Spain and France as well as Aegon’s variable annuity activities in Europe and Aegon Asset Management that are aggregated as reportable segment; �� Holding and other activities: Includes financing, employee and other administrative expenses of holding companies.
2.5 Offsetting of assets and liabilities Financial assets and liabilities are offset in the statement of financial position when the Group has a legally enforceable right to offset and has the intention to settle the asset and liability on a net basis or simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterpart.
It is derecognized when the interest in the subsidiary or joint venture is disposed.
2.7 Investments General account investments comprise financial assets, excluding derivatives, as well as investments in real estate.
Loans and financial assets held-to-maturity are subsequently carried at amortized cost using the effective interest rate method.
Fair value is defined as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). For quoted financial assets for which there is an active market, the fair value is the bid price at the balance sheet date. In the absence of an active market,
fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics. The valuation techniques that include unobservable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors (including time) that market participants would consider in setting a price for the asset. Interest accrued to date is not included in the fair value of the financial asset.
b. Real estate Investments in real estate include 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 Group and that is not intended to be sold in the near future is classified as real estate held for own use and is presented in ‘Other assets and receivables.’
Notes to the consolidated financial statements of Aegon N.V. Note 2 2.8 Investments for account of policyholders Investments held for account of policyholders consist of investments in financial assets as well as investments in real estate.
The fair value is calculated net of the interest accrued to date and is based on market prices, when available. When 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, to the extent possible.
The carrying amount is subsequently adjusted to reflect the change in the Group’s share in the net assets of the joint venture and is subject to impairment testing. The net assets are determined based on the Group’s accounting policies. Any gains and losses recorded in other comprehensive income by the joint venture are reflected in other reserves in shareholders’ equity, while the share in the joint ventures net income is recognized as a separate line item in the consolidated income statement. The Group’s share in losses is recognized until the investment in the joint ventures’ equity and any other long-term interest that are part of the net investment are reduced to nil, unless guarantees exist.
Gains and losses on transactions between the Group and the joint ventures are eliminated to the extent of the Group’s interest in the entity, with the exception of losses that are evidence of impairment which are recognized immediately. Own equity instruments of Aegon N.V. that are held by the joint venture are not eliminated.
Acquisition costs are deferred to the extent that they are recoverable and are subsequently amortized based on factors such as expected gross profit margins. For products sold in the United States with amortization based on expected gross profit margins, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income statement. Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, morbidity and lapse assumptions, maintenance expenses and expected inflation rates.
This is recognized directly in the related revaluation reserve in shareholders’ equity.
2.15 Cash and cash equivalents Cash comprises cash at banks and in-hand. Cash equivalents are short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known cash amounts, are subject to insignificant risks of changes in value and are held for the purpose of meeting short-term cash requirements. Money market investments that are held for investment purposes (backing insurance liabilities, investment liabilities or equity based on asset liability management considerations) are not included in cash and cash equivalents but are presented as investment or investment for account of policyholders.
a. Impairment of non-financial assets Assets are tested individually for impairment when there are indications that the asset may be impaired. For goodwill and intangible assets with an undefined life, an impairment test is performed at least once a year or more frequently as a result of an event or change in circumstances that would indicate an impairment charge may be necessary. The impairment loss is calculated as the difference between the carrying and the recoverable amount of the asset, which is the higher of an asset’s value in use and its fair value less cost of disposal. The value in use represents the discounted future net cash flows from the continuing use and ultimate disposal of the asset and reflects its known inherent risks and uncertainties. The valuation utilized the best available information, including assumptions and projections considered reasonable and supportable by management. The assumptions used in the valuation involve significant judgments and estimates. Refer to note 21 Intangible assets for more details.
The liability is derecognized when the Group’s obligation under the contract expires, is discharged or is cancelled.
Depending on local accounting principles, the liability may include amounts for future services on contracts where the policy administration charges are higher in the initial years than in subsequent years.
In establishing the liability, guaranteed minimum benefits issued to the policyholder are measured as described in note 2.19 c
Embedded derivatives or, if bifurcated from the host contract, as described in note 2.9 Derivatives.
b. Life insurance contracts for account of policyholders Life insurance contracts under which the policyholder bears the risks associated with the underlying investments are classified as insurance contracts for account of policyholders.
c. Embedded derivatives 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.
The reserve for unearned premiums includes premiums received for risks that have not yet expired. Generally, the reserve is released over the coverage period of the premium and is recognized as premium income.
2.20 Investment contracts Contracts issued by the Group that do not transfer significant insurance risk, but do transfer financial risk from the policyholder to the Group are accounted for as investment contracts. Depending on whether the Group or the policyholder runs the risks associated with the investments allocated to the contract, the liabilities are classified as investment contracts or as investment contracts for account of policyholders. Investment contract liabilities are recognized when the contract is entered into and are derecognized when the contract expires, is discharged or is cancelled.
Notes to the consolidated financial statements of Aegon N.V. Note 2 2.22 Assets and liabilities relating to employee benefits a. Short-term employee benefits A liability is recognized for the undiscounted amount of short-term employee benefits expected to be settled within one year after the end of the period in which the service was rendered. Accumulating short-term absences are recognized over the period in which the service is provided. Benefits that are not service-related are recognized when the event that gives rise to the obligation occurs.
b. Post-employment benefits The Group has issued defined contribution plans and defined benefit plans. A plan is classified as a defined contribution plan when the Group has no further obligation than the payment of a fixed contribution. All other plans are classified as defined benefit plans.
Plan improvements (either vested or unvested) are recognized in the income statement at the date when the plan improvement occurs.
Remeasurements of the net defined benefit liability (asset) comprise of: �� Actuarial gains and losses; �� The return on plan assets, excluding amounts included in net interest on the net defined benefit liability (asset); and �� Any change in the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability (asset).
Aegon recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs.
During this period the cumulative expense recognized at the reporting date reflects management’s best estimate of the number of shares expected to vest ultimately.
Investment income also includes rental income due, as well as fees received for security lending.
2.31 Impairment charges/(reversals) Impairment charges and reversals include impairments and reversals on investments in financial assets, impairments and reversals on the valuation of insurance assets and liabilities and other non-financial assets and receivables. Refer to note 15 Impairment charges/
Valuation of assets and liabilities arising from life insurance contracts The liability for life insurance contracts with guaranteed or fixed account terms is generally based on current assumptions or on the assumptions established at the inception of the contract. All contracts are subject to liability adequacy testing which reflects management’s current estimates of future cash flows (including investment returns). To the extent that the liability is based on current assumptions, a change in assumptions will have an immediate impact on the income statement. Also, if a change in assumption results in not passing the liability adequacy test, the entire deficiency is recognized in the income statement. To the extent that the deficiency
Some insurance contracts without a guaranteed or fixed contractual term contain guaranteed minimum benefits. Depending on the nature of the guarantee, it may either be bifurcated and presented as a derivative or be reflected in the value of the insurance liability in accordance with local accounting principles. Given the dynamic and complex nature of these guarantees, stochastic techniques under a variety of market return scenarios are often used for measurement purposes. Such models require management to make numerous estimates based on historical experience and market expectations. Changes in these estimates will immediately affect the income statement.
In the latter case, the anticipated future investment returns are set by management on a countrywide basis, considering available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities and variable life insurance products in the United States and some of the smaller countries, is the annual long-term growth rate of the underlying assets. The reconsideration of this assumption may affect the original DPAC or VOBA amortization schedule, referred to as DPAC or VOBA unlocking. The difference between the original DPAC or VOBA amortization schedule and the revised schedule, which is based on estimates of actual and future gross profits, is recognized in the income statement as an expense or a benefit in the period of determination.
During 2014, Aegon implemented model and assumption updates resulting in a net EUR 352 million charge to income before tax.
Actuarial assumption changes and model updates not included in underlying earnings before tax had an adverse impact on income before tax of EUR 131 million. Consisting of a charge of EUR 118 million in the Americas, mainly caused by adjusting the modeled hedging costs for the GMWB variable annuity book, improving the hedging models for indexed universal life products and updating the discount rate on reserves in the run-off life reinsurance book, and a charge of EUR 13 million in the Netherlands from model updates.
For 2014, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 8% (December 31, 2013: 8%). The long-term assumption for 10-year US Treasury yields remains at 4.25% and the uniform grading period is 10 years. Aegon’s assumed returns for US separate account bond fund remain at 4%
over the next 10 years and 6% thereafter. The 90-day Treasury yield is 0.04% at December 31, 2014, and is assumed to remain level for the next two years followed by an eight year grade to 2.5%. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated market return and the actual market return.
In the third quarter of 2013, to reflect the low interest rate environment, Aegon lowered its long-term assumption for 10-year US
In 2012, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 9% (2011: 9%). The 90-day Treasury yield was 0.05% at December 31, 2012, and was assumed to remain level for the next 2 years followed by a 3 year grade to 3%. Aegon’s assumptions on the long term credit spread or default assumptions, remained unchanged in 2012.
EUR 130 million (2013: EUR 94 million). The DPAC and VOBA balances for these products in the United States amounted to
EUR 2.6 billion at December 31, 2014 (2013: EUR 2.1 billion).
Any reasonably possible changes in the other assumptions Aegon uses to determine EGP margins (i.e. maintenance expenses, inflation and disability) would reduce net income by less than EUR 32 million (per assumption change) (2013: EUR 37 million).
The degree of judgment used in measuring the fair value of assets and liabilities generally inversely correlates with the level of observable valuation inputs. Aegon maximizes the use of observable inputs and minimizes the use of unobservable valuation inputs when measuring fair value. Financial instruments, for example, with quoted prices in active markets generally have more pricing observability and therefore less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment.
However, certain assets and liabilities are valued on the basis of valuation techniques that feature one or more significant market inputs that are unobservable and, for such assets and liabilities, the derivation of fair value is more judgmental. An instrument is classified in its entirety as valued using significant unobservable inputs (Level III) if, in the opinion of management, a significant proportion of the instrument’s carrying amount is driven by unobservable inputs. ‘Unobservable’ in this context means that there is little or no current market data available from which to determine the price at which an at arm’s length transaction would be likely to occur. It generally does not mean that there is no market data available at all upon which to base a determination of fair value. Additional information is provided in the table headed ‘Effect of changes in significant unobservable assumptions to reasonably possible alternatives’ below.
These risk management programs are in place in each country unit and are not only used to manage risk in each unit, but are also part of the Group’s overall risk strategy.
Aegon’s target ratio for the composition of its capital base is based on shareholders’ equity excluding the revaluation reserve.
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 Depression and Inflation scenario, financial markets are stressed without assuming diversification across different market factors. As part of the Extreme Event Scenario testing, appropriate management actions are implemented when management deems this necessary.
Risk and Capital Committee. Assets should be held in the functional currency of the business written or hedged back to that currency.
Information on Aegon’s three year historical net income/(loss) and shareholders’ equity in functional currency are shown in the table below: Net income Americas (in USD) 784 540 1,325
The sensitivity analysis in the following table shows an estimate of the effect of movements in the exchange rates of Aegon’s non-euro currencies relative to the euro on net income and shareholders’ equity. The effects as included in the following table are due to the translation of subsidiaries and joint ventures in the consolidated financial statements.
Decrease by 15% of USD currencies relative to the euro (79) (1,434)
Decrease by 15% of GBP currencies relative to the euro (31) (484)
Increase by 15% of USD currencies relative to the euro 61 1,425
Increase by 15% of GBP currencies relative to the euro 20 565
Decrease by 15% of USD currencies relative to the euro (61) (1,425)
Decrease by 15% of GBP currencies relative to the euro (20) (565)
Aegon manages interest rate risk closely, taking into account all of the complexity regarding policyholder behavior and management action. Aegon employs sophisticated interest rate measurement techniques and actively uses derivatives and other risk mitigation tools to closely manage its interest rate risk exposure. Aegon operates an Interest Rate Risk policy that limits the amount of interest rate risk to which the Group is exposed. All derivative use is governed by Aegon’s Derivative Use Policy.
The following table shows interest rates at the end of each of the last five years.
The sensitivity analysis in the table below shows an estimate of the effect of a parallel shift in the yield curves on net income and shareholders’ equity. In general, increases in interest rates have a negative effect on shareholders’ equity and a positive impact on net income in the current year because it results in unrealized losses on investments that are carried at fair value. The rising interest rates would also cause the fair value of the available-for-sale bond portfolio to decline and the level of unrealized gains could become too low to support recoverability of the full deferred tax asset triggering an allowance charge to income. 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 medium-term reduction in net income due to rising interest rates would be offset by higher net income in later years, all else being equal. Therefore, higher interest rates are not considered a long-term risk to the Group.
Credit risk As premiums and deposits are received, these funds are invested to pay for future policyholder obligations. For general account products, Aegon typically bears the risk for investment performance equaling the return of principal and interest. Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), over-the-counter derivatives and reinsurance contracts. Some issuers have defaulted on their financial obligations for various reasons, including bankruptcy, lack of liquidity, downturns in the economy, downturns in real estate values, operational failure and fraud. During the financial crisis, Aegon incurred significant investment impairments on Aegon’s investment assets due to defaults and overall declines in the capital markets. Further excessive defaults or other reductions in the value of these securities and loans could have a materially adverse effect on Aegon’s business, results of operations and financial condition.
The table that follows shows the Group’s maximum exposure to credit risk from investments in general account financial assets, as well as general account derivatives and reinsurance assets, collateral held and net exposure. Please refer to note 48 Commitments and contingencies and note 49 Transfer of financial assets for further information on capital commitments and contingencies, and on collateral given, which may expose the Group to credit risk.
Money market and other short-term investments - carried at fair value 7,299 - 874 - - - - 874 - 6,425
Other financial assets - carried at fair value 3,380 - - - - - - - - 3,380
Debt securities - carried at fair value 89,511 - - 725 - - - 725 - 88,787
Money market and other short-term investments - carried at fair value 5,974 - 1,078 - - - - 1,078 31 4,926
Further information on equity risk is provided in the section ‘Equity market and other investment risk’.
The real estate collateral for mortgages includes both residential and commercial properties. The collateral for commercial mortgage loans in Aegon Americas is measured at fair value. At a minimum on an annual basis, a fair value is estimated for each individual real estate property that has been pledged as collateral. When a loan is originally provided, an external appraisal is obtained to estimate the value of the property. In subsequent years, the value is typically estimated internally using various professionally accepted valuation methodologies. Internal appraisals are performed by qualified, professionally accredited personnel. International valuation standards are used and the most significant assumptions made during the valuation of real estate are the current cost of reproducing or replacing the property, the value that the property’s net earning power will support, and the value indicated by recent sales of comparable properties. Valuations are primarily supported by market evidence. For Aegon the Netherlands, collateral for the residential mortgages is measured as the foreclosure value which is indexed periodically.
The assets in trust can be accessed to pay policyholder benefits in the event the reinsurers fail to perform under the terms of their contract. Further information on the related reinsurance transactions is included in note 27 Reinsurance assets.
The total collateral includes both under- and over-collateralized positions. To present a net exposure of credit risk, the overcollateralization, which is shown in the surplus collateral column, is extracted from the total collateral.
Aegon manages credit risk exposure by individual counterparty, sector and asset class, including cash positions. Normally, Aegon mitigates credit risk in derivative contracts by entering into credit support agreement, where practical, and in ISDA master netting agreements for most of Aegon’s legal entities to facilitate Aegon’s right to offset credit risk exposure. Main counterparties to these transactions are investment banks which are typically rated ‘A’ or higher. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of derivative trades, comprised mostly of interest rate swaps, currency swaps, and credit swaps. Collateral received is mainly cash (USD and EUR). The credit support agreements that outline the acceptable collateral require high quality instruments to be posted. In 2014 and 2013, there was no default with any derivatives counterparty. The credit risk associated with financial assets subject to a master netting agreement is eliminated only to the extent that financial liabilities due to the same counterparty will be settled after the assets are realized.
Aegon group level long-term counterparty exposure limits are as follows: Group limit Amounts in EUR million 2014 2013
The ratings distribution of general account portfolios of Aegon’s major reporting units, excluding reinsurance assets, are presented in the table that follows, organized by rating category and split by assets that are valued at fair value and assets that are valued at amortized cost. As of 2014, Aegon has changed the rating hierarchy to align more closely with the CNLP as maintained internally by the Group. In previous years the disclosure of ratings followed a hierarchy of S&P, Moody’s, Fitch, Internal and National Association of Insurance Commissioners (NAIC). Under the CNLP a composite rating is used, which is based on a combination of the ratings of the constituents mentioned. The rating used is the lower of the external rating and the internal rating. This change in methodology did not impact net income, total assets or total liabilities.
The change in credit hierarchy has been adjusted in the comparatives. The impact of this methodology policy change on the comparative is disclosed in the following tables.
The following table shows the credit quality of the gross positions in the statement of financial position for general account reinsurance assets specifically: Carrying value 2014 Carrying value 2013 1)
Not rated 329 334 1 For 2013, the credit classification is restated for the change in rating methodology.
EUR 7,622 million (2013: EUR 6,514 million). The loan to value (LTV) amounted to approximately 57% (2013: 59%). Of the portfolio 0.23% (2013: 0.24%) is in delinquency (defined as 60 days in arrears). In 2014, Aegon Americas recognized EUR 8 million impairments
The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2014, amounted to EUR 28,758 million
EUR 261 million of bonds (2013: EUR 343 million) in the EUR 0.9 billion subprime portfolio (2013: EUR 1.0 billion). Expected claims against the monolines amounted to EUR 68 million (2013: EUR 98 million), although an insolvency by one of the monolines could create significant market price volatility for the affected holdings.
At the end of 2014, Aegon USA had one indirect exposure of EUR 22 million via wrapped bonds via holdings in monoline insurers and derivative counterparty exposure where monoline insurers are Aegon’s counterparty (2013: no indirect exposure).
portfolios, are as follows as of December 31, 2014, and December 31, 2013: Amortized cost Unrealized gains Unrealized losses Total fair value
Of which held by Aegon Americas, NL and UK 87,900 5,728 (1,603) 92,026 69,573 22,453
Unrealized bond losses by sector The composition by industry category of Aegon’s available-for-sale (AFS) debt securities and money market investments in an unrealized loss position at December 31, 2014, and December 31, 2013, is presented in the following table: Unrealized losses - debt securities and money market investments
Commercial mortgage-backed securities (CMBSs) 987 (18) 1,559 (91) Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds,
As of December 31, 2014, there are EUR 11,452 million (December 31, 2013: EUR 5,580 million) of gross unrealized gains and EUR 713 million (December 31, 2013: EUR 1,575 million) of gross unrealized losses in the AFS debt securities portfolio of Aegon Americas, Aegon the Netherlands and Aegon UK. One issuer, Belfius Bank SA, represents more than 4% of the total unrealized loss position.
After a strong first half of 2014, financial and credit market conditions weakened significantly over the second half of the year.
Union. US equity markets performed well during 2014, while most global markets had relatively modest returns. The US Federal
Loss severities on liquidated properties remain elevated for subprime loans but are starting to show signs of improvement for other
Commercial mortgage-backed securities As of December, 31, 2014, Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 5,701 million (December 31, 2013: EUR 5,160 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 5,149 million (December 31, 2013: EUR 4,663 million) is held by Aegon USA, EUR 434 million (December 31, 2013: EUR 398 million) by Aegon UK and EUR 118 million
The total net unrealized gain on the available-for-sale CMBS as of December 31, 2014, is EUR 275 million (December 31, 2013: EUR 162 million), of which EUR 167 million (December 31, 2013: EUR 88 million) relates to positions of Aegon USA, followed by
of EUR 29 million (December 31, 2013: EUR 38 million), which are classified as fair value through profit or loss.
Total amortized cost Total fair value 1 For 2013, the credit classification is restated for the change in rating methodology.
As the remaining unrealized losses in the CMBS portfolio relate to holdings where Aegon expects to receive full principal and interest, Aegon does not consider the underlying investments to be impaired as of December 31, 2014.
Asset-backed securities Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 7,420 million (December 31, 2013: EUR 5,837 million) of AFS
(December 31, 2013 : EUR 1,563 million) by Aegon the Netherlands and EUR 2,124 million (December 31, 2013: EUR 1,682 million)
The combination of these factors has led to a decrease in credit spreads over 2014. In the United States, increasing investor demand has been met with new issuance in the asset-backed sector. The combination of these factors has led to varied performance by sector with most sectors exhibiting wider credit spreads over the course of the year.
CDOs backed by ABS, Corp. bonds, Bank loans 1,277 750 357 117 179 2,680 2,643
The fair values of Aegon USA, Aegon the Netherlands and Aegon UK ABS instruments were determined as follows: Level II Level III Total 2014 Level II Level III Total 2013
There is one individual issuer rated below investment grade in the Banking sub-sector which has unrealized losses greater than
(December 31, 2013: EUR 99 million). These below investment grade securities had gross unrealized losses of EUR 39 million as of December 31, 2014 (December 31, 2013: EUR 26 million). Belfius Bank SA was created subsequent to the restructuring of Dexia SA.
Corporate - Industrial sector The Corporate - Industrial sector is further subdivided into various sub-sectors. A majority of Aegon’s available-for-sale portfolio gross unrealized loss is in the Basic industry and Consumer non-cyclical sub-sectors.
There are no individual issuers rated below investment grade in the Corporate – Industrial sector which have unrealized loss positions greater than EUR 25 million.
Sovereign Aegon Americas, Aegon the Netherlands and Aegon UK’s government issued available-for-sale debt securities include emerging market sovereign bonds, US Treasury bonds, agency and state bonds. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2014.
Unrealized loss by maturity The table below shows the composition by maturity of all available-for-sale debt securities in an unrealized loss position held by
Carrying value of securities with gross unrealized losses Gross unrealized losses 1 For 2013, the credit classification is restated for the change in rating methodology.
The unrealized loss improved significantly during 2014 due to declining interest rates. Credit spreads widened during 2014, which partially offset this improvement.
This issuer has been separately disclosed above in the Corporate – Financial sector – Banking sub-sector portion of note 4.
Realized gains and losses on debt securities of Aegon Americas, Aegon the Netherlands and Aegon UK
Net (impairments) and recoveries Net recoveries for the twelve months ended December 31, 2014, totaled EUR 20 million (twelve months ended December 31, 2013: EUR 71 million net impairments).
For the twelve months ended December 31, 2014, Aegon recognized EUR 56 million (twelve months ended December 31, 2013: EUR 60 million) in recoveries on previously impaired securities. In each case where a recovery was taken on structured securities, improvements in underlying cash flows for the security were documented and modeling results improved significantly. Recoveries on non-structured securities were supported by documented credit events combined with significant market value improvements.
Debt securities - carried at fair value 10 53 14 77 50 37 14 101
As of December 31, 2014, there are EUR 180 million of gross unrealized gains and EUR 12 million of gross unrealized losses in the equity portfolio of Aegon (December 31, 2013: EUR 309 million of gross unrealized gains and EUR 11 million of gross unrealized losses). There are no securities held by Aegon with an unrealized loss above EUR 5 million. The table below represents the unrealized gains and losses on share positions held by Aegon Americas, Aegon the Netherlands and Aegon UK.
Aegon UK at December 31, 2014, and December 31, 2013 is presented in the table below.
The sensitivity of shareholders’ equity and net income to changes in equity markets reflects changes in the market value of
Aegon operates a Liquidity Risk Policy under which country units are obliged to maintain sufficient levels of highly liquid assets to meet cash demands by policyholders and account holders over the next two years. Potential cash demands are assessed under a stress scenario including spikes in disintermediation risk due to rising interest rates and concerns over Aegon’s financial strength due to multiple downgrades of the Group’s credit rating. At the same time, the liquidity of assets other than cash and government issues is assumed to be severely impaired for an extended period of time. All units and Aegon Group must maintain enough liquidity in order to meet all cash needs under this extreme scenario.
Aegon held EUR 35,604 million of general account investments in cash, money market products and sovereign bonds that are readily saleable or redeemable on demand (2013: EUR 28,134 million). The Group expects to meet its obligations, even in a stressed liquidity event, from operating cash flows and the proceeds of maturing assets as well as these highly liquid assets. Further, the Group has access to back-up credit facilities, as disclosed in note 39 Borrowings, amounting to EUR 4,404 million which were unused at the end of the reporting period (2013: EUR 3,451 million).
Investment contracts for account of policyholders 1) 24,770 3,420 - - 31 28,221 1 Excluding investment contracts with discretionary participating features.
Insurance contracts for account of policyholders - 6,580 27,434 26,771 85,482 146,267
Insurance contracts for account of policyholders - 5,611 24,303 22,495 71,801 124,210
Investment contracts for account of policyholders 100 8,095 22,659 22,169 61,272 114,295 1 The liability amount in the consolidated financial statements reflects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefit payments shown for all years in the table exceeds the corresponding liability amounts included in notes 36 Insurance contracts and 37 Investments contracts.
Maturity analysis relating to derivatives 1) (Contractual cash flows) 2013 On demand
Among other things, Aegon’s senior management is compensated based in part on Aegon’s results against targets using the non-IFRS
Certain assets held by Aegon Americas, Aegon the Netherlands and Aegon UK are carried at fair value and managed on a total return basis, with no offsetting changes in the valuation of related liabilities. These include assets such as investments in hedge funds, private equities, real estate (limited partnerships), convertible bonds and structured products. Underlying earnings exclude any overor underperformance compared to management’s long-term expected return on assets. Based on current holdings and asset returns, the long-term expected return on an annual basis is 8 to 10%, depending on asset class, including cash income and market value changes. The expected earnings from these asset classes are net of deferred policy acquisition costs (DPAC) where applicable.
Realized gains or losses on investments Includes realized gains and losses on available-for-sale investments, mortgage loans and loan portfolios.
Impairment charges/reversals Includes impairments and reversals on debt securities and impairments on shares including the effect of deferred policyholder acquisition costs, mortgage loans and loan portfolios at amortized cost and associates respectively.
Run-off businesses Includes underlying results of business units where management has decided to exit the market and to run off the existing block of business. Aegon believes that excluding the earnings of these blocks of businesses from underlying earnings enhances the comparability from period to period of Aegon’s key earnings measure, underlying earnings. This line includes the run-off of the institutional spread-based business, structured settlements blocks of business, bank-owned and corporate-owned life insurance
Realized gains / (losses) on investments 85 431 164 16 - - 697 (3) 694
The Group uses underlying earnings before tax in its segment reporting as an important indicator of its financial performance.
Realized gains and (losses) on financial investments 10 697 500 552
Gains and (losses) on investments in real estate 10 (4) (49) (9)
Fair value changes on economic hedges for which no hedge accounting is applied 10 (241) (108) (79)
Ineffective portion of hedge transactions for which hedge accounting is applied 10 43 9 11
Impairment charges / (reversals) on financial assets, excluding receivables (11) 12 - 65 - 66
Impairment charges / (reversals) on non- financial assets and receivables - 8 6 7 - 21
Amortization of deferred expenses, VOBA and future servicing rights 572 58 234 143 - 1,007
Impairment charges / (reversals) on financial assets, excluding receivables 48 32 31 17 - 127
Impairment charges / (reversals) on financial assets, excluding receivables 122 22 - 25 4 173
Impairment charges / (reversals) on non- financial assets and receivables 4 8 - 14 - 26
Assets VOBA and future servicing rights 1,361 42 375 22 - - 1,801
Investments for account of policyholders 91,138 29,209 64,159 6,971 - (10) 191,467
Insurance contracts for account of policyholders 64,139 28,569 6,804 2,739 - - 102,250
Off-balance sheet investments third parties 139,295 868 570 72,474 - - 213,208
Financial assets at fair value through profit or loss 94,898 29,788 63,381 7,005 200 (11) 195,261
Total investments on balance sheet 174,658 81,106 77,367 11,777 224 (11) 345,121
Financial assets at fair value through profit or loss 79,430 26,029 56,872 6,418 131 (10) 168,870
Gains and (losses) on investments in real estate (4) (49) (9)
Net fair value change on for account of policyholder financial assets at fair value through profit or loss 11,226 15,571 11,851
Net fair value change on borrowings and other financial liabilities 5 16 (48)
Fair value changes on economic hedges for which no hedge accounting is applied (241) (108) (79)
Fair value change on hedged items in a fair value hedge 724 (215) 80
Other income in 2013 mainly reflected two reinsurance recapture transactions totaling EUR 200 million and book gains totaling
EUR 176 million related to the sale of joint ventures with Unnim and CAM. The book gain of Unnim of EUR 102 million included an amount of EUR 26 million which was recycled from equity through profit and loss. The net gain of EUR 74 million related to the sale of CAM included a negative amount of EUR 44 million which was recycled from equity through profit and loss.
Other income is fully excluded from underlying earnings for segment reporting purposes (refer to note 2.4 Segment reporting).
Change in valuation of liabilities for insurance and investment contracts 14,267 7,306 7,676
Policyholder claims and benefits includes claims and benefits in excess of account value for products for which deposit accounting is applied and the change in valuation of liabilities for insurance and investment contracts. Claims and benefits fluctuate mainly as a result of changes in technical provisions resulting from fair value changes on for account of policyholder financial assets included in note 10 Results from financial transactions.
Finance, to reduce future costs for its customers with unit-linked insurance policies in the Netherlands. This decision has led to an increase in the technical provisions (which is included in the Change in valuation of liabilities for insurance and investment contracts line in the table above) by EUR 265 million. Refer to note 48 Commitments and contingencies for more details.
Included in administration expenses is an amount of EUR 78 million of depreciation that relates to equipment, software and real estate held for own use (2013: EUR 82 million; 2012: EUR 87 million). Minimum lease payments recognized as expense amounted to EUR 6 million (2013: EUR 12 million; 2012: EUR 15 million).
Within employee and administration expenses is an amount of EUR 134 million relating to restructuring charges that is classified as non-underlying earnings for segment reporting purposes (2013: EUR 107 million; 2012: EUR 27 million).
EUR 14 million) that is classified as non-underlying earnings for segment reporting purposes.
An amount of EUR 43 million is included in employee expenses relating to defined contributions (2013: EUR 39 million; 2012: EUR 30 million).
Long-term incentive plans Senior managers within Aegon, not classified as ‘Identified Staff’, have been granted the conditional 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 conditionally granted at the beginning of the year at the average share price 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 performance indicators apply over a performance period of one year and consist of financial and non-financial targets set by the Supervisory Board or the local remuneration committees. Following the performance year, shares are allocated based on actual performance. A vesting period of two years applies after which the shares are transferred to the individual employees. Ex-post assessment is not applicable to this group of employees.
in accordance with new rules, guidelines and interpretations. Of these, the Capital Requirements Directive IV (CRD IV) remuneration principles, the 2010 Guidelines on Remuneration Policies and Practices by the Committee of European Banking Supervisors (CEBS)
and the 2014 Decree on Sound Remuneration Policy by De Nederlandsche Bank (Regeling beheerst beloningsbeleid WFt 2014 - Rbb)
Additional holding periods may apply for vested shares. Members of the Executive Board and the members of the Management Board who are based in the Netherlands are not entitled to execute any transactions regarding the shares for a period of three years following vesting (with the exception of shares sold to meet income tax obligations).
In 2014, 5,306,037 shares were conditionally granted (at target performance level) to participants in the 2014 Long Term Incentive
Following the 2013 performance year 8,536,076 shares were allocated to participants in the 2013 Long Term Incentive Plan and the 2013 Variable Compensation Plan for Identified Staff. The shares were granted using the share price of EUR 4.917. As per December 31, 2014 420,597 shares had vested. Additional holding periods of up to three years may apply to vested shares. 8,048,319 shares are unvested and will vest in future years.
Following the 2012 performance year, 13,392,200 shares were allocated to participants in the 2012 Long Term Incentive Plan and the 2012 Variable Compensation Plan for Identified Staff. The shares were granted using the share price of EUR 3.126. As per December 31, 2014, 930,391 shares had vested. Additional holding periods of up to three years may apply. 12,297,441 shares are unvested and will vest in future years.
Following the 2011 performance year, 6,441,488 shares were allocated to participants in the 2011 Long Term Incentive Plan and the 2011 Variable Compensation Plan for Identified Staff. The shares were granted using the share price of EUR 4.727. As per December 31, 2014, 4,490,961 shares had vested. Additional holding periods of up to three years may apply. 1,875,439 shares are unvested and will vest in future years.
and share options. These share appreciation rights and share options have been granted at an exercise price equal to the market price of the shares at the date of the grant. The rights and options granted in 2006 - 2008 vest after three years and can only be exercised during the four years after the vesting date. Vesting and exercisability depend on continuing employment of the individual employee to whom the rights and options have been granted. Option plans are settled in equity, while stock appreciation rights are settled in cash or provide the employee with the choice of settlement.
After 2008, no share options or share appreciation rights were granted.
Notes to the consolidated financial statements of Aegon N.V. Note 15
The costs related to the share options amount to EUR nil million (2013: EUR 1 million; 2012: EUR 2 million) and are recognized in the income statement as part of Commissions and expenses.
Impairment charges on financial assets, excluding receivables 1) 132 203 243
Impairment reversals on financial assets, excluding receivables 1) (66) (77) (70)
Impairment charges and reversals on non-financial assets and receivables 2) 21 167 26 1 Impairment charges/(reversals) on financial assets, excluding receivables, are excluded from Underlying earnings before tax for segment reporting (refer to note 5
Segment information). 2 Of impairment charges on non-financial assets and receivables EUR 13 million is excluded from underlying earnings before tax for segment reporting (refer to note 5 Segment information) (2013: EUR 170 million and 2012: nil).
In 2013, impairment charges on non-financial assets and receivables included the impairment on goodwill and future servicing rights on the Polish pension business totaling EUR 163 million. Refer to note 21 Intangible assets for more details.
Impairment charges on financial assets, excluding receivables, from: 2014 2013 2012
Impairment reversals on financial assets, excluding receivables, from: 2014 2013 2012
For more details on impairments on financial assets, excluding receivables, refer to note 4 Financial risks.
The interest charges accrued on financial assets and liabilities that are not carried at fair value through profit or loss amounted to EUR 242 million (2013: EUR 239 million; 2012: EUR 392 million).
Commitments and contingencies), EUR 29 million related to provision for the modification of unit-linked policies in Poland,
Other charges in 2012 mainly include a charge of EUR 26 million related to a settlement following the termination of a bank-owned life insurance contract in the United States and a charge of EUR 16 million related to the annual bank tax by the Hungarian Government.
Other charges is fully excluded from underlying earnings for segment reporting purposes (refer to note 2.4 Segment reporting).
Deferred tax 43 Origination / (reversal) of temporary differences 245 (231) 187
Income tax calculated using weighted average applicable statutory rates 404 316 629
Difference due to the effects of: Non-taxable income (119) (129) (85)
The weighted average applicable statutory tax rate for 2014 is 27.9% (2013: 31.2%; 2012: 30.6%). The decrease in weighted average applicable statutory tax rate compared to the prior year is primarily caused by an increase in profits in lower taxed countries.