Introduction 3 Letter of the CEO 4 Composition of the Executive Board and the Management Board 6
Risk management 85 Capital and liquidity management 104 In control statement 107
Contents 130 Consolidated financial statements of AEGON N.V. 132 Consolidated income statement 132 Consolidated statement of comprehensive income 133 Consolidated statement of financial position 134 Consolidated statement of changes in equity 135 Consolidated cash flow statement 138 Exchange rates 140 Notes to the consolidated financial statements of AEGON N.V. 142 Remuneration 303
Income statement of AEGON N.V. 310 Statement of financial position of AEGON N.V. 311 Notes to the financial statements of AEGON N.V. 312
Auditor’s report on the Annual Report on Form 20-F 343 Cross reference table Form 20-F 344
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PRESENTATION OF CERTAIN INFORMATION AEGON N.V. is referred to in this document as “AEGON,”
or “the company.” AEGON N.V. together with its member companies are together referred to as the “AEGON Group.”
For such purposes, “member companies” means, in relation to AEGON N.V., those companies that are required to be consolidated in accordance with legislative requirements of the Netherlands relating to consolidating accounts. References to the “NYSE” are to the New York Stock Exchange.
In this document, references to “EUR” and “euro” are to the lawful currency of the member states of the European
“Canadian dollars” are to the lawful currency of Canada, and references to “CNY” are to the lawful currency of the People’s
Report on Form 20-F as filed with the US Securities and
Europe region where our businesses in Hungary, Poland and Turkey, in particular, are delivering strong results.
The severe economic crises that confronted the euro zone during 2011 forced governments to adopt drastic fiscal austerity measures, further undermining consumer confidence and dimming prospects for growth in the near-term. At the same time, in AEGON’s largest market – the United States –
Moreover, AEGON’s continued strong balance sheet has enabled us to reaffirm our intention to propose a dividend to common shareholders related to the second half of 2011.
In our efforts to fully Optimize our Portfolio, we completed the divestiture of AEGON’s life reinsurance business, Transamerica
Reinsurance, as well as the sale of Guardian, a closed book of life insurance business in the United Kingdom.
In the Dutch market, AEGON is a leading provider of pension products, and we aim to further solidify our position to capture opportunities arising in the market.
Reducing costs represents one aspect of how we are improving our operations; making critical investments for the future represents an equally important aspect. In our operations globally, we are investing in new web-based technology to enable us to deliver a broader range of retirement and savings products, as well as facilitating greater ease of interaction for our customers. Also during past year, we established
AEGON. What we do and how we do it are the determining factors in our current and future success. This is why we are introducing new talent management programs to ensure that we attract the most promising individuals to lead and support our business. It is then our aim to retain them, enhance their capabilities and support them in helping our customers achieve financial security. Ensuring a more effective performance management approach across AEGON, management incentives have been aligned with our key strategic objectives.
today is a much stronger company, both from a financial and operational point of view. We have substantially reduced our exposure to the volatility of financial markets while creating a more focused and efficient organization. Consequently, we are well-positioned to leverage our considerable expertise and resources for the benefit of our customers, business partners, employees and shareholders.
On behalf of the entire Management Board, I wish to express our gratitude to AEGON’s dedicated employees who have made possible the progress highlighted in this report. I also thank our many shareholders and other stakeholders whose confidence is essential as we work to deliver the sustainable value which they have every reason to expect.
Executive Board, overseeing the company’s international growth strategy. In April 2007, Mr. Wynaendts was named
Jan Nooitgedagt has worked in Europe’s financial services sector for over 30 years. Formerly with PWC, he joined
Mark Mullin has spent more than 20 years with AEGON in various management positions in both the United States and
Europe. Mr. Mullin has served as President and CEO of one of
Gábor Kepecs began his career with the Hungarian government before joining former state-owned insurance company Állami Biztosító. In 1990, he was appointed CEO, two years before Állami Biztosító was privatized and acquired by AEGON. Between 1992 and 2009, Mr. Kepecs was the CEO
February 2010, and then CEO in March 2011. He was appointed to AEGON’s Management Board in February 2012, subject to approval of the Dutch Central Bank.
AEGON’S STRATEGY AEGON is one of the world’s leading providers of life insurance, pensions and asset management, with businesses in more than 20 countries in the Americas, Europe and Asia. AEGON employs over 25,000 people, who serve nearly 47 million customers and carries EUR 424 billion in revenue‑generating investments.
After a relatively positive start, the macroeconomic environment deteriorated significantly over the course of 2011.
Europe is reflected in the development of the main equity indices. In general, equity markets were negatively impacted by the earthquake in Japan in March, and by the worsening macroeconomic sentiment in July and August. Toward the end of the year, the US and main European indices strengthened.
Equity volatility spiked in the third quarter and edged down again towards the end of the year.
Interest rates developments also differed. Safe haven countries (mainly the United States, Germany and the
Netherlands) experienced a significant drop in long-term interest rates. At the end of the third quarter, 10-year interest rates dropped to below 2%, compared to around 3% at the start of 2011. At the same time, interest rates spreads of the pressured euro zone countries in relation to German bonds increased significantly. Greece and Portugal showed by far the largest spread increases. In the course of the year, Italy and, to a lesser degree France, also came under pressure.
The worsening economic environment also had an impact on corporate spreads. After initially trending down, corporate spreads increased strongly and remained elevated at year-end.
The difficult market environment and the persistently low interest rates in particular, had a negative impact on AEGON’s sales and value of new business. On the other hand, the drop in interest rates had a positive effect on the revaluation reserve, as did the strengthening of the US dollar versus the euro. Nevertheless, the low interest rate environment will remain a challenge going forward. AEGON’s exposure to peripheral European countries was reduced further during 2011, totaling 3% of AEGON’s general account.
The financial crisis that began in 2008 brought a shift in financial market and economic conditions. AEGON initially focused on measures designed to combat the effects of the financial crisis. The company transformed its approach, strengthening its balance sheet, lowering costs and significantly improving its overall risk-return profile. These measures enabled AEGON to emerge from the financial crisis in a sound financial position and further positioned its businesses to withstand the continued turmoil throughout 2011.
People are spending longer in retirement than before, and there is a growing demand for life insurance, private pensions and long-term investment products.
This means that there are fewer economically active people to fund traditional pay-as-you-go state pensions. As a result, governments, particularly in Western Europe, are under pressure to reform pension systems. At the same time, individuals are increasingly relying on private sector providers to help them finance their retirement. The private sector providers are well positioned to provide this service.
Central & Eastern Europe, Asia and Latin America. In these markets, a new and ambitious middle class is emerging, and with it a rise in demand for life insurance, pensions and asset management products and services. The potential of these markets is substantial. China and India account for 40% of the world’s population, but currently only 8% of the global life insurance market. The regulatory environment is one of the challenges of operating in these markets.
AEGON’s ambition is to become a leader in all its chosen markets by 2015. This means becoming the most recommended life and pensions provider among customers, the preferred partner among distributors and the employer of choice for both current and prospective employees.
In order to achieve its ambition, AEGON has defined four strategic areas of focus which it regards as essential to positioning its businesses for the growth opportunities it has identified in each of its markets: � Optimize Portfolio – Focus on those businesses that reflect
� Deliver Operational Excellence – Fully leverage AEGON’s significant expertise and resources across the organization; investing in technology to drive innovation and enable cost and operational efficiencies.
� Empower Employees – Provide the environment and resources necessary for employees to realize their full potential, while fostering a customer-centric culture that embraces new thinking and new approaches for responding to opportunities and customer demand.
During 2011, AEGON made clear progress with each of these key strategic objectives: OPTIMIZE PORTFOLIO
� AEGON completed the divestment of its life reinsurance business, Transamerica Reinsurance, to SCOR, the French reinsurance company, on August 9, 2011.
Guardian, a UK-based life and pensions company that had been closed to new business since 2001.
Transamerica, introduced a refreshed brand campaign, asserting its new positioning as the “Tomorrow Makers”.
All of AEGON’s US retail operations have now been brought together under the Transamerica brand.
AEGON’s senior leaders have committed to identifying ways to leverage best practices in the areas of product development, online distribution, and technology.
� AEGON Religare in India launched the first online life insurance product in the country – iTerm.
investments, share best practices, and capture cost efficiencies. The European data center that was formed to coordinate the IT operations of AEGON’s European businesses was made part of this new global IT organization.
� AEGON has introduced a more structured, global approach for identifying, supporting and retaining the company’s top talent.
Education of Duke University in the United States, ranked number one globally by the Financial Times and Business
participation rate among employees internationally, and actions to address responses are being implemented on all business levels into 2012.
� Active engagement with the company’s leading stakeholder groups – customers, business partners and distributors, employees, investors and the wider communities in which
Operational Excellence, and Empower Employees. AEGON’s key objective is to create a sustainable, profitable business by forging long-term relationships with its customers, and helping them build secure financial futures for themselves and their families.
Head of Sustainability reports directly to AEGON’s CEO and to the Management Board member responsible for sustainability issues. Questions of strategy and policy are subject to approval by AEGON’s Executive and Management Boards.
AEGON is a signatory to both the United Nations Principles for Responsible Investment (UNPRI) and the Carbon Disclosure
Project (CDP). The company is also an organizational stakeholder of the Global Reporting Initiative (GRI), which provides a common framework for sustainability and other non-financial reporting. AEGON has additional internal policies in this area, including a company-wide human rights policy, a statement on diversity and non-discrimination and a policy on responsible investment. AEGON is also a member of both the FTSE4Good index and the Dow Jones Sustainability
� AEGON became a founding member of the Global Coalition on Aging, an alliance of international companies formed to raise awareness of the social, economic and financial impact of global aging.
� AEGON announced a target to reduce emissions of carbon dioxide from its main office buildings in the United States, the Netherlands and the United Kingdom by 10% over a three-year period from 2009 through 2012.
� AEGON grouped together the company’s North American businesses under a common brand name, Transamerica, as part of efforts to create a stronger, more consistent global brand portfolio.
� AEGON organized a global Employee Survey, which was completed by nearly 17,000 employees worldwide.
� AEGON launched a new policy on responsible investment, outlining environmental, social and governance standards for the company’s investments.
� AEGON updated its Code of Conduct to incorporate the company’s renewed values and the latest developments in insurance and pension regulations.
� AEGON adopted the Net Promoter Score (NPS) as its preferred measurement for customer loyalty, and extended the use of NPS to 55% of its businesses worldwide by the end of 2011.
AEGON has set out several focus points for its sustainability strategy in 2012. Each of these builds on progress already achieved in 2011: � The development of key indicators to track the performance of the company’s brand.
� The extensions of AEGON’s talent review to other levels of management within the company.
For more information on AEGON’s approach to sustainability, please see the company’s 2011 Review, available at www.aegon.com.
AEGON N.V., domiciled in the Netherlands, is a public limited liability share company organized under Dutch law. AEGON N.V. was formed in 1983 through the merger of AGO and Ennia, both of which were successors to insurance companies founded in the 1800s.
AEGON N.V., through its member companies that are collectively referred to as AEGON or the AEGON Group, is an international life insurance, pensions and asset management company. AEGON is headquartered in the Netherlands and employs, through its subsidiaries, over 25,000 people worldwide. AEGON’s common shares are listed on stock exchanges in Amsterdam (NYSE Euronext), New York (NYSE)
AEGON N.V. is a holding company. AEGON’s businesses focus on life insurance, pensions and asset management.
AEGON is also active in accident, supplemental health, general insurance, and has limited banking activities.
SELECTED FINANCIAL DATA The business‑results reviews is based upon AEGON’s consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS).
All per share amounts have been calculated based on the weighted average number of common shares outstanding after giving effect to all stock dividends through
Earnings per share, excluding premium on convertible core capital securities 0.34 0.86 (0.09) (0.92) 1.47 1 Excluded from the income statements prepared in accordance with IFRS are receipts related to investment-type annuity products and investment contracts.
Selected consolidated balance sheet information In million EUR (except per share amount) 2011 2010 2009 2008 2007
AEGON declared interim and final dividends for the years 2006 through 2008 in the amounts set forth in the table below. AEGON paid no dividend in 2009 or 2010. At the annual General Meeting of Shareholders on May 16, 2012, the Executive Board will, absent unforeseen circumstances, propose a final dividend of EUR 0.10 per common share related to the second half of 2011. Dividends in US dollars on the preferred shares. This resulted in a rate of 2.75%
(the rate as published each working day at 14:15 hours by the European Central Bank) on the business day following the announcement of the interim dividend or on the business day following the shareholder meeting approving the relevant final dividend.
US dollar will affect the dollar equivalent of the euro price of our common shares traded on NYSE Euronext Amsterdam and, as a result, are likely to impact the market price of our common shares in the United States. Such fluctuations will also affect any dollar amounts received by holders of common shares upon conversion of any cash dividends paid in euros on our common shares.
As of March 2, 2012 the USD exchange rate 1 was
The high and low exchange rates 1 for the US dollar per euro for each of the last six months through February 2012 are set forth below: Sept. 2011 Oct. 2011 Nov. 2011 Dec. 2011 Jan. 2012 Feb. 2012
The average exchange rates 1 for the US dollar per euro for the five years ended December 31, 2011, calculated by using the average of the exchange rates on the last day of each month during the period, are set forth below: Year ended December 31, Average rate 1 The US dollar exchange rates are the noon buying rates in New York City for cable transfers in euros as certified for customs purposes by the Federal Reserve Bank of New York.
Includes AEGON’s business and operating units in the United States, Canada, Mexico and Brazil.
Products with mortality, morbidity and longevity risks, including traditional and universal life, as well as endowment, term and whole life insurance products. Accident and health business, including accidental death and dismemberment insurance, critical illness, cancer treatment, disability, income protection and longterm care insurance.
Includes both individual and group pensions, as well as 401(k) plans and similar products usually sponsored by, or obtained via, an employer.
Includes business written by AEGON’s subsidiary, Transamerica Reinsurance, until August 9, 2011 after which it has been divested.
Individual pensions, including self invested personal pensions and income drawdown products. Group pensions, sponsored by, or obtained via, an employer.
Brazil and Mexico. AEGON believes that its non-IFRS measure provides meaningful information about the underlying operating results of AEGON’s business including insight into the financial measures that senior management uses in managing the business.
Results of operations nevertheless differ from the non-IFRS measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards and readers are cautioned to consider carefully the different ways in which AEGON and its peers present similar information before comparing them.
Gross deposits (on and off balance sheet) Amounts in EUR million 2011 2010 %
AEGON’s 2011 underlying earnings before tax of EUR 1,522 million and net income of EUR 872 million were impacted by considerable charges, expenses related to the customer redress program in the UK and business restructuring in its established markets. New life sales volumes were below those of 2010 as a result of repricing of products, however, deposits continued to be strong, particularly in the Americas. AEGON maintained a strong capital position during the year and by completing the repurchase of convertible core capital securities, the company has turned its focus on carrying out a strategy to deliver sustainable earnings growth with an improved risk‑return profile.
The increase is primarily the result of higher underlying earnings before tax from AEGON Asset Management.
In 2011, fair value items recorded a loss of EUR 416 million.
EUR 168 million. In addition, lower interest rates, spread widening and volatile equity markets also negatively affected results on fair value items. Less favorable results on fair value movements in the Netherlands also contributed to the decline.
In the United States, impairments were mostly linked to residential mortgage-backed securities. Impairments in the
The decline compared to last year was mainly due to higher charges and expenses in the United Kingdom related to the customer redress program, higher provisioning for longevity in the Netherlands and the effects of lower interest rates and lower equity markets.
Employer Solutions & Pensions increased as a result of continued strong growth of the business.
Underlying earnings from AEGON’s operations in the Netherlands amounted to EUR 298 million, a decrease of 23% compared to 2010. Additional provisioning for longevity of EUR 82 million was only partly offset by the positive impact of favorable technical results.
Americas, a charge of EUR 37 million related to increased reserves in connection with the company’s use of the
As of 2011, AEGON’s run-off line of business comprises of the institutional spread-based business, structured settlement pay-out annuities, BOLI/COLI and life reinsurance. The results of run-off businesses improved to EUR 28 million as a result of lower amortization yield paid on internally transferred assets related to the institutional spread-based business and favorable mortality results in the pay-out annuities block of business. This was partly offset by the amortization of the prepaid cost of reinsurance and transaction costs related to the divestment of the life reinsurance activities.
Net income contained a tax charge of EUR 53 million in 2011
(including a tax charge of EUR 9 million related to profits of associates). Deviation from the nominal tax rate is largely the result of tax credits which primarily relate to low income housing and renewable energy in the United States
(EUR 62 million), benefits from a tax rate reduction in the
EUR 3,442 million as achieved costs savings and the positive effect of changes to employee benefit plans were more than offset by investments in new propositions and restructuring charges, mainly in the Netherlands and the United Kingdom.
Gross deposits of EUR 31.7 billion were supported by variable annuity and pension deposits in the United States, partly offset by lower asset management inflows.
Shareholders’ equity per common share, excluding preferred capital, amounted to EUR 10.03 at December 31, 2011.
AEGON aims to maintain at least 1.5 times holding expenses as a buffer at the Holding, in 2011 equivalent to approximately
EUR 900 million. At year-end 2011, excess capital in the holding amounted to EUR 1.2 billion.
(IGD) ratio amounted to 195%. Measured on a local solvency basis, the Risk Based Capital (RBC) ratio in the United States amounted to approximately 450%, the IGD ratio in the Netherlands amounted to approximately 195%, while the Pillar I ratio in the United Kingdom was approximately 150% at year-end 2011.
the repurchase of 375 million convertible core capital securities issued to the Dutch State.
Income before tax (excluding income tax from certain proportionately consolidated associates) 1,925 (454) –
Income tax from certain proportionately consolidated associates included in income before tax 11 10 10%
Of which income tax from certain proportionately consolidated associates (11) (10) (10%)
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 associated companies in Spain, India,
AEGON’s senior management is compensated based in part on AEGON’s results against targets using the non-IFRS measure presented herein. While many other insurers in AEGON’s peer group present substantially similar non-IFRS measures, the non-IFRS measure presented in this document may nevertheless differ from the non-IFRS measures presented by other insurers. There is no standardized meaning to these measures under IFRS or any other recognized set of accounting standards and readers are cautioned to consider carefully the different ways in which AEGON and its peers present similar information before comparing them.
GAAPs) and that can make the comparability from period to period difficult.
Gross deposits (on and off balance sheet) Amounts in EUR million 2010 2009 %
During 2010, both AEGON’s net income and underlying earnings improved considerably. The increases were the result of business growth, cost savings, further improvements in financial markets and strengthening of the dollar against the euro. Sales increased in most countries, while gross deposits also increased strongly. AEGON’s capital position was further strengthened during the year, with core capital of EUR 18.7 billion at year‑end 2010.
AEGON’s net income for 2010 amounted to EUR 1.8 billion, a significant increase compared with net income of
Impairments totaled EUR 452 million, a significant improvement in 2010 that reflected better market conditions.
Hungary. The charges were partly offset by a book gain from the sale of AEGON’s funeral insurance business in the
Underlying earnings before tax increased 62% to EUR 1.8 billion, mainly as a result of a strong recovery in the Americas.
EUR 3.4 billion. The results of expense savings in AEGON’s main operations in the United States, the Netherlands and the United Kingdom were more than offset by restructuring charges, project related costs (e.g. Solvency II) and investments in growth markets. At constant currency, excluding restructuring charges, operating expenses declined 2% in 2010 compared with the previous year.
EUR 32.6 billion in 2010 as a result of continued strong growth in variable annuity, retail mutual fund and pension deposits in the United States, as well as new mandates for AEGON
Income tax from certain proportionately consolidated associates included in income before tax 1 2 (50%) 1 2 (50%)
which includes operating expenses of 1,992 1,971 1% 1,432 1,492 (4%)
New premium production accident and health insurance 846 773 9% 609 585 4%
Net income from AEGON’s businesses in the Americas declined to USD 933 million. This was the result of lower underlying earnings before tax, lower than expected results from fair value items and fewer gains on investments. Lower other charges and improved levels of impairments only partly offset the decline.
and lowered the 90-day rate to 0.2% for the next two years followed by a three year grade to 3%. No change has been made to the long-term credit spread or default assumptions.
The bond fund return is a gross assumption from which asset management and policy fees are deducted to determine the policyholder return. In total, these assumption changes led to a charge of USD 237 million in the third quarter of 2011.
Underlying earnings before tax amounted to USD 1,823 million, a decline of 5% compared with 2010.
USD 286 million as a result of declining asset balances as this product is de-emphasized. Variable annuity underlying earnings before tax increased as a result of continued inflows and higher asset balances and included a benefit related to updated assumptions for revenue sharing with third-party fund managers.
– excluding run-off businesses – as a result of strong inflows for pensions and variable annuities. AEGON is de-emphasizing sales of fixed annuities as part of a strategic repositioning and therefore incurs significant net outflows for this business as a result. Outflows from run-off businesses amounted to
Income before tax (excluding income tax from certain proportionately consolidated associates) 1,453 (243) – 1,100 (173) –
Income tax from certain proportionately consolidated associates included in income before tax 2 – – 2 – –
Of which income tax from certain proportionately consolidated associates (2) – – (2) – –
Accident and health insurance premiums 2,443 2,377 3% 1,850 1,689 10%
New premium production accident and health insurance 773 758 2% 585 539 9%
Gross deposits – excluding run-off businesses – increased 3% to USD 27.8 billion in 2010. Continued strong growth in variable annuity, retail mutual fund and pension deposits was offset by a decline in fixed annuity deposits as sales of this product are de-emphasized. In the United States, one of
AEGON Americas comprises AEGON USA, AEGON Canada and the Group’s operations in Mexico and Brazil.
AEGON USA’s primary insurance subsidiaries are: �� Transamerica Life Insurance Company
AEGON’s subsidiary companies in the United States contain three lines of business acting through one or more of the
AEGON USA 1 is one of the leading life insurance organizations in the United States and is the largest of AEGON’s country units. AEGON USA administers more than 33 million policies and employs approximately 10,000 people. AEGON USA
In Canada, AEGON has three main operating subsidiaries: �� Transamerica Life Canada
�� Agencies owned by Transamerica Life Canada and operated as separate profit centers.
AEGON USA affiliates provide whole life, universal life, variable universal life, indexed life, term life insurance and supplemental health, special accident, and long-term care protection products.
Universal life insurance pays death benefits, accumulates cash values at interest rates that adjust periodically, and has flexible premiums. L&P offers both single life and survivorship universal life. Indexed universal life products have both interest rate guarantees and interest crediting linked in part to performance of an index, subject- to a cap. Variable universal life products include varying investment options for the cash values.
The Affinity Markets Group works with independent distributors as well as directly with associations, financial institutions, retailers and other sponsored groups, to offer products that add value to their customers or members, using a broad range of direct response, online and point-of-sale marketing methods.
Agency Distribution provides product and marketing services to closely tied distribution groups serving the middle income and small business markets through face-to-face consulting by service-oriented agents. The distribution groups include a captive agent sales force, a personal producing general agency system, and several independent marketing organizations.
The Brokerage Group is a sales and marketing organization offering life insurance products and services through independent brokerage distributors to high net worth, affluent and middle income individuals, families and businesses.
From the first quarter of 2012, AEGON will adjust its financial reporting to reflect changes in its organization. A number of businesses in Asia, which were previously managed by and reported to the United States, will be included in the Asia segment within New Markets, and will be managed from
Investment Advisor that focuses on creating, growing and managing wealth through a range of financial products and services.
Premiums paid on variable annuity contracts are invested in underlying funds chosen by the policyholder, including bond and equity funds as well as various types of asset-allocation funds. A fixed account is available on most products and in most cases, the investment options are selected by a policyholder, within certain boundaries, based on the policyholder’s preferred level of risk. The assets and liabilities related to this product are legally segregated in separate accounts of the insurance company for the benefit of variable annuity policyholders. These separate accounts are classified as investments for the account of policyholders. Various riders are available on variable annuity contracts, providing guaranteed minimum death, maturity, withdrawal or income benefits.
Surrender charges are generally not a large form of revenue as policyholder surrender rates are typically lower when a surrender charge penalty is still present. Any surrender charges collected are typically used to recoup unamortized deferred acquisition costs.
A guaranteed minimum withdrawal benefit is offered on some variable annuity products AEGON USA either issued or assumed from a ceding company. This benefit guarantees a policyholder can withdraw a certain percentage of the account value, starting at a certain age or duration, for either a fixed period or the life of the policyholder.
Certain variable insurance contracts also provide guaranteed minimum death benefits and guaranteed minimum income benefits. Under a guaranteed minimum death benefit, the beneficiaries receive the greater of the account balance or the guaranteed amount upon the death of the insured.
The guaranteed minimum income benefit feature (which is no longer offered on new business) 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.
These guaranteed benefits subject the company to equity market risk, since poor market performance may cause the guaranteed benefits to exceed the policyholder account value.
AEGON USA addresses equity market risk through product design, including robust analysis of the underlying funds allowed within a product, and by using hedging strategies.
AEGON’s fee business comprises products that generate fee income by providing management, administrative or risk services related to off balance sheet assets (i.e., equity or bond funds, third party managed assets and collective investment trusts). Fee income is mainly sensitive to withdrawals and equity market movements.
In most cases, the manager remains with the investment company and acts as a sub-adviser for AEGON USA’s mutual funds. AEGON USA earns investment management fees on these investment products. AEGON USA also earns direct investment management fees through affiliated managers acting as sub-advisers.
The policyholder can surrender the annuity prior to maturity and receive the cash value less surrender charges. Fixed deferred annuities have a specified crediting rate that can be reset periodically at the company’s discretion after an initial guarantee period. Fixed deferred annuity contracts in the
typically lower when a surrender charge penalty is still present. Any surrender charges collected are typically used to recoup unamortized deferred acquisition costs.
Minimum interest rate guarantees exist in all generations of deferred annuity products, as they are required by state nonforfeiture regulations. The average minimum interest rate guarantees of the in-force fixed annuity block is approximately 2.65%. Equity indexed annuities offer additional returns that are indexed to published stock market indices, with a minimum cash value equal to a percentage of the premium increased at a minimum rate that varies. Equity indexed annuities make up a small fraction of the in-force business, and AEGON currently offers no such products for new sales.
Under the bailout provision, if the crediting rate falls below the bailout rate, policyholders can surrender their contracts without incurring any surrender charges.
Starting in late 2009, AEGON USA reduced its sales of fixed annuities in response to lower market interest rates and lower investment returns available in that environment. Similar market conditions continued in 2010 and continue to restrict sales of fixed annuities. As a result, AEGON USA decided to de-emphasize the sale of fixed annuities.
Transamerica Financial Advisors, part of AEGON USA, provides a range of financial and investment products, operating as a retail broker-dealer. These products include mutual funds, variable life insurance, variable annuities and other securities.
To help the millions of baby boomers who are approaching or transitioning into retirement, AEGON USA formed Transamerica
AEGON USA offers retirement plans, pension plans, pensionrelated products and services, life and supplemental health insurance products through employers.
A wide array of investment options is offered to create a fully customized investment line-up for clients and a personalized retirement funding strategy for their retirement plan participants. Diversified Investment Advisors’ open architecture investment platform provides its clients access to a broad investment universe, including institutional and retail mutual funds, registered or non-registered variable annuities, or a collective investment trust. The investment options offered in each plan are selected by the client and/or the client’s financial advisor.
Single premium group annuities (Terminal Funding) is a non-participating group annuity product. This product is usually used for an insurance company takeover of a terminating defined benefit pension plan. The company receives a single deposit from the contract holder and in return guarantees the payment of benefits to participants.
Life products include universal life insurance, whole life insurance and term life insurance. Supplemental health products include dental, accident, critical illness, cancer treatment, hospital indemnity and short-term disability policies. Some of these plans provide lump sum or specified income payments when hospitalized, disabled or diagnosed with a critical illness. Others pay scheduled benefits for specific hospital or surgical expenses and cancer treatments, hospice care and cover deductible – as well as co-payment amounts not covered by other health insurance. Stop Loss provides catastrophic coverage to self-insured employer health plans.
A synthetic GIC is typically issued with an evergreen maturity and can be terminated under certain conditions. Such a contract helps to reduce fluctuations in the value of the wrapped assets for plan participants, and provides book value benefit-responsiveness in the event that qualified plan benefit requests exceed plan asset values.
clients are generally organizations with 250 to 100,000 employees and between USD 15 million and USD 2 billion in retirement assets.
Transamerica Retirement Services serves more than 16,500 small to mid-sized companies across the United States.
Transamerica Retirement Services is also a leading provider of single premium group annuities (Terminal Funding) in the
Through Transamerica Employee Benefits, Transamerica offers voluntary payroll deduction life and supplemental health to companies ranging in size from just five employees to more than 100,000. Products and services are marketed to employees at their place of work and are designed to supplement employees’ existing benefit plans.
Canada, see description of life insurance products offered by Life & Protection in the United States.
Transamerica Life Canada’s current product offerings comprise the following: segregated funds, mutual funds, guaranteed investment accounts and single premium immediate annuities.
Segregated funds contracts provide minimum death and maturity value guarantees and allow the contract holders to invest in segregated investment funds managed by the company for the their benefit. Transamerica Canada announced on January 18, 2012, that it would no longer sell its
Five for Life segregated fund product and has discontinued sales and marketing support for all segregated fund products.
For a description of other individual savings and retirement products offered by AEGON Canada, see description of individual savings and retirement products offered in the United States.
interest in Seguros Argos S.A. de C.V., a Mexican life insurance company and the 50% interest in Mongeral AEGON S.A.
GICs and FAs are spread-based products and were issued on a fixed-rate or floating-rate basis. They provide the customer 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 to these products. Practically all of the liabilities represented by the fixed-rate contracts were effectively converted to floating-rate via swap agreements and contracts issued in foreign currencies were converted at issuance to US dollars via swap agreements to eliminate currency risk. Credited interest on floating-rate contracts predominately resets on a monthly basis to various market indices. The term of the contract can be fixed, generally from six months up to ten years, or it can 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.
Clark Consulting specializes in the servicing and administration of the bank owned life insurance (BOLI). Clark Consulting’s relationships and service model help maintain strong persistency for the block of business.
In August 2011, AEGON announced that it had completed the divestment of its life reinsurance business, Transamerica
the transaction will also contribute to a broader geographical allocation of capital.
Competitors of the AEGON companies include other large and highly-rated insurance carriers, as well as certain banks, securities brokerage firms, investment advisors and other financial intermediaries marketing insurance products, annuities and mutual funds.
USA believes the best and most enduring competitive advantages are relationships and service.
AEGON USA markets variable universal life, mutual funds, and variable annuities to middle-income clients with equity investment objectives. 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.
AEGON USA has built long-term relations with many institutions, and these relations have enabled AEGON USA
to offer many product lines such as fixed annuities, variable annuities, life insurance, mutual funds, and 401(k) products through these institutions.
The pension market continues to evolve rapidly and is facing growing regulatory compliance pressures, continuing demand for technological innovation, pricing pressures, and provider consolidation. AEGON USA’s ability to achieve greater economies of scale in operations will be assisted if growth in key market segments continues, technology improves, and if process management increases efficiency.
In the defined contribution market, AEGON USA’s main competitors are Fidelity, T. Rowe Price, Vanguard, Schwab,
Prudential. In the small business retirement plan segment and the multiple employer plan segment, AEGON USA’s main competitors are Principal Financial, John Hancock, American
The top ten companies in Canada account for 88% of the life insurance sales (Source: LIMRA’s Canadian Individual Life
TLC’s primary competitors in Canada are the following: Power Corporation (Canada Life, London Life, Great West Life),
TLC ranks sixth in overall individual life insurance sales (new business premiums) with a market share of 4.6%, up from 4.2% on December 31, 2010. TLC ranks fifth for universal life sales, representing 8.6% of the market and seventh for term sales representing 5.4% of the market (Source: LIMRA’s
Canadian Individual Life Insurance Sales - Fourth Quarter 2011, issued February 2012).
Some State Attorneys General have also commenced investigations into certain insurers’ business practices. Within the insurance industry, substantial liability has been incurred by insurance companies based on their past sales, marketing and operational practices. AEGON USA continues its focus on these compliance issues, and costs can increase as a result of these activities.
(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 riskbased capital). The adjusted capital levels of the AEGON USA
Although the US federal government has not historically regulated the insurance business, many federal laws impact the insurance business in a variety of ways. US federal and state privacy laws and regulations impose restrictions on financial institutions’ use and disclosure of customer information. Legislation is sometimes introduced – in the US
legislation that would restrict the ability of insurers to underwrite based in whole or in part on specified risks or practices such as genetic testing. These laws and regulations, if enacted, could impact AEGON’s ability to market or underwrite its products, or otherwise limit the nature or scope of AEGON’s insurance and financial services operations in the United States.
Federal Communications Commission (FCC) rules prohibit telephone solicitations to customers who have placed their telephone numbers on the National Do-Not-Call Registry.
USA insurance companies are subject to regulation under the federal securities laws administered by the Securities and
Dealers, Inc. or “NASD”). The SEC, FINRA and other regulators have from time to time investigated certain sales practices involving certain sales of variable annuities and transactions in which an existing variable annuity is replaced by, or exchanged for, a new variable annuity. Certain separate accounts of
AEGON USA insurers are registered as investment companies under the Investment Company Act of 1940, as amended.
Some of AEGON USA’s investment advisory activities are subject to federal and state securities laws and regulations.
companies are registered both under the Securities Act and the Investment Company Act. Institutional products such as group annuity contracts, guaranteed investment contracts, and funding agreements are sold to tax qualified pension plans or to other sophisticated investors and are exempt from registration under both Acts. On July 21, 2010, the SEC
proposed a framework to replace the requirements of Rule 12b-1 of the Investment Company Act with respect to how mutual funds and underlying funds of separate accounts collect and pay fees to cover the costs of selling and marketing their shares. The proposed changes are subject to public comment and, following any enactment, would be phased in over several years. Since these changes are still proposed, the impact of changes proposed by these regulations cannot be predicted at this time.
Government Accounting Office in 2011 could result in the regulation, registration and examination of investment advisers by a new or existing self-regulatory organization.
The financial services industry, which includes businesses engaged in issuing, administering, and selling variable
businesses. DOL has issued regulations defining the nature of fees to be paid for investment advice in these plans, as well as requiring increased fee disclosure from defined contribution plan service providers and to plan participants. The DOL
Implementation of these and other regulations in the manner proposed could increase the cost and administrative burdens of AEGON USA companies providing administrative burdens to these plans. The proposed DOL rule on investment advice fiduciary, if promulgated as originally proposed, could adversely impact the manner in which certain AEGON USA
companies sell products within an IRA, as well as the nature of services provided to plan participants and sponsors of a defined contribution plan.
Although the insurance business is regulated on the state level, the US federal tax preferences of life insurance, pension and annuity products are governed by the US federal tax code.
In addition, current discussions on major tax reform initiatives further increase the risk of changes to the tax incentives for short and long term savings products, as well as to the taxation of life insurers. These changes, if enacted, would directly impact the cost and competitiveness of life insurance, annuity and pension products sold to ensure Americans’
Moreover, legislative proposals which impose restrictions on executive compensation or restrict employment-based savings plans adversely impact the sale of life insurance products used in funding those plans and their attractiveness relative to other non-insurance products. Finally, regulations promulgated under the Dodd-Frank Act that limit investment by banks in certain financial services products or increase the cost of issuing certain life insurance products would adversely impact the sale of life insurance products. In particular, any determination that stable value products sold to defined contribution plans, as well as other insurance products, are to be regulated as derivatives would adversely impact the market for those products.
US Congress that target foreign owned companies, such as a proposal containing a corporate residency provision that
threatens to redefine some historically foreign-based companies as US corporations for US tax purposes.
Dodd-Frank Act are left to study or regulation, and therefore, the impact of the Dodd-Frank Act on AEGON USA or the life insurance market in general, cannot be fully determined until the regulations implementing the Dodd-Frank Act are promulgated and the studies completed. This includes any determination of the likelihood that AEGON USA will be considered systemically significant and subject to heightened prudential standards.
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 inconsistent with business practices, will adversely impact the
AEGON companies that provide administration and investment services and products to employment based plans.
The Patient Protection and Affordable Care Act does not directly impact the business of life insurance. It is uncertain whether any of the new laws implementing regulations anticipated over the next several years will impact any of
Superintendent of Financial Institutions. In addition, TLC is subject to the laws, regulations and insurance commissions of each of Canada’s ten provinces and three territories in which it carries on business. The laws of these jurisdictions generally establish supervisory agencies with broad administrative powers that include the following: granting and revoking licenses to conduct business, regulating trade practices, licensing agents, establishing reserve requirements, determining permitted investments and establishing minimum levels of capital. TLC’s ability to continue to conduct its insurance business depends upon the maintenance of its licenses at both the federal and provincial/territorial levels.
Transamerica Life Canada are governed by the Securities Acts of each province and territory.
The AEGON USA 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.
On the liability side, AEGON USA has some offsetting risks; some liabilities perform better in rising interest rate environments while others tend to perform well in falling interest rate environments. The amount of offset can vary depending on the absolute level of interest rates and the magnitude and timing of interest rate changes, but it generally provides some level of diversification. On the asset side, hedging instruments are continuously studied to determine whether their cost is commensurate to the risk reduction they offer.
AEGON USA reinsures part of its life insurance exposure with third-party reinsurers under traditional indemnity, quota share reinsurance treaties, as well as, less frequently, excess-of-loss contracts. AEGON USA’s reinsurance strategy is in line with typical industry practice.
USA’s overall risk and limit the maximum loss on risks that exceed policy retention levels. The maximum retention limits vary by product and class of risk, but generally fluctuate between USD 3,000 and USD 10 million per life insured.
AEGON USA remains contingently liable with respect to the amounts ceded should the reinsurance company not be able to meet its obligations. To minimize its exposure to such defaults,
Ceding reinsurance does not remove TLC’s liability as the primary insurer. TLC could incur losses should reinsurance companies not be able to meet their obligations. To minimize its exposure to the risk of such defaults, TLC regularly monitors the creditworthiness of its reinsurers. TLC only contracts business with reinsurance companies that are registered with Canada’s Office of the Superintendent of
Share in underlying earnings before tax of associates 1 (3) –
AEGON’s businesses in the Netherlands of EUR 92 million and a write-down of goodwill and VOBA of EUR 75 million related to the distribution businesses. AEGON’s distribution businesses in the Netherlands are experiencing pressure on margins and are implementing a new operating model following legislative changes related to commission payments which will result in lower profitability going forward. Realized gains on investments increased to EUR 269 million and were primarily the result of a decision to replace equities by fixed income securities and normal trading activity in the investment portfolio in a low interest rate environment. Impairments amounted to EUR 15 million.
Underlying earnings before tax from AEGON’s operations in the Netherlands amounted to EUR 298 million, a decrease of
Netherlands remained level at EUR 185 million. Favorable mortality and higher contribution from mortgages was offset by higher expenses related to the execution of a program for product improvements and investments in new propositions.
EUR 82 million was only partly offset by the positive impact of favorable technical results.
EUR 8 million, a decrease compared with 2010 as a result of investments in business development initiatives. Also fee income remained under pressure as a result of the competitive environment.
New life sales increased to EUR 254 million. Pension sales increased 5% compared with 2010, mainly driven by successful institutional sales during the fourth quarter of 2011. Individual life sales declined and amounted to EUR 81 million, primarily driven by lower recurring premium as mortgage production slowed down.
Underlying earnings in the Netherlands were impacted by increased provisioning for longevity, while net income was affected by business restructuring. In 2011, AEGON initiated actions to make its business in the Netherlands more agile and better positioned to respond to changing conditions and opportunities in the Dutch market.
AEGON’s operation in the Netherlands reported strong results for 2010. Net income increased considerably as a result of lower impairments and improved results from fair value items. At the beginning of the year, AEGON sold its funeral insurance activities. During the fourth quarter the company announced a reorganization of its banking activities. This is part of AEGON’s strategy to focus on its core businesses.
Commissions and expenses declined by 10% in 2010 due to lower operating expenses. Operating expenses declined 14%
during the year to EUR 748 million. The decline was due mainly to cost savings measures and the transfer of asset management activities to AEGON Asset Management.
EUR 83 million as a result of continued demand for mortgagerelated products and immediate annuities. This was a strong result, given that the market as a whole is declining. Following changes in government regulations, the disability insurance market in the Netherlands is now more open to private sector insurers. As a result, AEGON accident & health premium production increased 53% to EUR 26 million for the year.
Net income from AEGON’s businesses in the Netherlands increased to EUR 711 million. This sharp increase was the result of a significant improvement in the performance of fair value items and lower impairments, somewhat offset by fewer realized gains on investments compared with 2009.
EUR 385 million as increased underlying earnings before tax from Life & Savings and Non-life were more than offset by lower Pensions underlying earnings before tax.
EUR 33 million as a result of more favorable Motor and Fire insurance claim levels.
�� Underlying earnings before tax from Distribution remained level at EUR 16 million.
AEGON The Netherlands sells its products through several different channels. Corporate & Institutional Clients, part of the business line Pensions, serves large corporations and financial institutions such as company and industry pension funds. AEGON’s intermediary channel focuses on independent agents and retail sales organizations in the Netherlands. This channel is used by all business lines. The direct channel is used by AEGON Bank (mainly for savings) and a strategic partnership with the Dutch retailer Kruidvat.
The life and savings products of AEGON The Netherlands consist of the following products: ENDOWMENT INSURANCE
The reorganization, as well as other initiatives, will result in annual savings to the Dutch company of approximately
AEGON is one of the most widely recognized brand names in the Dutch financial services sector (Source: Tracking Report
In line with AEGON’s strategic plan, TKP Investments was sold to AEGON Asset Management Holding B.V. in 2011.
AEGON The Netherlands is present in four lines of business: �� Life and savings
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 has decreased to 3%.
Annuity insurance includes products in the accumulation phase and 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.
Levensloop allows savers to put aside a certain amount each year, tax free, either to fund their retirement, retire early, or finance a sabbatical. Many companies in the Netherlands have decided to include Levensloop in their overall employee benefit packages. The Levensloop scheme will be replaced in 2012 by a “Vitality” scheme that encourages saving for care leave, education or part time pension. As the government wants to encourage people to work longer, early retirement will be excluded from this scheme.
The amount is only available after a certain time period, for specific purposes.
AEGON The Netherlands provides full service pension solutions and administration-only services to company and industry pension funds and some large companies. The full service pension products for account of policyholders are separate account group contracts with or without guarantees.
Separate account guaranteed group contracts provide a guarantee on the benefits paid. The longevity risk therefore lies with AEGON The Netherlands. Non-guaranteed separate account group contracts provide little guarantee on the benefits. AEGON The Netherlands has the option not to renew a contract at the end of the contract period.
Netherlands provides defined contribution products with single and recurring premiums. Profit sharing is based on investment returns on specified funds. Premium levels are not fixed over the contract period. Minimum interest guarantees are given for nominal benefits, based on 0% or 3% actuarial interest (4% on policies sold before the end of 1999).
Corporate & Institutional Clients and AEGON’s intermediary channel. Customers range from individuals to company and industry pension funds and large, medium-sized and small corporations. AEGON The Netherlands is one of the country’s leading providers of pensions.
Dutch government has gradually shifted responsibility for sick leave and workers’ disability from the state to the private sector. This has helped stimulate demand for private health insurance.
AEGON The Netherlands faces strong competition in all of its markets from insurers, banks and investment management companies. The main competitors are ING Group, Eureko
AEGON The Netherlands has been a key player in the total life market for many years. The life insurance market in the
ASR and Delta Lloyd/OHRA (Source: DNB Supervision Returns 2010). Combined, in total life, AEGON The Netherlands ranks second after ING (Source: DNB Supervision Returns 2010).
AEGON The Netherlands is one of the smaller players on the non-life market. Achmea, ASR, Delta Lloyd/OHRA and ING hold substantial market shares, whereas the rest of the market is very fragmented. The non life market share of AEGON
In mortgage loans, AEGON The Netherlands holds a market share of approximately 6% based on new sales. Rabobank, ING
Furthermore, low economic growth and the volatility of financial markets have created uncertainty among customers and a reluctance to commit to long-term contracts. These changed legal and market conditions have augmented competition. The result is competitive pricing, focus on service levels, client retention and product innovation.
In the non-life segment, especially the accident & health, opportunities are expected to grow as the Dutch government gradually withdraws from the subject market. In the pension segment, opportunities will come from pension funds, who will insure the whole or part of the fund.
�� Autoriteit Financiële Markten (the Netherlands Authority for the Financial Markets) or AFM.
The various European Union Insurance Directives, collectively referred to as “Solvency I” have been incorporated into Dutch law. The Directives are based on the “home country control’’
Dutch law does neither permit a company to conduct both life insurance and non life insurance business within one legal entity, nor is a company allowed to carry out both insurance and banking business within the same legal entity.
Every life and non-life insurance company licensed by and falling under the supervision of DNB must file audited regulatory reports at least annually. These reports, primarily designed to enable DNB to monitor the solvency of the insurance company, include a (consolidated) balance sheet, a
The following insurance entities of AEGON The Netherlands are subject to the supervision of DNB: �� AEGON Levensverzekering N.V.
Life insurance companies are required to maintain certain levels of shareholders’ equity in accordance with EU directives being approximately 4% of their general account technical provision, or, if no interest guarantees are provided, approximately 1% of the technical provisions with investments for the account of policyholders and an additional 0.3%
General insurance companies are required to maintain shareholders’ equity equal to or greater than 18% of gross written premiums per year or 23% of the three-year average of gross claims.
The text above describes the current Solvency I framework. In the near future, the Solvency I framework will be replaced by the Solvency II framework.
Credit institutions are required to maintain solvency and liquidity ratios in line with the requirements of the Wet op het financieel toezicht. The Wet op het Financieel toezicht incorporates the requirements of Directive 2006/48/EC
European translation of the Basel accord for prudential supervision of credit institutions and investment firms. Based on these rules, credit institutions in the Netherlands are required to maintain a BIS ratio pursuant to guidance issued by the Dutch Central Bank. The level of capital is subject to certain requirements. A bank’s capital is reviewed against its on-balance sheet and off-balance sheet assets. These assets are weighted according to their risk level. The minimum total capital ratio (also known as the BIS ratio) is 8%. The Basel III
RCC meets at least on a quarterly basis. The focus of these meetings is, among other activities, to ensure an optimal strategic asset allocation, to decide on interest rate hedging strategies to reduce interest rate risks, and to decide on the need for securitizations of residential mortgage portfolios to free funds for further business development.
AEGON The Netherlands reinsures its life exposure through a profit-sharing contract between its subsidiary AEGON
Levensverzekering N.V. and a reinsurer. Under this arrangement, AEGON The Netherlands retains exposure of up to a maximum of EUR 1.2 million per insured person with respect to death risk and EUR 50,000 per year for disability risk (increased by EUR 1,500 per year above the age of 40).
Income tax attributable to policyholder return (37) (57) 35% (43) (67) 36%
which includes operating expenses of 409 390 5% 472 456 4%
GBP 75 million relating to the restructuring of AEGON’s operations in the United Kingdom. Results on fair value items improved to a small loss of GBP 5 million. Higher impairment charges of GBP 55 million related primarily to exchange offers on specific holdings of European banks, were partly offset by gains on investments of GBP 44 million as a result of shifts from corporate bonds into gilts in order to de-risk the credit portfolio.
Operating expenses amounted to GBP 409 million, as cost savings were offset by charges related to the restructuring program, as well as investments in the new proposition development and expenses relating to the execution of the customer redress program. Operating expenses included a curtailment gain related to changes to employee pension plans of GBP 46 million.
New life sales decreased 19% to GBP 738 million during the year as a result of an anticipated decrease in sales of individual pensions and new group pension schemes following reductions in the commission levels paid to advisors on these products.
Income tax on shareholders return 53 29 83% 62 33 88%
In the United Kingdom, underlying earnings before tax from AEGON’s businesses improved substantially in 2010. This was mainly the result of improved financial markets and business growth. Net income also improved, mainly due to a decrease in impairment charges.
AEGON is taking significant steps to improve its return on capital in the United Kingdom. The company is on track to reduce costs by 25% in its life and pensions operation by the end of 2011, and is directing more resources to the key growth
United Kingdom is progressing well. The company has set a target for a reduction in operating expenses of GBP 80 to
GBP 25 million positive impact from the reduction of the corporate tax rate from 28% to 27% effective April, 1, 2011 with consequential impact on deferred taxes.
�� Underlying earnings before tax from the Life business increased to GBP 60 million due to growth of the annuity book in previous periods and lower expenses following the closure of the Employee Benefits business.
Benefits from further business growth and improved market conditions were more than offset by the transfer of asset management activities to AEGON Asset Management, higher deferred policy acquisition costs, amortization and expenses relating to AEGON’s customer redress program.
AEGON began to implement a program to identify and correct historical issues within its customer policy records in May 2009. The first priority has been to deal with issues that resulted in financial detriment to customers, and to return those affected to the financial position they would have been in had the issue not occurred. The program to determine the full scope of customer redress continues.
Commissions and expenses increased by 5% in 2010. This was mainly due to higher asset management fees included in commissions as a result of the transfer of asset management activities to AEGON Asset Management. Operating expenses declined 6% during the year to GBP 390 million. The decline was mainly due to cost saving measures and the transfer of the asset management activities to AEGON Asset
Management, partly offset by project-related costs and charges relating to the restructuring of AEGON’s operations in the United Kingdom, announced in June 2010.
The restructuring aims to reduce costs by 25% in the Life &
Pensions operations by the end of 2011. Further restructuring charges are expected during 2011. As already noted, a significant proportion of the targeted reduction was achieved in 2010.
products in the United Kingdom. These advisors provide their customers with access to various types of products depending on their regulatory status. They also advise them on the best solution to suit their financial needs.
or “independent”, depending on whether they are either restricted in the number of providers they deal with or are free to advise on all available products. AEGON UK maintains strong links with financial advisors in all segments of the market. Single-tie relationships have also been established with some advisors who have selected AEGON UK to be the sole provider of a particular product type.
AEGON UK is also developing new distribution opportunities including agreements with banks and affinity partnerships with organizations outside the industry.
completed the sale of the Guardian life and pensions business to leading private equity group Cinven, for a total consideration of GBP 275 million.
AEGON UK’s leading operating subsidiaries are: �� Scottish Equitable plc. (trading as AEGON)
AEGON UK’s principal means of distribution is through the intermediated financial advice channel, which is the main sales route for long-term savings, protection and retirement
AEGON UK offers a range of products for individual customers, including life cover, critical illness and income protection.
In addition, it also provides products for companies wishing to insure key personnel. AEGON UK is now established as one of the United Kingdom’s ten leading providers of individual financial protection (according to Q3 2011 figures from the
One of AEGON UK’s largest businesses is providing pension plans for companies. The trend away from “defined benefit”
(DB) arrangements, which provide a guaranteed percentage of salary on retirement, toward “defined contribution” (DC) plans has continued to accelerate in recent years. DC plans are similar to personal pensions with contributions being paid into a plan owned by individual employees and then invested.
Generally, at retirement, employees can choose to take a percentage of tax-free cash from their pension plan, using the remainder either to purchase an annuity or else to invest in a separate drawdown policy.
As noted previously, AEGON UK plans to launch a platform to meet the savings needs of employers and employees in 2012.
AEGON also offers two types of investment bonds designed for customers residing in the United Kingdom: the onshore bond and offshore contracts 1.
AEGON offers a range of pension and investment products which provide valuable guarantees for the At Retirement market. There is an onshore bond which provides a guaranteed income for 20 years, an offshore investment plan which provides a guaranteed income for life (offered by AEGON
Origen is a financial adviser firm with strong positions in both the corporate and high net-worth individual markets.
It promotes its services through a variety of different sales channels, including face-to-face, media and worksite marketing, as well as accessing customers through professional contacts with accountants and lawyers.
Positive Solutions, meanwhile, brings together around 1,000 individual partners in one of the largest adviser networks in the United Kingdom.
The removal of polarization rules in the advice market in 2005 has led to advisors choosing to operate on a multi-tied, single-tied, whole of market, or independent basis. More recently, there has been significant consolidation in this market due to financial pressures and preparations for the
The Financial Services Authority acts both as a prudential and conduct of business supervisor. As such, it sets minimum standards for capital adequacy and solvency, and regulates the sales and marketing activities of regulated companies.
AEGON N.V.’s worldwide Risk Management strategies, investment exposure to any single counterparty is limited by an internal framework that reflects the limits set by the appropriate regulatory regime. This applies both within asset classes (equities, bonds and cash) and across all investments.
These reports allow the central investment strategy for the with-profit funds to be discussed and are summarized for the
Life (which are reinsured to AEGON Ireland plc), all AEGON UK
In previous years, Scottish Equitable sold guaranteed annuity products in the United Kingdom. Certain policies also have a guaranteed minimum rate of return or guaranteed death or other benefits. Any guaranteed rates of return only apply if the policy is kept in force to the dates specified, or on the events described in the policy conditions. The costs of all guarantees are borne by the with-profit funds and therefore impact the payouts to with-profit policyholders. AEGON UK’s main withprofit classes are summarized in the following sections.
As part of its demutualization process before being acquired by AEGON N.V., on December 31, 1993, the business and assets of Scottish Equitable Life Assurance Society were transferred to Scottish Equitable plc. AEGON UK has no financial interest in Scottish Equitable plc.’s with-profit fund, apart from routine yearly fund management charges, as well as costs and expenses that the company agreed to accept at the time of demutualization.
Guaranteed rates of return on with-profit policies are typically in the range of 0% to 5.5% a year, with the highest rates closed to all premiums in 1999 and all funds closed to new business with investment guarantees from October 2002, except for a low level of increments.
Under a number of contracts written mainly in the 1970s and 1980s, Scottish Equitable also offered minimum pension guarantees (including guaranteed annuity options). As life expectancy rates have improved and interest rates have fallen over time, these minimum guarantees are now often valuable.
It has been AEGON UK’s practice to have an investment strategy for each of its with-profit funds that reflects the nature of the underlying guarantees. Funds can invest in a variety of different asset types. The main categories are
United Kingdom and overseas equities, United Kingdom fixed interest securities, property and cash. Each with-profit fund has a target range for the percentage of its assets that are invested in a combination of equities and property. These ranges may be varied. Within the target ranges, there is a policy of holding an appropriate mix of asset classes to reduce risk.
Indeed, a market value reduction may be applied under certain funds when, for cohorts of similar contracts, the face value of the benefits is greater than the value of the underlying assets. Policy conditions may state specific points at which a market value reduction will not apply.
As mentioned above, the “free assets” (i.e. assets which, as yet, have not been distributed to policyholders) help meet the cost of guarantees and provide a buffer to deal with adverse events. AEGON UK has an exposure only once these ”free assets” have been exhausted. This has been assessed by
Income before tax (excluding income tax from certain proportionately consolidated associates) 134 125 7%
Income tax from certain proportionately consolidated associates included in income before tax 8 10 (20%)
Of which income tax from certain proportionately consolidated associates (8) (10) 20%
AEGON’s operations in New Markets reported higher underlying earnings before tax in 2011, driven primarily by growth of AEGON Asset Management. In Central & Eastern Europe, the company’s shift in focus from pensions to life insurance was successful, both in terms of new life sales and underlying earnings before tax. Underlying earnings before tax from operations in Asia remained negative as the company continued to invest in growth in these emerging markets. The contribution from Spain and France remained level compared with 2010.
Commissions and expenses declined by 1% in 2011. Operating expenses declined 3% to EUR 547 million in 2011, as a result of lower operating expenses in AEGON Asset Management and incurred cost savings in Central & Eastern Europe.
to EUR 110 million as a result of strong recurring premium production in Hungary as the focus of the tied distribution network shifted from pensions to life insurance.
New premium production from AEGON’s general insurance and accident & health businesses in Central & Eastern Europe decreased to EUR 25 million, as strong household insurance sales in Hungary were offset by lower motor production due to increased price competition.
Gross deposits in New Markets amounted to EUR 6.6 billion, a decline of 28% compared to 2010. The decline was mainly driven by lower gross deposit in AEGON Asset Management.
Europe. Impairment charges increased to EUR (58) million and were mainly driven by increased mortgage impairments in
Hungary, customers are allowed to repay their Swiss franc denominated mortgages at pre-set foreign currency rate between the Swiss franc and the Hungarian forint. Other charges of EUR 56 million in 2010 included restructuring charges related to the restructuring in AEGON Asset
Central & Eastern Europe, which did not recur in 2011. In addition, 2011 included a favorable EUR 37 million following a settlement of a legal case in AEGON Asset Management.
In New Markets, AEGON reported underlying earnings before tax of EUR 212 million, an increase of 6% compared to 2010.
EUR 96 million as the negative impact from changes in pension legislation in Hungary and Poland was offset by growth of the life business and improved claim experience.
�� Earnings from Spain & France amounted to EUR 88 million and remained level compared to 2010. Earnings from Spain
Income before tax (excluding income tax from certain proportionately consolidated associates) 125 (236) –
Income tax from certain proportionately consolidated associates included in income before tax 10 10 –
Of which income tax from certain proportionately consolidated associates (10) (10) –
Gross deposits (on and off balance) Amounts in EUR million 2010 2009 %
AEGON’s operations in New Markets reported improved results in 2010. Higher contributions from Spain & France, Variable Annuities Europe and the first‑time inclusion of AEGON Asset Management were partly offset by lower underlying earnings before tax from Central & Eastern Europe and higher losses from continued investments in the company’s operations in Asia. Although still negative, net results from AEGON’s Asian operations improved considerably compared to the previous year, which included a charge related to the sale of the company’s activities in Taiwan.
In 2010 asset management and administration fees were reduced, due to new pension legislation in Hungary. Assets are expected to be transferred to the Hungarian State during the first quarter of 2011. In Poland, the government has announced plans to reduce contributions to private pension funds. AEGON
expects these measures to have a combined negative impact on underlying earnings before tax of approximately
Commissions and expenses increased to EUR 735 million in 2010. Operating expenses increased to EUR 562 million for 2010, as compared to EUR 227 million in 2009. The increase was mainly due to the inclusion of AEGON Asset Management and restructuring charges.
New life sales during 2010 declined 4% compared with the previous year to EUR 275 million. Growth in Central & Eastern
In 2010, New Markets turned a net profit of EUR 91 million.
Underlying earnings before tax from New Markets increased 18% compared with 2009 to EUR 200 million. The increase was driven by a higher contribution from Spain and France and
Europe decreased, while in Asia losses were higher as a result of continued investments in growth of the business.
In Central Eastern Europe, the life and pensions operations performed in-line with 2009. However, the non-life business reported lower underlying earnings before tax due to higher claims relating to storms and floods in Hungary.
�� Underlying earnings before tax from Spain and France increased due to a higher contribution from La Mondiale,
AEGON offers savings products in Central & Eastern Europe as part of employee benefit programs. These products include guaranteed interest rate returns.
respectively, that is further increased provided certain conditions are fulfilled by the clients. In Slovakia, the minimum interest rate on universal life products was 3% up to the end of 2006 and since then it has been 2.5%. The universal life products in the Czech Republic have a guaranteed interest rate of 2.4%.
AEGON companies in Central & Eastern Europe offer a range of life insurance and personal protection products. This range includes traditional life, as well as unit-linked products. Unitlinked products cover all types of life insurance, including pension, endowment and savings. In Poland, AEGON is one of the leading providers of unit-linked products, offering around 184 different investment funds. In Hungary, AEGON’s unitlinked market position is similar. In the course of 2011, the number of the offered investment funds reached 133.
Traditional general account life insurance is a marginal product for most of the region’s businesses, except for Hungary and
In 2008, AEGON established AEGON Life Insurance Company in Romania. In 2009, AEGON Life Insurance Company began selling unit-linked, term life and endowment insurance policies in Romania.
Based on gross written premium, Hungary has a share of around 55%, while Turkey has a share of around 25% in the traditional general account life insurance portfolio of the
Since 2006, AEGON Hungary has been offering mortgage loans to retail customers. Home mortgage loans provided in the past were mainly Swiss franc denominated and provided by AEGON Hungary Mortgage Finance Co., a subsidiary of
Starting from 2010, some legislation changes impacting on mortgage loans business have been enacted by the Hungarian
Since 2009, legislative changes have been implemented in the region’s country units. These pension legislation changes have slowed the business growth. The most significant impact has been in Hungary, but changes have also slowed down the business growth in the other CEE country units where AEGON
Poland, the contribution level payable into the private pension fund was significantly cut back. Also, according to the law, as of 2012 new members cannot be actively recruited into the private pension funds any more by the management companies.
Republic. Accordingly, the so far existing Pillar III pension 1 Source: the Association of Pension Fund Management Companies, Slovakia (www.adss.sk), Hungarian Financial Supervisory Authority (www.pszaf.hu) and Polish Financial Supervision Authority (www.knf.gov.pl).
In addition to life insurance and pensions, AEGON Hungary offers non-life cover (household, car insurance and some wealth industrial risk). In recent years, margins on non-life insurance in Hungary have been attractive. Moreover, household insurance provides considerable opportunities for cross-selling life insurance.
As part of AEGON’s regional expansion, AEGON Hungary opened branch offices in 2010 in Slovakia, and then in 2011 in
AEGON is among the biggest players on the life insurance market in Hungary. In 2011, based on the first nine months’
AEGON was ranked eighth, both in terms of net assets under management and number of members. (Source: www.csspp.ro).
In Hungary, the foundation and operations of private and voluntary pension funds are regulated by the country’s Act on
Private Pension and Private Pension Funds (LXXXII. 1997) and its Act on Voluntary Mutual Pension Funds (XCVI. 1993)
respectively. Although, for AEGON, these activities are outsourced to AEGON Hungary Pension Fund Management
Funds. In the Czech Republic, the voluntary pension funds fall under the supervision of the Czech National Bank and are
Supplementary Pension Insurance. In Turkey, the voluntary pension funds fall under the supervision of the
AEGON Hungary Mortgage Finance Company falls under the supervision of the Hungarian Financial Supervisory
CEE accepts only at least A- rating by S&P and for long tail business CEE accepts only at least AA- rated (S&P) reinsurance company. The credit standing of the reinsurance partners is held under strict monitoring, being assessed by Risk
The three most important reinsurance programs currently in force are (with retention levels for each event indicated in parentheses): �� Property catastrophe excess of loss treaty (EUR 5.9 million, for the Slovakian and Polish accounts EUR 0.2 million).
Central & Eastern Europe are non-proportional excess of loss programs, except for the life reinsurance, which are done on surplus and quota-share basis (including various riders).
AEGON has life insurance joint ventures in China, India and Japan. In 2002, AEGON signed a joint venture agreement with China National Offshore Oil Corporation (CNOOC), China’s leading offshore oil and gas producer. AEGON‑CNOOC Life Insurance Co. Ltd. (AEGON‑CNOOC) began operations in May 2003. The joint venture is licensed to sell both life insurance and accident and health products in mainland China.
As elsewhere around the world, AEGON operates through a number of different sales channels in Asia. Banks are becoming increasingly important in Asia as a way to distribute pensions, life insurance and other long-term savings and investment products. For this reason, AEGON has been striving in recent years to extend its bank distribution agreements in the region.
Hubei. These locations give the joint venture access to a potential market of more than 500 million people, most of them in the booming coastal provinces of eastern China.
AEGON is also present in India. In 2006, AEGON agreed to form a new life insurance partnership in India with Religare
Sony Life, one of Japan’s leading insurance companies. The joint venture in Japan, AEGON Sony Life Insurance Co. Ltd.
The shareholders in the joint venture agreement also agreed to jointly establish an offshore reinsurance company, SA
AEGON Religare’s focus has been on building a widespread nationwide agency network. The number of agents as of
Group, our strategic partner, ii) via other partnerships with companies that offer financial services to their clients; iii)
Japan as banks are growing more accustomed to selling insurance. Furthermore, banks are eager to expand into fee income based activities since their mainstay business margins have been reduced because of the financial crisis and related low interest rates in Japan.
AEGON provides a broad range of life insurance products through its businesses in China and India. These include unitlinked and traditional life products, as well as endowment, term life, health, group life, accident and annuities.
AEGON Sony Life sells variable annuities. It provides guaranteed life time withdrawal benefit (GLWB) with rollup function during deferral period by 4% per annum and guaranteed minimum accumulation benefit (GMAB) (with 10, 12 and 15 year accumulation period options). All these new or renewed products were launched in August 2011. The GLWB
(which pays the benefits specified for the respective category of hospitalization, surgery or critical illness irrespective of the actual expense incurred by the policyholder). Its current contribution to AEGON Religare is small and it is sold by all the channels of the joint venture including agency, direct and business alliance.
distribution channel caused by bancassurance monopoly, more and more companies are developing telemarketing (e.g. AVIVA-
The Indian life insurance industry is one of the strongest growing sectors in the country for the last several years being second only to banks for mobilized savings and forms an important part of the capital market. However, it has seen some slow-down in the financial year ending March 31, 2011
The total premium underwritten by the life insurance sector in 2010-11 was INR 2,916 billion as against INR 2,655 billion in 2009-10 exhibiting a growth of 9.9%. While renewal premium accounted for 56.7% (58.6% in 2009-10) of the total premium received by life insurers, first year premium contributed 43.3%
Report 2010-11). The agency force is still an important distribution channel, but life insurers are increasingly lining up with the banks to distribute their products. During the period of April to September 2011, the total premium collected – which includes new premiums and renewal premiums – decreased 2% to around INR 1,227 billion from around INR 1,252 billion.
There were 24 life insurers licensed in India as of the end of
Company of India (LIC) remains the dominant player in the market and has a 72% share of the new business premium
China’s life insurance industry declined in 2011 as reflected by new bancassurance regulations. As of December 31, 2011, there were 61 life insurance companies in the market, including 25 foreign life insurers with year to date total premiums of RMB
956 billion, a decrease of 9.0% over the same period last year.
As of December 31, 2011, AEGON-CNOOC ranked 35th among all life insurance companies and 11th among foreign life companies (Source: CIRC). The company’s market share among foreign-invested companies was 3.0% (Source: CIRC).
A selection of domestic Chinese banks are allowed to make equity investments into insurance companies, and in some cases have become their key shareholders. As of December 31, 2011, there are nine bank-invested life insurance companies in
Due to fast growth in premium contributed by bancassurance in recent years, the China Banking Regulatory Commission
Insurance from a consortium and became the controlling shareholder with a 51% stake. Insurers are also investing in banks. In August 2011, Ping An became the majority shareholder in Shenzhen Development Bank.
while the balance is dispersed among the private sector companies (Source: Monthly New Business Report from IRDA
website). On its part, AEGON Religare has underwritten total premium of INR 4.6 billion for the calendar year of 2011, this being an increase of nearly 60% compared to the same period last year.
Variable annuity (VA) products in Japan are mostly sold through banks and securities firms with a top-down approach where the head offices have much more decision making power than the local branch offices in terms of product selection, though a part of promotions are largely decided at branch or block level. Banks are permitted to act as distributors for multiple insurers; each of the three largest banks in Japan (the mega banks) has offered the variable annuity products of seven or more insurers.
Japan). This is due to the introduction of negatively priced single premium whole life (SPWL) by large, aggressive mutual companies who want to get top line at the expense of selling loss making products. One of the major players of the product has announced a shift in its pricing, which we believe will revert to the norm over time.
Most of the players concentrate on GMAB products. GLWB is currently provided by Mitsui Sumitomo, Primary Life and AXA.
December 2011 (based on April - December data) is around the 7th with about 4% of market share (Source: Bancassurance information exchange (informal)). ASLIC gross deposits in 2010 were JPY 12 billion and JPY 13 billion in 2011, which represents growth of about 7%.
China Insurance Regulatory Commission (CIRC) is regulating and supervising all insurance companies in China. CIRC
clarified the regulations with respect to required acceptance checks for business commencement of insurance companies to standardize and guide this process to improve the procedures for insurance market access. CIRC also clarified the requirements with respect to the application, placement, administration, repayment, information disclosure of issuing subordinated term debts. In the field of capital guarantee funds management, CIRC clarified deposit rules of capital guarantee funds to strengthen the administration of capital guarantee funds of insurance companies and maintain the steady and healthy development of the insurance market. In the field of Anti-Money Laundering (AML), CIRC restated and emphasized AML obligations of the insurance industry, clarified the regulatory duties of CIRC and dispatched offices of the CIRC to further promote the sustainable and healthy development of AML work. In the field of product management, CIRC promoted the pilot work for variable annuity insurance and regulated management model, product shape, appropriation of liability reserves and information disclosure. CIRC issued the Administrative Measures for the
CIRC is developing a set of regulations governing telemarketing and e-sales. The aim is to ensure the healthy development of such business in China, preventing fraud and protecting the rights of insurers, policyholders and their beneficiaries.
Insurance Regulatory and Development Authority (IRDA) that regulates, promotes and encourages orderly growth of insurance and re-insurance business in India. Established by the Government of India, it safeguards the interest of the insurance policy holders of the country.
also has the right to do on and off site inspection. Relevant regulations for insurance operation include the Insurance
meet every quarter to manage and monitor asset and liability matching using the result of stress-test scenarios based on Economic Capital Model, liquidity tests and duration mismatch tests.
Risk management and Capital Committee. Additionally, there is a management level Risk and Capital Committee (RCC).
The hedging program include combinations of futures contracts, forwards and options on market indices such as –
but not limited to – the NIKKEI, TOPIX, the S&P 500, FTSE 100, and the EuroStoxx 50. Because some of the equity indices are not traded in Japanese Yen (SA Re’s functional currency), the resulting currency exposure is hedged with foreign currency forwards. The hedging program requires a daily determination of risk exposures and regular monitoring of and trading on the markets when open. The program requires substantial amounts of cash, to cover potential losses on hedging instruments, transaction costs and other charges which will be supported by the shareholders as necessary. The hedge strategy is not expected to completely eliminate the volatility due to guarantee value changes. The hedge objective is to minimize income volatility, but it is expected that income volatility will be reduced by approximately 70%-80% of what it would be un-hedged. The hedge will also not fund all changes in capital, as the minimization of income volatility
leads to a strategy different from that required to minimize capital volatility.
AEGON-CNOOC shares its morbidity and mortality risk with some international and national reinsurers. The mortality risk of individual products is shared through a surplus reinsurance structure. Most of the morbidity risks are taken by Gen Re and
Munich Re in quota share. The life and accidental group products are reinsured by Hannover Re and group health products are ceded to Munich Re and Hannover Re. AEGON-
Each of these entities has been subject to the restructuring process in Spain’s financial sector.
(CAM) goes back to 2004. CAM has a network of more than 1,120 branches across the Valencia, Murcia and Catalonia provinces, as well as in Madrid and on the Balearic and
and 50.01% interest in Mediterraneo Vida, the life insurance and pensions company that has exclusive access to CAM’s branch network.
AEGON decided to exercise its put option pursuant to the shareholder’s agreement between CAM and AEGON, to exit the partnership. Currently, CAM and AEGON are in an arbitration process to determine the occurrence of a change in control and the corresponding date, which determines the exit price.
(AEGON Seguros Salud and AEGON Seguros de Vida), which merged to form AEGON ESPAÑA S.A. de Seguros y Reaseguros as of January 1, 2011. Administration and operational services to all companies in Spain, including joint ventures with third parties, are provided by AEGON Administracion y Servicos
AEGON Spain focuses primarily on retail customers. It offers both life insurance and accident and health cover. In particular,
AEGON Spain offers pensions as well as both traditional life and unit-linked variable life products, a market traditionally dominated by the country’s retail banks.
Major competitors are the bank-owned insurance companies for life and pension products, foreign and local companies for health insurance products.
AEGON Spain’s investment portfolio is regulated by Spanish law, which is based on the Third EU Directive (92/96/EEC). The regulation requires the appropriate matching of investments and technical provisions, and it also establishes the main characteristics of the assets that can be applied to asset liability management. There are limitations on the amounts that can be invested in unsecured loans, unquoted stocks, single investments in real estate, and a single loan or debtor.
AEGON Spain’s approach to asset liability management is to make projections of asset and liability cash flows, to calculate their present values using a market yield curve, and to compute the main parameters affecting these cash flows (e.g.
duration and convexity). The goal is to lock-in the spread by matching the duration of assets to the duration of liabilities.
AEGON Spain has proportional reinsurance protection in place for its individual risk policies and non-proportional protection for its group risk policies. This strategy is in line with standard practice within the insurance industry. With this approach,
AEGON Spain, generally, works only with reinsurance companies that have a credit rating from Standard & Poor’s of at least ‘A’. To lessen its exposure to defaults, AEGON Spain regularly monitors the creditworthiness of its reinsurers.
In 2002, AEGON signed a partnership agreement with mutual insurer La Mondiale, one of France’s largest providers of life insurance and pensions. AEGON has a 35 percent interest in La Mondiale’s subsidiary company La Mondiale Participations. La Mondiale Participations offers a wide range of life insurance, pension, savings, investment, asset management and accident and health products to both corporations and individual retail customers. In 2005, the AEGON Pension Network was launched in collaboration with La Mondiale.
Spain, most life insurance in France – more than 50 percent –
AEGON Ireland plc (Variable Annuities Europe) has two business lines: 1) variable annuities for Europe (active in the United Kingdom, France and the Netherlands) and 2) international/offshore bonds for the UK market.
(usually) a cash fund. In most products, the investment options are selected by a client based on the client’s preferred level of risk. The assets and liabilities related to this product are legally segregated for the benefit of policyholders in a separate account of the insurance company.
Offshore Wealth Management products are open-ended, unit-linked, life insurance products. They offer a wide range of investments choices, allowing investment into an almost unlimited range of collective investment schemes such as unit trusts, SICAVs and open-ended investment companies (OEICs), together with internal linked funds and cash deposits.
Alternatively, clients can request the appointment of a specialist fund manager to select the underlying funds.
The assets and liabilities related to this product are legally segregated for the benefit of particular policyholders in separate accounts of the insurance company. These separate
La Mondiale. The guaranteed lifetime income option in this product is reinsured to AEGON Ireland. The product is sold via AG2R La Mondiale’s own internal networks as well as via platforms to financial advisers and banks.
Variable annuity products are essentially unit-linked life insurance products with guarantees. They typically offer a range of investment fund options linked in various proportions
Offshore Wealth Management products allow a customer to make regular withdrawals from their policy as long as there is sufficient value in the underlying fund. The death benefit is typically 100.1% of the surrender value of the policy on the death of the last life assured. Offshore Wealth Management
Products do not have any explicit guarantees. Their surrender value reflects the performance of the funds selected by the client. Therefore, the final surrender value of the policy may be less than the original investment.
The account value of Offshore Wealth Management products reflects the performance of the funds. The insurance provider earns ongoing administration and expense charges on the policy. Any surrender charges collected are typically applied to recoup outstanding installation costs.
There has been no significant change from 2010 to 2011 in the competitive environment for variable annuities across Europe.
In the UK, MetLife is the market leader where it is the favored provider due to its total variable annuity market solution covering also pensions and onshore bonds. In France, AXA and
Allianz are the only other providers offering variable annuities, with AXA leading the market. In other European markets competitors such as ING, Generali and Swiss Life are also offering variable annuity products.
AXA Wealth and Standard Life respectively. AEGON’s current ranking reflects the difficulties experienced in 2011 as a result of aggressive competitor pricing in the retail IFA market and increasing platform use amongst IFAs. As progress continues with the platform strategy, AEGON Ireland is now currently available on six external platforms. Key channels going forward will be platforms and wealth managers/private banks.
Framework Regulations 1994 (the 1994 Regulations) which implements the 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
The Central Bank of Ireland has sole responsibility for (and very extensive powers in relation to) the prudential supervision and regulation of AEGON Ireland. As a consequence of its regulatory status, AEGON Ireland is subject to a large number of significant restrictions on its: �� Capital and solvency position
The Central Bank of Ireland’s supervisory process is carried out by way of: �� Analysis of returns submitted.
AEGON Asset Management is situated within the Netherlands, the United Kingdom, the United States, Central Europe,
AEGON Asset Management entities have close links with local insurance companies. Inflows to funds under management are derived through the sales efforts of these insurance companies who subsequently invest the proceeds into general account or unit-linked funds depending on the nature of the product sold. In some cases, AEGON Asset Management holds a control over this relationship in a closed architecture while in others AEGON Asset Management competes with external asset managers in an open architecture structure.
AEGON Asset Management also interacts directly with third party customers. Third party customers are split into two categories – Retail (primarily investing via collective investment schemes) and Institutional (primarily companies and pension funds with separate requirements). These are serviced by a dedicated sales/marketing force using a variety of distribution channels.
general account, unit-linked and third party corresponding to the client groups listed above. In Asia, all of its business was third party in 2011. In the United States, most of its business is general account although there is some unit-linked and third party business. In Europe AEGON manages a combination of general account, unit-linked and third party business.
�� General account business consists of funds which are held on the balance sheet of AEGON insurance affiliates for the purposes of meeting liabilities to policyholders, typically where the insurer has given the policyholder a guarantee.
These funds are normally managed with an objective to beat a target (typically a benchmark or peer group). 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 unit-linked business is conducted on an open architecture basis.
AEGON Asset Management was launched at the beginning of October 2009 and brings together asset management businesses from around the world. As of January 1, 2010, AEGON reports results from AEGON Asset Management separately within its ‘New Markets’ segment.
Management’s competitors include global asset managers and local specialists in the countries where it is active. Generally, there are different competitors for different types of asset class or different styles of management. In 2011, the asset management industry experienced volatility in major world currencies, historically low interest rate, rising inflation in certain pockets and overall credit crisis in the US and eurozone. In this environment asset allocation to fixed income and emerging markets has tended to rise. In addition, investor demands have increased with a greater likelihood to scrutinise and challenge the asset managers leading to more focus on portfolio risk management and investment in better systems and governance. In third party markets, there is evidence of a shift in customers’ requirements towards absolute return funds, global products (e.g., global equities) and “solutions”
UK based entities), the SEC (for US based entities) and the
�� Establishing a firm framework through which the risk-return trade-off associated with these risks can be assessed.
AEGON must, at all times, maintain a solvency and liquidity position such that no plausible scenario would cause the company to default on its obligations to policyholders.
�� Continuity: Ensure a high likelihood that AEGON will meet policyholder obligations, even under extreme events.
�� Risk balance: Manage the concentration of risk and encourage risk diversification within AEGON.
AEGON has a strong culture of risk management, based on a clear, well-defined governance framework. The goals of this framework are as follows: �� To minimize ambiguity by clearly defining responsibilities and reporting procedures for decision makers.
�� To institute a proper system of checks and balances by ensuring that senior management is aware at all times of material risk exposure.
�� To facilitate diversification by enabling management to identify diversification benefits from apparent risk-return trade-offs.
policies. The EBRC regularly reports significant risks to, and discusses AEGON’s risk strategy with, the Supervisory Board
The SBRC 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 SBRC
Details of members of the Supervisory Board’s Risk Committee can be found on page 110 of this Annual Report.
�� The Group Risk and Capital Committee (GRCC) to support the EBRC with risk oversight, as the primary balance sheet management committee of AEGON.
The ERMC is advised by three sub-committees: the Risk Governance and Policies Committee (RGPC), the Methodology & Assumptions Review Committee (MARC), and the Operational Risk Management Committee (ORMC).
The Model Validation Committee (MVC) is the advisory committee reporting to the Group CRO on risk model validation issues. The MVC assists the ERMC in the monitoring of compliance with the internal and external model development and validation standards and relevant regulatory standards.
(CROs) have the additional authority to defer decisions that can have a significant impact on the region’s or operating unit’s solvency, liquidity or operations to the Board of the region or operating unit and AEGON’s Chief Risk Officer.
The Management Board (MB) oversees a broad range of strategic and operational issues. While the Executive Board remains AEGON’s sole statutory executive body, the
Management Board provides vital support and expertise in safeguarding AEGON’s strategic goals. In the context of Enterprise Risk Management, the MB advises the EBRC
Group Risk is responsible for developing and keeping oversight of compliance with the risk governance framework, risk methodology, risk tolerances and risk policies. This involves identifying risk, particularly operational and emerging risk, as well as reviewing risk assessments carried out by operating units. Group Risk also identifies best risk management practices, facilitates implementation thereof and helps ensure there is consistency in the application of these practices across the company. In addition, Group Risk performs risk analyses, either at its own initiative or at the request of management, including the analysis of extreme events and related management capabilities.
Chief Risk Officer or one of the regional CROs that report directly into AEGON’s Chief Risk Officer. Regions include the
The company’s first line of defense has direct responsibility for managing and taking risk in accordance with defined risk tolerances and risk policies, i.e. business and support functions.
The second line of defense facilitates and oversees the effectiveness and integrity of enterprise risk management across the company, i.e. risk functions and committees. Finally, the third line of defense provides independent assurance and challenge regarding the effectiveness and integrity of
European debt crisis. Equity markets decreased and remained volatile. Interest rates, already at historic lows, declined during the year and more sharply during the second half of the year, to levels lower than the end of the previous year. After initially narrowing during the first quarter of the year, credit spreads later widened. General economic and business conditions remained difficult. During the year, AEGON carried out regular sensitivity analyses to determine the impact of different economic and business scenarios, particularly on the company’s earnings and capital position. These plans also cover extreme event scenarios, such as the possibility of pandemics in one or more of the company’s main markets.
After initially narrowing during the first part of the year, credit spreads later widened for the remainder of 2011.
AEGON continued to refine its program of hedging equity risk at its US and Dutch operations to protect the company against a possible deterioration in equity markets. In the Netherlands, additional steps were taken to reduce equity exposure through the sale of equity positions that were held against employee pension liabilities.
capital markets, an immediate and permanent rise in interest rates, and policyholders withdrawing liabilities at the earliest conceivable date. In addition, the company has highly developed liquidity stress planning in place. In 2011, AEGON
retained its significant holdings of cash and highly liquid assets as a precaution against potential adverse market developments. AEGON’s liquidity management strategy ensures the company will not be a forced seller of assets even in a severe stress scenario. Stress tests show that available liquidity would more than match the company’s liquidity requirements for at least the next two years, even if market conditions were to significantly deteriorate from current conditions.
AEGON’s earnings depend, to a significant degree, on the extent to which claims experience is consistent with assumptions used by the company to price products and establish technical liabilities. Changes in, among other things, morbidity, mortality, longevity trends and policyholder behavior could have a considerable impact on AEGON’s income. AEGON
(providing it is correctly priced) in line with the company’s broader strategy to capitalize on growth opportunities in its main life insurance and pension markets. In keeping with this strategy, AEGON reduced exposure to underwriting risks outside of its chosen markets through the divestment of
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 is constantly working on analyses studying such operational risks and regularly develops contingency plans to deal with them.
As an international provider of life insurance, pensions and asset management products, AEGON faces a number of risks, including underwriting, operational and financial. Some of these risks may arise from internal factors, such as inadequate compliance systems. Others, such as movements in interest rates or unexpected changes in longevity or mortality trends, are external in nature. AEGON’s most significant risk is to changes in financial markets, related particularly to movements in interest rates, equity and credit markets. These risks, whether internal or external, may affect the company’s operations, its earnings, its share price, the value of its investments, or the sale of certain products and services.
The following discusses some of the key risk factors that could affect AEGON’s business and operations, as well as other risk factors that are particularly relevant to AEGON in the current period of significant economic and market disruption.
Statements” (refer to page 382) and the risks of AEGON’s businesses described elsewhere in this Annual Report.
In Europe, countries such as Portugal, Ireland, Italy, Greece and Spain have been particularly affected by the recent financial and economic conditions, creating a heightened perceived risk of default on the sovereign debt of those countries that intensified in the latter part of 2011, with the possibility of a Greek default and rising concerns about the contagion effect it would have on other European Union economies and the ongoing viability of the euro currency and the European Monetary Union. At December 31, 2011, AEGON
of Portugal, Ireland, Italy, Greece and Spain of EUR 13 million,
EUR 1,022 million, respectively. Yields on the sovereign debt of most European Union member states have recently been volatile and trending upward. The European Union, the
AEGON also cannot predict with any certainty the effect a sovereign default may have on AEGON’s business, result of operations, cash flows and financial condition, although the effect of such events may have could be material and adverse.
Defaults in AEGON’s debt securities, private placements and mortgage loan portfolios held in AEGON’s general account or failure of certain counterparties may adversely affect profitability and shareholders’ equity.
derivatives and reinsurance contracts. In addition, financial institutions acting as a counterparty on derivatives may not perform their obligations. Default by issuers and counterparties on their financial obligations may be due to, among other things, bankruptcy, lack of liquidity, market downturns or operational failures, and the collateral or security they provide may prove inadequate to cover their obligations at the time of the default.
AEGON’s investment portfolio contains investments in Dutch government bonds, US Treasury, agency and state bonds, as well as other government issued securities. Recently, there has been uncertainty regarding the ability of certain European nations (in particular Portugal, Italy, Ireland, Greece and Spain)
and US states and municipalities to satisfy their financial obligations. Over the past couple of years, during the weak economic environment, AEGON incurred significant investment impairments on its 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 material adverse effect on AEGON’s business, results of operations, cash flows and financial condition.
Fluctuations in the equity markets have affected AEGON’s profitability, capital position and sales of equity related products in the past and continue to do so. Exposure to equity markets exists in both assets and liabilities. Asset exposure exists through direct equity investment where we bear all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in insurance and investment contracts for account of policyholders where funds are invested in equities (such as variable annuities, unit-linked products and mutual funds). Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee that we earn on the asset balance in these products and prolonged investment under-performance may cause existing customers to withdraw funds and potential customers not to grant investment mandates. In addition, some of AEGON’s insurance and investment contract business has minimum return or accumulation guarantees, which requires AEGON to establish reserves to fund these future guaranteed benefits when equity market returns do not meet or exceed these guarantee levels. AEGON’s reported results under International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board and adopted by the European Union, are also at risk if returns are not sufficient to allow amortization of deferred policyholder acquisition costs (“DPAC”), which could impact the reported net income as well as shareholders’ equity. Volatile or poor market conditions may also significantly reduce the demand for some of our savings and investment products, which could lead to lower sales and net income. Deteriorating general economic conditions may again result in significant decreases in the value of AEGON’s equity investments. The equity market conditions experienced through 2011 led to a recognized impairment loss on equity securities held in general account of EUR 10 million (2010: EUR 7 million).
These cash payments to policyholders also result in a decrease in total invested assets and net income. Early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income.
has been facing in recent years, AEGON may not be able to preserve margins as a result of minimum interest rate guarantees and minimum guaranteed crediting rates provided in policies. Also, investment earnings may be lower because the interest earnings on new fixed-income investments are likely to have declined with the market interest rates.
If interest rates rise there may be unrealized losses on some of AEGON’s assets that will be recorded as negative income under IFRS. This is inconsistent with the IFRS accounting on much of AEGON’s liabilities, where corresponding unrealized gains when interest rates rise do not affect income in the shorter term. Over time, the short-term reduction in income due to rising interest rates would be offset by higher income in later years, all else being equal.
AEGON may not be able to successfully manage interest rate spreads, credit risk and other risks in the investment portfolio or the potential negative impact of those risks. Investment income from general account fixed income investments for the years 2009, 2010 and 2011 was EUR 5.8 billion, EUR 6.0 billion and EUR 5.6 billion, respectively. The value of the related general account fixed income investment portfolio at the end of the years 2009, 2010 and 2011 was EUR 130 billion,
Fluctuations in currency exchange rates may affect AEGON’s reported results of operations.
AEGON’s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities are managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders’ equity is required to satisfy regulatory and
AEGON’s self-imposed capital requirements. Therefore, currency exchange rate fluctuations may affect the level of AEGON’s consolidated shareholders’ equity as a result of translation of the equity of AEGON’s subsidiaries into euro,
AEGON’s reporting currency. AEGON holds the remainder of its capital base (capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of AEGON’s operating units.
The UK pound fluctuated by around 9% against the euro ending the year with a 3% gain.
For the Americas segment, which primarily conducts its business in US dollars, total revenues and net income in 2011 amounted to EUR 12.4 billion and EUR 670 million, respectively.
of the total revenues and 71% of the net income for the year 2011. Additionally, AEGON borrows in various currencies to hedge the currency exposure arising from its operations.
Despite measures taken by the European Union to provide funding to certain European Union member states in financial difficulties and by a number of European countries to stabilize their economies and reduce their debt burdens, it is possible that the euro could be abandoned as a currency in the future by countries that have already adopted its use. This could lead to the re-introduction of individual currencies in one or more
Union. The effects on the European and global economy of a potential dissolution of the European Monetary Union or the exit of one or more European Union member states from the
European Monetary Union, are impossible to predict with certainty, and any such events could have a material adverse effect on AEGON’s financial condition and results of operations in the future.
Liquidity risk is inherent in much of AEGON’s business. Each asset purchased and liability sold has liquidity characteristics that are unique. Some liabilities are surrenderable while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, have low liquidity.
For example, over the past few years, the market for residential mortgage-backed securities has experienced a significant decrease in liquidity. In addition, any securities AEGON issues of significant volume may be issued at higher financing costs if liquidity conditions are impaired as they have been in recent years. Although AEGON manages its liquidity position for extreme events, including greatly reduced liquidity in capital markets, if these conditions were to persist for an extended period of time, AEGON may need to sell assets below quoted prices to meet its insurance obligations during periods of impaired liquidity.
AEGON’s earnings depend significantly upon the extent to which actual claims experience is consistent with the assumptions used in setting the prices for AEGON’s products and establishing the technical liabilities for expected claims.
Sources of underwriting risk include policy lapses, policy claims (such as mortality and morbidity) and expenses.
AEGON also sells certain other types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. For example, certain current products as well as products sold in previous years based on standard longevity assumptions have become less profitable or unprofitable as longevity assumptions increase which may result in AEGON
incurring losses. In 2011, a total of EUR 124 million was added to the provision for longevity in the Netherlands compared to 2010. This amount was fully charged to underlying earnings before tax. If the trend towards increased longevity persists,
AEGON’s annuity products may continue to experience adverse effects because the period of time over which benefit payments are made becomes longer as life expectancies increase. AEGON is also at risk if expenses are higher than assumed.
The valuation of many of AEGON’s financial instruments is based on methodologies, estimations and assumptions that are subject to different interpretations and could result in changes to investment valuations that may have a material adverse effect on AEGON’s results of operations and financial condition. In addition, the determination of the amount of allowances and impairments taken on AEGON’s investments is subjective and could materially impact AEGON’s results of operations or financial position.
AEGON may be required to increase its statutory reserves and/or hold higher amounts of statutory capital for certain of its products which will decrease AEGON’s returns on these products unless AEGON increases its prices.
The European Commission’s Solvency II directive, which will likely become effective January 1, 2014, is expected to impose, among other things, substantially greater quantitative and qualitative capital requirements on some of AEGON’s businesses and at the Group level as well as supervisory and disclosure requirements and may impact the structure, business strategies, and profitability of AEGON’s insurance subsidiaries and of the Group. Some of AEGON’s competitors who are headquartered outside the European Economic
Valuation of Life Insurance Policies Regulation”, commonly known as “Regulation AXXX” requires insurers to establish additional statutory reserves for certain universal life insurance policies with secondary guarantees. Virtually all of AEGON’s newly issued term and universal life insurance products in the US are now affected by Regulations XXX and
(“AG38”). This guideline addresses reserve requirements for certain term and universal life products. Changes to AG38 could have an adverse impact on reserve levels and design of these products.
In response to the NAIC regulations, AEGON has implemented reinsurance and capital management actions to mitigate their impact. However, AEGON may not be able to implement actions to mitigate the impact of Regulation XXX and AXXX
on future sales of term or universal life insurance products, potentially resulting in an adverse impact on these products and AEGON’s market position in the life insurance market.
For certain of AEGON’s products, market performance impacts the level of statutory reserves and statutory capital AEGON is required to hold, which may have an adverse effect on returns on capital associated with these products. Capacity for reserve
funding available in the marketplace is currently limited as a result of market conditions generally. AEGON’s ability to efficiently manage capital and economic reserve levels may be impacted, thereby affecting profitability and return on capital.
There may be heightened oversight of insurers by regulatory authorities in the jurisdictions in which AEGON’s subsidiaries are domiciled and operate. AEGON cannot predict specific proposals that might be adopted, or what impact, if any, such proposals or, if enacted, such laws, could have on its business, results of operations, or financial condition. The European
AEGON’s subsidiaries operate may increase their capital requirements, or rating agencies may incorporate higher capital thresholds into their quantitative analyses, thus requiring additional capital for AEGON’s insurance subsidiaries.
In addition, certain jurisdictions, such as the European Union, are questioning the use of gender-based distinctions in the insurance industry. This may limit or impede AEGON’s ability to continue to make certain gender-based distinctions in the pricing of financial products such as life insurance, annuities and certain other types of products AEGON sells. On March 1, 2011 the European Court of Justice (ECJ) delivered a judgment in the Test Achats case which relates to the ability of an insurance company to use gender as a rating factor when pricing risk. The ECJ has ruled that using gender as a rating factor when pricing risk is invalid. However, the ECJ has granted a transitional period for relief for implementation.
The effect of this is that, as from December 21, 2012, it will be unlawful to use gender-related factors for determining premiums and benefits under insurance policies. This decision may have a material adverse effect on AEGON’s business, financial position and results of operations.
Standard and Poor’s lowered the insurance financial strength rating for AEGON Scottish Equitable to A+ with a negative outlook. A downgrade or potential downgrade, including changes in outlook, could result in higher funding and financing costs in the capital markets and affect the availability of funding to us in the capital markets. In addition, a downgrade may adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of AEGON’s products and services, which may negatively impact new sales and adversely affect AEGON’s ability to compete. This would have a material adverse effect on AEGON’s business, results of operations and financial condition.
AEGON cannot predict what actions rating agencies may take, or what actions AEGON may take in response to the actions of rating agencies, which could adversely affect AEGON’s business. As with other companies in the financial services industry, AEGON’s ratings could be downgraded at any time and without notice by any rating agency.
AEGON’s regulated businesses, such as insurance, banking and asset management, are subject to comprehensive regulation and supervision in all countries in which AEGON operates.
(e.g. policyholders), not holders of securities. Changes in existing insurance laws and regulations may affect the way in which AEGON conducts business and the products offered.
(“Dodd-Frank”), which provides for comprehensive changes to the regulation of financial services in the US by granting existing government agencies and newly created government agencies and bodies (e.g., the Financial Stability Oversight
Council and the Federal Insurance Office) authority to promulgate new financial regulations applicable to systemically important non-bank financial institutions.
That rule has not yet been finalized. Financial institutions designated as systemically important will likely be subject to higher capital standards and increased prudential regulation, neither of which has been developed. As a result, it is uncertain whether AEGON’s US operations would be subject to these rules and if these rules are applicable to AEGON’s
Office, which does not have general authority over the business of insurance, to make recommendations to the
Financial Stability Oversight Council that certain insurers be subject to more stringent regulation. Further, Dodd-Frank requires the Federal Insurance Office to conduct a study on how to modernize and improve the system of insurance regulation in the US. AEGON cannot predict the requirements of the Dodd-Frank regulations that will ultimately be adopted, how the regulations will affect the financial markets generally or how the regulations will affect AEGON’s operations or financial condition.
Litigation and regulatory investigations and actions may adversely affect AEGON’s business, reputation, results of operations, cash flow, financial condition, and solvency.
AEGON faces significant risks of litigation and regulatory investigations and actions in connection with AEGON’s activities as an insurer, securities issuer, employer, investment advisor, investor and taxpayer among others.
State of New York, in each case into the application by insurers of unclaimed property laws and related claims practices. As other insurers in the United States have recently done, AEGON
Americas identified certain additional internal processes that it has already implemented or is in the process of implementing. AEGON Americas increased certain reserves in regard to this matter by approximately EUR 37 million during the fourth quarter of 2011. While AEGON believes that its processes to manage unclaimed property are generally adequate, with industry practices changing and regulatory interpretations evolving, it is uncertain what the further impact of any such inquiry could be for AEGON and other market participants. In addition, insurance companies are generally the subject of litigation, investigations and
AEGON cannot predict at this time the effect litigation, investigations, and actions will have on the insurance industry or AEGON’s business. Lawsuits, including class actions and regulatory actions, may be difficult to assess or quantify, may seek recovery of very large and/or indeterminable amounts, including bad faith, punitive and treble damages, and their existence and magnitude may remain unknown for substantial periods of time. Claimants may allege damages that are not quantifiable or supportable and may bear little relationship to their actual economic losses, or amounts they ultimately receive, if any.
AEGON has defended and AEGON intends to continue defending itself vigorously when we believes claims are without merit. AEGON has also sought and intend to continue to seek to settle certain claims including via policy modifications in appropriate circumstances such as the settlement we reached in 2009 with Stichting Verliespolis and
Stichting Woekerpolis Claim in the Netherlands, that among other things, provided for up to EUR 250 million in potential policy modifications which did not have a significant impact on AEGON’s income statement as the actual reserves for insurance and investments policies are sufficient to cover the estimated future liabilities. Any amounts due for past periods have been recorded in insurance contract reserves.
The Ombudsman Financiële Dienstverlening supports the arrangement with Stichting Verliespolis and Stichting
Woekerpolis Claim. However, recently a public debate emerged on the adequacy generally of the arrangements reached between the various insurance companies and customer interest groups like Stichting Verliespolis and Stichting
AEGON may take in response to the call for general application of those principles, or the impact that any such actions may have on AEGON’s results of operations or financial position.
Any such actions, whether triggered by legal requirements or commercial necessity, a substantial legal liability or a significant regulatory action could have a material adverse effect on AEGON’s business, results of operations, cash flow, financial condition and solvency. For example, in July 2011, the
However, the Court went on to define what it considers to be a reasonable premium at a level below that charged by AEGON.
While AEGON believes that the Court’s ruling, which was based on a single industry example that AEGON believes is not representative, was wrongly decided and, in October 2011, appealed the decision to the Supreme Court in the Netherlands, there can be no assurance that the Supreme Court will agree with AEGON’s position. If this decision is ultimately upheld on appeal by the Dutch Supreme Court, it could result in a legal liability, of approximately EUR 150 million after tax.
The structural measures that remain in force are: �� Reduction of the total US general account assets of the consolidated AEGON USA balance sheet on a constant currency and amortized cost basis by USD 25 billion from 2007 (USD 130 billion) to the end of 2012 (USD 105 billion); as at December 31, 2011, this figure was USD 108 billion.
AEGON may be unable to manage AEGON’s risks successfully through derivatives.
AEGON’s ability to manage risks through derivatives may be negatively affected by Dodd-Frank and legislation initiatives of the European Commission, which provide for a new framework of regulation of OTC derivatives markets. These new regulations, including the proposed regulation of OTC transactions, central counterparties and trade repositories (EMIR) by the European
Commission on September 15, 2010, as well as the new regulation on markets in financial instruments (MIFIR)
Employee Benefits. The amended standard applies to financial years beginning on or after January 1, 2013. The amendments eliminate the option to defer the recognition of gains and losses, known as the “corridor method”. The amendments streamline the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income. A calculation of our IAS 19 obligation is performed annually during our year-end closing process. As at
December 31, 2011 unrecognized actuarial losses amounted to EUR 1 billion (post tax).
IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also includes the issues raised in SIC 12
Consolidation—Special Purpose Entities. IFRS 10 establishes a single control model that applies to all group entities, including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore are required to be consolidated, as compared with the requirements of IAS 27. The amended IFRS 10 standard will become effective for annual periods beginning on or after
Tax law changes may adversely affect AEGON’s profitability, as well as the sale and ownership of AEGON’s products.
Insurance products enjoy certain tax advantages, particularly in the US and the Netherlands, which permit the tax deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products under certain conditions and within certain limits. Taxes on this inside build-up of earnings may not be payable at all and, if payable, generally are due only when the earnings are actually paid.
This could have an impact on insurance products and sales in the US.
A change in the DRD, including the possible elimination of this deduction, could reduce AEGON’s consolidated net income.
Competition in AEGON’s business segments is based on service, product features, price, commission structure, financial strength, claims paying ability, ratings and name recognition. AEGON faces intense competition from a large number of other insurers, as well as non-insurance financial services companies such as banks, broker-dealers and asset managers, for individual customers, employers, other group customers, agents and other distributors of insurance and
investment products. Consolidation in the global financial services industry can enhance the competitive position of some of AEGON’s competitors by broadening the range of their products and services, increasing their distribution channels and their access to capital. In addition, development of alternative distribution channels for certain types of insurance and securities products, including through the internet, may result in increasing competition as well as pressure on margins for certain types of products. These competitive pressures could result in increased pricing pressures on a number of products and services, particularly as competitors seek to win market share. This may harm
and AEGON’s relative sales volumes, market shares and profitability. Additionally, the competitive landscape in which
AEGON operates may be further affected by governmentsponsored programs or actions taken in response to the severe dislocations in financial markets which occurred in 2008 and 2009, as well as the European sovereign debt crisis, which worsened during 2011.
In Spain, AEGON currently has partnerships with a number of Spanish savings banks to distribute a combination of life insurance and pension products. Savings banks in Spain are currently undergoing a period of consolidation as a result of ongoing economic uncertainty. If banks with which AEGON has partnerships consolidate with other banks or otherwise alter their operations, AEGON may experience significant adverse effects on its partnerships with those banks as well as its competitive position in the Spanish life insurance and pensions market.
The experience suffered by AIG in the aftermath of the bankruptcy of Lehman Brothers in September 2008 is an example of this type of risk. AEGON’s management believes that despite the attention paid by regulators in the US, the
European Union and other countries where AEGON operates, systemic risk to the markets continues to exist, and dislocations caused by the interdependency of financial market participants continues to be a potential source of material adverse changes to AEGON’s business, results of operations and financial condition.
AEGON may be unable to retain personnel who are key to the business.
Reinsurers to whom AEGON has ceded risk may fail to meet their obligations.
AEGON’s insurance subsidiaries cede premiums to other insurers under various agreements that cover individual risks, group risks or defined blocks of business, on a co-insurance, yearly renewable term, excess or catastrophe excess basis.
AEGON’s insurance subsidiaries remain liable to their policyholders with respect to ceded insurance if any reinsurer fails to meet the obligations assumed by it. A bankruptcy or insolvency or inability of AEGON’s reinsurance counterparties to satisfy its obligations could have a material adverse effect on AEGON’s financial position and results of operations.
Refer to Schedule IV in this Annual Report for a table showing life insurance in force amounts on a direct, assumed and ceded basis for 2009, 2010 and 2011.
AEGON’s divestment of Transamerica Reinsurance may expose AEGON to additional risks.
Because the divestiture of Transamerica Reinsurance is structured principally as a series of reinsurance transactions,
Reinsurance may not be available, affordable or adequate to protect AEGON against losses.
As part of AEGON’s overall risk and capacity management strategy AEGON purchases reinsurance for certain risks underwritten by AEGON’s various business segments. Market conditions beyond AEGON’s control determine the availability and cost of the reinsurance protection AEGON purchases.
Accordingly, AEGON may be forced to incur additional expenses for reinsurance or may not be able to obtain sufficient reinsurance on acceptable terms, which could adversely affect AEGON’s ability to write future business.
In recent years AEGON has made a number of acquisitions and divestitures around the world and it is possible that AEGON
AEGON’s operating results and financial condition. These include: the potential diversion of financial and management resources from existing operations; difficulties in assimilating the operations, technologies, products and personnel of the acquired company; significant delays in completing the integration of acquired companies; the potential loss of key employees or customers of the acquired company; potential losses from unanticipated litigation; and tax and accounting issues. In addition, expansion into new and emerging markets may involve heightened political, legal and regulatory risks, such as discriminatory regulation, nationalization or expropriation of assets, price controls and exchange controls.
Divestitures of existing operations, including a divestiture of Transamerica Reinsurance as described above, could result in AEGON assuming or retaining certain contingent liabilities.
Over the past several years changing weather patterns and climatic conditions have added to the unpredictability and frequency of natural disasters in certain parts of the world and created additional uncertainty as to future trends and exposure. Generally, AEGON seeks to reduce its exposure to these events through individual risk selection, monitoring risk accumulation and purchasing reinsurance. However, such events could lead to considerable financial loss to AEGON’s business. Furthermore, natural disasters, terrorism and fires could disrupt AEGON’s operations and result in significant loss of property, key personnel and information about AEGON and its clients. If its business continuity plans have not included effective contingencies for such events they could adversely affect AEGON’s business, results of operations, corporate reputation and financial condition for a substantial period of time.
AEGON may face claims from customers and adverse negative publicity if AEGON’s products result in losses or fail to result in expected gains, regardless of the suitability of products for customers or the adequacy of the disclosure provided to customers by AEGON and by the intermediaries who distribute
AEGON may not be able to protect its intellectual property and may be subject to infringement claims.
AEGON relies on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to establish and protect AEGON’s intellectual property. Third parties may infringe on or misappropriate AEGON’s intellectual property, and it is possible that third parties may claim that AEGON has infringed on or misappropriated AEGON’s intellectual property rights. Any resulting proceedings in which
Inadequate or failed processes or systems, human factors or external events could adversely affect AEGON’s profitability, reputation or operational effectiveness.
Operational risk is inherent in AEGON’s business and can manifest itself in many ways including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, processing errors, modeling errors, and/or internal and external fraud. These events can potentially result in financial loss, harm to AEGON’s reputation and hinder AEGON’s operational effectiveness. Management undertakes significant effort to control these risks and keep operational risk at appropriate levels by maintaining a well-controlled environment and sound policies and practices.
AEGON’s operations support complex transactions and are highly dependent on the proper functioning of information technology and communication systems. Any failure of
While systems and processes are designed to support complex transactions and avoid systems failure, fraud, information security failures, processing errors and breaches of regulation, any failure could lead to a material adverse effect on AEGON’s results of operations and corporate reputation. In addition,
AEGON’s business, damage AEGON’s reputation and adversely affect AEGON’s results of operations, financial condition and cash flows.
AEGON retains confidential information on its computer systems, including customer information and proprietary business information. Any compromise of the security of
The US and the Netherlands do not currently have a treaty providing for the reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Judgments of US courts, including those predicated on the civil liability provisions of the US federal securities laws, may not be enforceable in Dutch courts.
AEGON in the US may not be able to require AEGON to pay the amount of the judgment unless a competent court in the
The price at which AEGON’s common shares trade will be influenced by a large number of factors, some of which will be specific to AEGON and AEGON’s operations and some of which will be related to the insurance industry and equity markets in general. As a result of these factors, investors may not be able to resell their common shares at or above the price paid for them. In particular, the following factors, in addition to other risk factors described in this section, may have a material impact on the market price of AEGON’s common shares: �� Investor perception of AEGON as a company.
�� Announcement of intended acquisitions, disposals or financings, or speculation about such acquisitions, disposals or financings.
�� Changes in AEGON’s dividend policy, which could result from changes in AEGON’s cash flow and capital position.
�� Sales of blocks of AEGON’s shares by significant shareholders, including Vereniging AEGON.
�� A downgrade or rumored downgrade of AEGON’s credit or financial strength ratings, including placement on credit watch.
�� Potential litigation involving AEGON or the insurance industry in general.
Euronext Amsterdam were EUR 5.41 and EUR 4.04 respectively in 2010, and EUR 5.68 and EUR 2.68 respectively in 2011. The high and low sales prices of our common shares on the NYSE were USD 7.41 and USD 5.11 respectively in 2010, and
AEGON’s common shares held by them as collateral in order to satisfy amounts outstanding. An additional offering of common shares by AEGON, sales of common shares by significant shareholders or by lenders to Vereniging AEGON, or the public perception that an offering or such sales may occur, could have an adverse effect on the market price of
Vereniging AEGON, AEGON’s major shareholder, holds a large percentage of the voting shares and therefore has significant influence over AEGON’s corporate actions.
of the voting shares (excluding issued common shares held in treasury by AEGON). Pursuant to the 1983 Merger Agreement between AEGON and Vereniging AEGON, as amended, in case of an issuance of shares by AEGON, Vereniging AEGON may
permits it to purchase class B preferred shares up to a maximum of the non-issued part of the class B preferred shares included from time to time in AEGON’s authorized capital if necessary to prevent or offset such dilution.
August 2009. On March 15, 2011, Vereniging AEGON exercised its option rights to purchase 41,042,000 class B preferred shares at par value to offset dilution caused by the equity issuance completed on March 1, 2011.
Vereniging AEGON pursuant to which Vereniging AEGON has voluntarily waived its right to cast 25/12 votes per class A
or class B preferred share. Consequently, under normal circumstances Vereniging AEGON’s voting power, based on the December 31, 2011 numbers of outstanding and voting shares, is reduced to approximately 22.40% of the votes exercisable in the General Meeting of Shareholders. However, this reduction in voting percentage is not applicable in all circumstances. In certain limited circumstances at the sole discretion of Vereniging AEGON (such as the acquisition of 15% of the voting shares, a tender offer for shares or a proposed business combination, each by any person or group of persons, whether individually or acting as a group, other than in a transaction approved by the Executive Board and
Supervisory Board), Vereniging AEGON’s voting rights for a limited period of 6 months will increase to a percentage that at December 31, 2011 amounts to 32.99%. Consequently,
is entitled to exercise its increased voting rights, it will generally have sufficient voting power to veto certain decisions presented to the General Meeting of Shareholders, including any proposal relating to the following matters: � Rejecting binding Supervisory Board nominations for membership on the Supervisory Board and Executive
� Appointing an Executive Board or Supervisory Board member other than pursuant to Supervisory Board nomination; and
Supervisory Board member other than pursuant to a Supervisory Board proposal.
Currency fluctuations may adversely affect the trading prices of AEGON’s common shares and the value of any cash distributions made.
In addition, AEGON declares cash dividends in euros, but pay cash dividends, if any, on our shares of New York registry in
Convertible securities (or other securities that permit or require AEGON to satisfy AEGON’s obligations by issuing common shares) that AEGON may issue could influence the market price for AEGON’s common shares.
Any market that develops for convertible securities or other securities that permit or require AEGON to satisfy obligations by issuing common shares that AEGON has issued or may issue in the future would be likely to influence, and be influenced by, the market for AEGON’s common shares.
For example, the price of AEGON’s common shares could become more volatile and could be depressed by investors’
anticipation of the potential resale in the market of substantial amounts of AEGON’s common shares received at maturity.
AEGON’s common shares could also be depressed by the acceleration of any convertible securities (or other such securities) that AEGON has issued by investors who view such convertible securities (or other such securities) as a more attractive means of participation in AEGON’s equity. Negative results could also be produced by hedging or arbitrage trading activity that may develop involving such convertible securities
AEGON has a number of guiding principles, which determine its approach to capital and liquidity management: �� Ensure AEGON’s business and operating units have strong capital adequacy.
�� Ensure sufficient liquidity by strong liquidity risk policies for both business units and holding.
AEGON’s Corporate Treasury manages and coordinates capital and liquidity management strategies and processes.
AEGON’s approach to capital management plays a vital role in the company’s broader strategy, which is based in part on ensuring more capital is directed toward those markets that offer stronger growth prospects and higher returns. This includes markets in Latin America, Asia, Spain and Central &
Eastern Europe, as well as specific, high-growth segments in the company’s more established markets – the United States, the Netherlands and the United Kingdom. To achieve this goal,
AEGON has put a number of measures in place which continued over the past year: �� Discontinuation of sales of executive non-qualified benefit plans and associated Bank-Owned and Corporate-Owned
�� In the United States, AEGON is also shifting its focus from spread-based to fee-based products, expanding its pension business, running off its spread-based institutional business, as well as de-emphasizing fixed annuities.
These include, for instance, the sale of the company’s life insurance activities in Taiwan and the run-off of AEGON’s spread-based institutional business in the United States.
The company’s overall capital management depends on the following factors: �� Capital adequacy
maintains operating companies’ capital adequacy at whichever is higher of the following: �� Regulatory requirements
At December 31, 2011, AEGON had an excess over and above its capital adequacy requirements of EUR 3.4 billion, a decrease from EUR 3.8 billion a year earlier. This decrease was mainly caused by the repurchase of the convertible core capital securities and investment in new business.
AEGON’s Insurance Group Directive ratio – a common measure of capital adequacy in the European Union – was 195% at
At the end of 2011, AEGON’s capital base consisted of 73.5%
AEGON’s goal is to further improve the quality of its capital base by increasing the proportion of core capital to at least 75% by the end of 2012. Group equity comprises core capital
(including the revaluation reserves), and other equity securities. These include perpetual cumulative capital securities and junior perpetual capital securities, as well as other equity reserves. At the end of 2011, these equity securities totaled EUR 4.7 billion.
USD 6 billion debt issuance program. Access to United States markets is made possible by a separate US shelf registration.
In April 2011, AEGON sold EUR 1.5 billion Class A residential mortgage-backed securities to a broad group of institutional investors to finance a part of the existing Dutch mortgage portfolio of AEGON. The securities are rated AAA by Standard
The amount of liquidity held is determined by the company’s liquidity risk policy, which ensures that AEGON and its operating companies maintain a prudent liquidity profile.
Liquidity is coordinated centrally and managed both at AEGON N.V. and at country unit levels.
Liquidity is measured and stress-tested consistently across the company, and a liquidity stress management plan is maintained at Corporate Treasury and at individual country units. Stress tests combine a “severe surrender” scenario with an “impaired asset” scenario. AEGON’s liquidity policy requires that all operating units measure the period they can maintain a projected positive cash balance without needing to sell any non cash assets, while meeting all cash demands for a period of two years 1.
maintained strong financial strength ratings from leading international rating agencies for its operating subsidiaries and a strong credit rating for the holding. In August 2011 the outlook was improved by both Standard & Poor’s and Moody’s to stable from negative.
1 Where cash is defined as cash, cash equivalents plus highly liquid securities issued by governments or entities fully and explicitly guaranteed by governments in domestic denominations.
Standard & Poor’s A- Outlook: stable AA- Outlook: stable AA- Outlook: stable A+ Outlook: stable
For a review of developments in the IFRS cash flows as reported in AEGON’s IFRS cash flow statements, refer to note 29 of the consolidated financial statements.
The Executive Board is responsible for designing, implementing and maintaining internal controls, including proper accounting records and other management information suitable for running the business.
Board and its Audit Committee, is responsible for determining the overall internal audit work and for monitoring the integrity of the financial statements of AEGON N.V.
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 makes the following statement regarding the company’s financial reporting risks: � AEGON’s risk management and control systems provide reasonable assurance that the company’s financial reporting does not contain any material inaccuracies.
The risk management and control systems provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of AEGON’s published financial statements. However, they cannot provide absolute assurance that a misstatement of AEGON’s financial statements would be prevented or detected.
as issued by the International Accounting Standards Board and as adopted by the European Union (EU).
Board includes a fair view of the development and performance of the business during the financial year and the position at balance sheet date of the company and the undertakings included in the consolidation as a whole, together with a description of the principal risks and uncertainties the company faces.
GOVERNANCE REPORT OF THE SUPERVISORY BOARD The Supervisory Board is entrusted with the task of supervising and advising the Executive Board on its management of the company, as well as overseeing AEGON’s strategy and the general course of its businesses.
Corporate Governance Code may be found on pages 125 to 126 of this Annual Report. With the full repurchase of capital securities from the Dutch State, no member of the Supervisory
No members of the Supervisory Board were frequently absent from the regular meetings. All regular meetings were either preceded or followed by so-called “executive meetings”. These are meetings of the Supervisory Board which are not attended by members of the Executive or Management Board.
Committee, as well as by the Chief Executive Officer and Chief
Meetings of the Supervisory Board’s committees were usually held before the meetings of the full Supervisory Board.
Representatives from Ernst & Young, AEGON’s external auditor, attended the discussions on the company’s annual results.
In 2011, discussions within AEGON’s Supervisory Board focused on the following issues, among others: � AEGON’s strategic priorities.
The past year was marked by the repurchase of the capital support AEGON received from the Dutch State in the height of the 2008 financial crisis. Complete repurchase was a key priority for the company and it ensured that AEGON could, from that moment on, fully focus on carrying out its strategy to deliver sustainable earnings growth with an improved riskreturn profile. The repurchase was partly funded by an equity issuance announced and completed on February 24, 2011.
AEGON has paid a total amount of EUR 4.1 billion to the
February and June respectively, the Board approved both the equity issuance and the repurchase to the Dutch State.
The Board recognizes the support of the Ministry of Finance and the Dutch Central Bank during this period of extreme economic turmoil and uncertainty that AEGON faced – and successfully weathered. The Board is also grateful to AEGON’s business partners and many valued customers for their continued confidence in the company.
The move also underpinned AEGON’s aim to achieve a broader geographical balance in its capital allocation. In addition, the divestiture supported AEGON’s key priority of repurchasing the core capital securities issued to the Dutch State.
Given that this meeting was held in Turkey the Board had ample opportunity on this occasion to meet with senior managers from Hungary, Poland and Turkey, representing an important region for AEGON, and review their plans. During the meeting, the CEO’s of these countries presented updates on their businesses and results. A particular focus was put on developments in distribution in these markets. The Supervisory
Board also received frequent briefings during the year on developments in AEGON’s other country and business units.
Finally, the Board received an update on the latest developments in Solvency II and AEGON’s preparation for it, which was a topic that was revisited a number of times during the rest of the year.
Also in December, AEGON’s Global Head of Human Resources provided an update on the results of the Global Employee
In February, the Supervisory Board decided that shareholders would be asked to approve the reappointment of Ms. K.M.H.
Peijs, Mr. A. Burgmans and Mr. L.M. van Wijk for new terms of four years as members of the Supervisory Board. In addition, the Board agreed to propose to shareholders to reappoint CEO
Alex Wynaendts for a new term of four years. These proposals were accepted by shareholders at their Annual General
During 2011, the Supervisory Board and the Audit Committee discussed various issues of compliance, regulatory and legal issues in Europe, the United States and Asia, among which was the issue of unit-linked policies sold in The Netherlands.
Board evaluation review on the basis of written questionnaires and interviews. The review assessed the collective performance of the Board and its committees. The review of the Chairman was carried out by the Vice Chairman, who collected input from all other Supervisory Board members. This year’s assessment did not involve an external facilitator. The results were consolidated and reviewed in a meeting in the absence of management. The Board was overall positive over its performance. Minor improvements were recommended with regard to agenda setting and contents of the documents used in meetings. The Board also discussed topics that members wanted to put on the agenda for 2012. No transactions with a
International Financial Reporting Standards (IFRS), financial reports filed with the Securities and Exchange Commission, capital updates, internal control systems and compliance, the external auditor’s engagement letter and the audit plan for 2011, tax matters and the application of information technology, as required by the Dutch Corporate Governance
The Committee also confirmed that Shemaya Levy and Ben van der Veer qualify as financial experts within the terms and conditions of both the Dutch Corporate Governance Code and the Sarbanes Oxley Act in the United States.
AEGON’s Risk Committee convened six times in 2011, including an off-site meeting in the United States and a combined meeting with the Audit Committee. The members of AEGON’s
Executive Board and the company’s Chief Risk Officer attended these meetings, while representatives of AEGON
Risk Dashboard and the Board Risk List. The Risk Committee discussed other topics such as AEGON’s capital management, the sale of Transamerica Reinsurance, the euro crisis, Risk
Tolerance statements, the Model Validation program. During its meeting in the United States, the Risk Committee received presentations by the AEGON Americas CEO, CFO, Chief Risk
AEGON’s Nominating Committee held four meetings in 2011, and the CEO attended a portion of these meetings.
The Nominating Committee established the opinion that the current composition of the Board could be better balanced in terms of geographic and gender diversity, and the committee aims to improve this situation in the short to medium term.
The Nominating Committee also positively advised on the reappointment of Alex Wynaendts as member of the Executive
The committee reviewed the composition and functioning of the Executive Board and discussed succession planning with the CEO and AEGON’s Global Head of Human Resources.
AEGON’s Compensation Committee held five meetings in 2011, and the CEO attended a portion of these meetings. During the first part of the year, the committee discussed a proposal for an amended Executive Board Remuneration Policy, which was submitted to shareholders and approved at the shareholders’
and the Guidelines on Remuneration Policies and Practices issued by the Committee of European Banking Supervisors.
During other meetings, the committee extensively discussed and reviewed proposals of AEGON’s Global Remuneration
DNB to discuss the scope of some requirements of the RBB.
Committee established that on the basis of the 2010 Group results and the performance on the personal and strategic objectives, payout of variable compensation would be justified.
All members of the Supervisory Board are considered independent under the terms of the Dutch Corporate
Supervisory Board due to health reasons. Ms. Kempler passed away in December. The members of the Supervisory Board are
Mr. Docters van Leeuwen, nominated by the Dutch State in 2008, stepped down on July 31, 2011. The Board expresses its gratitude to Mr. Docters van Leeuwen for his contributions to the Board’s deliberations during the three years of his tenure.
Mr. Dirk P.M. Verbeek and Mr. Ben van der Veer will expire in 2012. On advice from the Nominating Committee, the
AEGON continued to grow stronger in its business focus and resolve in 2011. Economic conditions necessitated bold actions in order for AEGON to remain a leader in the industry.
Robert J. Routs is a former Executive Director for Downstream at the energy company Royal Dutch Shell. He was appointed to AEGON’s Supervisory Board in 2008 and became Chairman in April 2010. His current term as a member of the AEGON
TNT N.V. and a member of the Supervisory Board of Akzo
BP p.l.c. Furthermore, he is Chairman of the Supervisory Board of Intergamma B.V. (not listed) and a member of the
AEGON N.V. He was appointed to AEGON’s Supervisory Board in 2002 and his current and last term will end in 2014.
Anheuser-Busch InBev S.A., where he will become Chairman as of April 2012. He is also Vice-Chairman & Senior Independent
Unilever PLC. and a member of the Board of Directors of
He is also a member of the Supervisory Boards of Siemens
Mr. Verbeek was appointed to AEGON’s Supervisory Board in 2008. His current term ends in 2012. He is also Chairman of the Supervisory Board of Robeco Groep N.V. (not listed) as well as a member of the Supervisory Board of Aon Groep
AEGON’s Supervisory Board in 2003, and his current and last term will end in 2015. He is also Deputy Chief Executive
Air France-KLM S.A. Furthermore, he is Vice-Chairman of the Supervisory Board of Randstad Holding N.V., Chairman of the Governing Board of Skyteam and Board member of NOC*NSF.
The AEGON Group Global Remuneration Principles provide the foundation for remuneration policies and practices throughout the Group. They have been rolled out for regional and/or local application. The key pillars of AEGON’s Remuneration
� AEGON remuneration is performance-related by: establishing a clear link between pay and performance through aligning adequate objective and target setting with performance evaluation and remuneration; reflecting individual as well as collective performance in line with the long-term interests of AEGON; enhancing the transparency and simplicity of AEGON Group remuneration, consistent with the principle of ‘pay for performance’; avoiding any
� AEGON remuneration is fairness-driven by: promoting fairness and consistency in AEGON’s remuneration policies and practices, with balanced proportions in the remuneration packages, across the different echelons within
in AEGON’S remuneration structures (internally equitable); creating global alignment in the total compensation of all
� AEGON remuneration is risk-prudent by: aligning business objectives with risk management requirements in the target setting practices throughout AEGON Group; giving an incentive to appropriate risk-taking behavior while discouraging the taking of excessive risks; protecting the risk alignment effects imbedded in the remuneration arrangements of individual staff against any personal strategies or insurance to counter this.
Remuneration Framework (GRF), which covers all staff of the AEGON Group, contains the guiding principles to support sound and effective remuneration policies and practices by ensuring consistency at a high level in remuneration policies and practices throughout the AEGON Group. The GRF is designed in accordance with rules, guidelines and interpretations. Of these, the Capital Requirements Directive III
It is recognized that variable compensation may have an impact upon risk taking behaviors and as such may undermine effective risk management and can lead to excessive risk taking which can materially impact financial soundness.
Under this Global Remuneration Framework separate remuneration policies have been made for three groups of employees, addressing that the roles and responsibilities of these employees require specific risk mitigating measures and governance processes. These are remuneration policies for (i)
. Given the rationale for having a separate policy for material risk takers and the risk mitigating measures that are applied to the remuneration of these individuals, Risk Management is involved in the qualification
process of positions as Identified Staff. Furthermore, where exceptions to the policies are made to reflect local practices or regulations, Risk Management and Compliance are involved to ensure such exceptions do not undermine effective risk management and sufficient mitigating measures are undertaken. With the involvement of Risk Management and Compliance existing remuneration policies have been amended, as from 2011, including deferral and holding arrangements, payment in instruments and specific ex-ante and ex-post measures.
Variable compensation, if any, is capped at an appropriate level as a percentage of base pay. Usually variable compensation for senior management is paid out in cash and shares over multiple years and is subject to further conditions being fulfilled. Variable compensation already allocated may be clawed back in case of defined circumstances.
Supervisory Board is aimed at ensuring fair compensation, and protecting the independence of the Board’s members. Terms and conditions for members of the Supervisory Board are part of AEGON’s broader Remuneration Policy, and are the responsibility of the company’s Compensation Committee.
� A committee fee for members on each of the Supervisory
� An attendance fee for each committee meeting attended in person or through video and telephone conferencing.
Under the current policy, members of the Supervisory Board are entitled to the following fees: Base fee for membership of the Supervisory Board EUR / year
AEGON’s four committees – audit, nominating, compensation and risk – may be found on pages 113 and 114.
� To provide a well-balanced and performance-related compensation package for Executive Board members.
Board Remuneration Policy in force since the beginning of 2010, effective as of performance year 2011. This Executive
May 12, 2011. The Policy will remain in force until such time as the Supervisory Board proposes changes or amendments.
Towers Watson. Towers Watson does not advise individual members of the Executive and Supervisory Boards.
The Compensation Committee may recommend changes to the policies to the Supervisory Board. Any material changes in the Executive Board Remuneration Policy must also be referred to the General Meeting of Shareholders for adoption.
The company regularly compares its levels of executive remuneration with those at other, comparable companies.
Prior to 2011, the variable compensation was split in two distinct elements. A short term incentive based on performance indicator targets against a short term (one-year) performance period and a long-term incentive based on performance indicator targets against a long-term (three years)
After the performance year the company shall assess the realized performance on the performance indicators and a comparison will be made between the minimum, target and maximum levels of the performance indicators and the realized performance. Subsequently, the amount of conditional variable compensation that can be allocated will be established. Variable compensation will be allocated once accounts for the financial year in question have been adopted by the company’s shareholders and after an ex-ante assessment.
The allocated variable compensation consists of equal parts of cash and shares of which 40% will be paid out following the performance year, and 60% which will be deferred.
The deferred part will vest in equal parts (i.e. cash and shares)
The payout of the variable compensation can be illustrated with an example as follows. Of every 1,000 variable compensation, 400 will be paid following the performance
The Supervisory Board will regularly review the composition of these two groups to ensure they continue to provide a reliable basis for comparison.
Executive Board. At present, the Executive Board remuneration is below the median of the international market. Over time, in order to pay Executive Board members in accordance with the desired market positioning, the alignment to desired market position needs to be addressed in accordance with rules and regulations as well as applicable codes.
As per the Executive Board Remuneration Policy, the total compensation for Executive Board members will consist of fixed compensation and variable compensation.
to determine the long-term effect of level and structure of compensation granted to members of the Executive Board.
At an aggregate level, payments are made as follows: � 50% of the maximum incentive compensation if the threshold target is reached.
Implementation of this authority will be on the basis of criteria such as: � Outcome of a re-assessment of the performance against the original financial performance indicators.
For each performance indicator variable compensation is only paid if the threshold level set for that Performance Indicator is reached.
Executive Board members’ contractual agreements, local practices and comparable arrangements at other multinationals.
Members of the Executive Board may terminate their employment with a notice period of three months. If AEGON
Executive Board contain provisions entitling them to severance payments, should 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
At the end of December 2011, AEGON’s Executive Board had two members: � Alexander R. Wynaendts, Chief Executive Officer and
Supervisory Board, the Executive Board has decided to forego the cash payment payable in 2012 over AEGON’s performance during 2011 given that the company had not completed full repayment of capital support to the Dutch State during a part of the year.
Executive Board members (with the exception of shares sold to meet income tax obligations).
AEGON is a public company under Dutch law, and is governed by three corporate bodies: the General Meeting of Shareholders, the Executive Board and the Supervisory Board. As a company based and registered in the Netherlands, AEGON is subject to the Dutch Corporate Governance Code 1.
At the General Meeting, each share carries one vote. However, under certain circumstances, AEGON’s largest shareholder,
AEGON’s Executive Board has two members: Alexander R. Wynaendts, who is Chairman of the Executive
Board and Chief Executive Officer, and Jan J. Nooitgedagt, who is member of the Executive Board and AEGON’s Chief
The number of Executive Board members and their terms of employment are determined by the company’s Supervisory
Corporate Governance 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 website at www.aegon.com.
3 For further information, please refer to page 124 for a description of Special control rights.
Kingdom, the company’s three main markets. AEGON’s largest shareholder is Vereniging AEGON, an association established to protect the broader interests of the company and its stakeholders.
A General Meeting of Shareholders is held at least once a year.
Its main function is to decide matters such as the adoption of annual accounts, the approval of dividend payments and appointments to AEGON’s Supervisory and Executive Boards.
of AEGON’s issued capital or block of shares worth at least
EUR 50 million may request items be added to the agenda of these meetings. In accordance with AEGON’s Articles of
Association, such requests will be granted if they are received in writing at least 60 days before the meeting, and if there are no important interests of the company that dictate otherwise.
Board may also choose to subject other Executive Board decisions to its prior approval.
Policy for the Executive Board limits exit arrangements to a maximum of one year’s fixed salary3.
AEGON’s Supervisory Board oversees the management of the Executive Board, as well as the overall course of the company’s business and corporate strategy. In its deliberations, the Supervisory Board must take into account the interests of all AEGON stakeholders. The Supervisory Board operates according to the principles of collective responsibility and accountability.
AEGON endeavors to ensure that the composition of the company’s Supervisory Board is well balanced. A profile has been drawn up outlining the required qualifications of its members. Supervisory Board members are no longer eligible for appointment after the age of 70, unless the Board decides to make an exception. Supervisory Board members’
At the end of 2011, a total of 1,909,654,051 common shares and 321,752,000 preferred shares had been issued. These represented respectively 74.02% and 25.98% of AEGON’s total issued and fully paid-up capital.
Each common share carries one vote. There are no restrictions whatsoever on the exercise of voting rights by holders of common shares, whether with regard to the number of votes or to the time period in which they may be exercised.
In the event of the liquidation of the company, the paid-in amount on preferred shares will be reimbursed before any payments on common shares are made.
These “special cause” may include: � The acquisition by a third party of an interest in AEGON N.V.
As a result of both this and the existence of certain qualified majority voting requirements specified in AEGON’s Articles of Association, Vereniging AEGON may effectively be in a position to block unfriendly actions by either a hostile bidder or others for a period of six months. In the absence of a special cause, Vereniging AEGON’s share of the company’s voting capital represented 22.40% at December 31, 2011.
To AEGON’s knowledge, only one other party holds a capital and voting interest in AEGON N.V in excess of 5%. According to its filing with the United States Securities and Exchange
Commission on February 3, 2012, US-based investment management firm Dodge & Cox owns over 195 million common shares.
The General Meeting may, in addition, bring forward a resolution to appoint someone not nominated by the
Members of AEGON’s Supervisory and Executive Boards may be suspended or dismissed by the General Meeting of
The General Meeting of Shareholders may, with an absolute majority of votes cast, pass a resolution to amend AEGON’s
Articles of Association or to dissolve the company, in accordance with a proposal made by the Executive Board and approved by the Supervisory Board.
As a company based in the Netherlands, AEGON adheres to the Dutch Corporate Governance Code. AEGON endorses the Code and strongly supports its principles for sound and responsible corporate governance. AEGON regards the Code as an effective means of helping ensure that the interests of all stakeholders are duly represented and taken into account.
This new, amended Code came into force on January 1, 2009.
This review deals with the Dutch Corporate Governance Code in force from that date. Overseeing AEGON’s overall corporate governance structure is the responsibility of both the
AEGON is committed to applying this best practice provision to all new Executive Board appointments. This best practice provision is also embedded in the company’s Remuneration
Policy for the Executive Board. The employment contracts with Executive Board members that existed prior to the code coming into force in 2003 will be respected. The employment agreement of AEGON’s CEO Alex Wynaendts, still contains a more favorable severance payment arrangements should his employment be terminated as a result of a merger or takeover.
AEGON. The text of this protocol is available on AEGON’s website.
AEGON’s Articles of Association provide for a larger majority and a higher quorum than those advocated by the Code. Given that the company has no specific anti-takeover measures, the current system is deemed appropriate within the context of the 1983 Merger Agreement under which AEGON was formed.
Dutch company law is different from US law in the following respects: AEGON, like other large Dutch public companies, has a two-tier governance system involving an Executive Board and a Supervisory Board. The Executive Board is the executive body and its members are employed by the company. Members of the Executive Board are appointed and dismissed by the
Meeting of Shareholders. The number of the Executive Board members and the terms of their employment are determined by the Supervisory Board within the scope of the adopted remuneration policy. The Supervisory Board performs supervisory and advisory functions only and its members
The remuneration of Supervisory Board members is fixed by the General Meeting of 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
As of the end of the period covered by this Annual Report,
The directors and management of AEGON are responsible for establishing and maintaining adequate internal control over financial reporting. AEGON’s internal control over financial reporting is a process designed under the supervision of
In making its assessment management used the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the
Based on the assessment, management has concluded that, in all material aspects, the internal control over financial reporting was effective as at December 31, 2011. They have reviewed the results of its work with the Audit Committee of the Supervisory Board.
The effectiveness of internal control over financial reporting as of December 31, 2011, was audited by Ernst & Young, an independent registered public accounting firm, as stated in their report included under item C of this section of this
Commission (the COSO criteria). AEGON N.V.’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, AEGON N.V. maintained, in all material respects, effective internal control over financial reporting as of
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. 1 General information 142 2 Summary of significant accounting policies 142 3 Critical accounting estimates and judgment in applying accounting policies 169 4 Financial and insurance risks 183 5 Segment information 225 6 Premium income and premiums to reinsurers 233 7 Investment income 233 8 Fee and commission income 234 9 Income from reinsurance ceded 234 10 Results from financial transactions 234 11 Other income 236 12 Policyholder claims and benefits 236 13 Profit sharing and rebates 236 14 Commissions and expenses 236 15 Impairment charges / (reversals) 240 16 Interest charges and related fees 241 17 Other charges 241 18 Income tax 242 19 Earnings per share 243 20 Dividend per common share 244 21 Intangible assets 245 23 Investments for account of policyholders 251 25 Investments in associates 254 26 Reinsurance assets 255 27 Deferred expenses and rebates 257 28 Other assets and receivables 259 29 Cash and cash equivalents 261 30 Shareholders’ equity 263 31 Convertible core capital securities 267 32 Other equity instruments 268
FINANCIAL STATEMENTS OF AEGON N.V. Income statement of AEGON N.V. 310
Purchases of equity securities by the issuer and affiliated purchasers 372
CONSOLIDATED INCOME STATEMENT OF AEGON N.V. FOR THE YEAR ENDED DECEMBER 31
Net income / (loss) attributable to: Equity holders of AEGON N.V. 869 1,759 204
3 Reflects basic earnings per share. For 2010, basic earnings per share is EUR 0.76.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF AEGON N.V. FOR THE YEAR ENDED DECEMBER 31
(Gains) / losses transferred to the income statement on disposal and impairment of available-for-sale investments (513) (203) 640
Movement in foreign currency translation and net foreign investment hedging reserve 409 1,054 (209)
Total comprehensive income attributable to: Equity holders of AEGON N.V. 3,758 5,394 5,559
CONSOLIDATED STATEMENT OF CHANGES IN EqUITY OF AEGON N.V. FOR THE YEAR ENDED DECEMBER 31, 2011
Changes in revaluation reserve real estate held for own use – – 3 – – – 3 – 3
Changes in cash flow hedging reserve – – 1,058 – – – 1,058 – 1,058
Movements in foreign currency translation and net foreign investment hedging reserves – – – 409 – – 409 – 409
Repurchase of convertible core capital securities – – – – (1,500) – (1,500) – (1,500)
Consolidated statement of changes in equity Consolidated statement of changes in equity
Changes in revaluation reserve real estate held for own use – – 4 – – – 4 – 4
Aggregate tax effect of items recognized in other comprehensive income / (loss) – – (1,358) (51) – – (1,409) – (1,409)
Coupons on perpetual securities – (187) – – – – (187) – (187)
CONSOLIDATED STATEMENT OF CHANGES IN EqUITY OF AEGON N.V. FOR THE YEAR ENDED DECEMBER 31, 2010
Net income / (loss) recognized in the income statement – 204 – – – – 204 – 204
Equity movements of associates – – – 27 – – 27 – 27
CONSOLIDATED STATEMENT OF CHANGES IN EqUITY OF AEGON N.V. FOR THE YEAR ENDED DECEMBER 31, 2009
Insurance and investment liabilities for account of policyholders (154) 14,274 18,925
Disposal of investments (other than money market investments) 34,924 45,446 50,875
Purchase of equipment and real estate for own use (72) (116) (202)
Disposal of subsidiaries and associates, net of cash 823 (158) 11
CONSOLIDATED CASH FLOW STATEMENT OF AEGON N.V. FOR THE YEAR ENDED DECEMBER 31
Proceeds from TRUPS 1, subordinated loans and borrowings 5,627 7,551 6,926
NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS 2 2,545 1,104 (5,574)
NET CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 29 7,826 5,174 4,013 1 Trust pass-through securities. 2 Included in net increase / (decrease) in cash and cash equivalents are interest received (2011: EUR 6,631 million, 2010: EUR 8,167 million and 2009: EUR 7,778 million) dividends received (2011: EUR 760 million, 2010: EUR 635 million and 2009: EUR 816 million) and interest paid (2011: EUR 273 million, 2010: EUR 380 million and 2009: EUR 510 million).
Group”) have life insurance and pensions operations in over twenty countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and limited banking operations. Headquarters are located in The Hague, the Netherlands. The Group employs approximately 25,000 people worldwide.
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS), as adopted by the European Union (EU), with IFRS as issued by the International Accounting
Standards Board (IASB) and with Part 9 of Book 2 of the Netherlands Civil Code. The consolidated financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. Information on the standards and interpretations that were adopted in 2011 is provided below in
The consolidated financial statements of AEGON N.V. were approved by the Executive Board and by the Supervisory
Board on March 21, 2012. The financial statements are put to the Annual General Meeting of Shareholders on May 16, 2012 for adoption. The shareholders’ meeting can decide not to adopt the financial statements but cannot amend them.
New standards become effective on the date specified by IFRS, but may allow companies to opt for an earlier adoption date. In 2011, the following new standard issued by the IASB became mandatory: �� Improvements to IFRS (May 2010).
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. AMOUNTS IN EUR MILLION, UNLESS OTHERWISE STATED
Notes to the consolidated financial statements of AEGON N.V. Notes to the consolidated financial statements of AEGON N.V.
The IASB issued, in May 2010, a number of minor amendments to seven different standards and interpretations.
These amendments, which are effective from January 1, 2011, deal with minor changes to the wordings used in the individual standards and seek to remove editorial and other inconsistencies in the literature. AEGON adopted all the relevant changes from the improvements project to its accounting policies. The improvements project did not result in any changes to the classification, measurement or presentation of any items in the financial statements, except for the amendment on IFRS 7 Financial Instruments: Disclosures which had impact on disclosures that AEGON has illustrated in note 4.
In addition, the following new standards, amendments to existing standards and interpretations are mandatory for the first time for the financial year beginning January 1, 2011 but are not currently relevant for the Group: �� IAS 24 (revised) Related Party Disclosures.
�� IFRS 7 Financial Instruments: Disclosures – Offsetting Financial Assets and Financial Liabilities.
�� IAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities 1.
The amendments to IFRS 7 are effective for annual periods beginning on or after July 1, 2011 and will improve the disclosure of transfer transactions of financial assets including the possible effects of any risks that may remain with the entity that transferred the assets. The amendments also require additional disclosures if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. AEGON expects the impact on its current disclosures on financial instruments to be considerable.
144 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 2.1.2 - 2.2
IFRS 9 is expected to have a significant impact on the Group’s financial statements because it will likely result in a reclassification and re-measurement of AEGON’s financial assets. However, the full impact of IFRS 9 will only be clear after the remaining stages of the IASB’s project on IFRS 9 are completed and issued.
The standard applies to financial years beginning on or after January 1, 2013, and provides disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, structured entities and other off balance sheet vehicles. AEGON is currently assessing the impact of this standard.
The standard applies to financial years beginning on or after January 1, 2013, and provides a definition of fair value and a single source of fair value measurement, and disclosure requirements for use across IFRSs. AEGON is currently assessing the impact of this standard.
The amended standard applies to financial years beginning on or after January 1, 2013. The amendments eliminate the option to defer the recognition of actuarial gains and losses, known as the “corridor method”. The amendments streamline the presentation of changes in assets and liabilities arising from defined benefit plans, including requiring remeasurements to be presented in other comprehensive income. And furthermore, they enhance the disclosure requirements for defined benefit plans, providing information about the characteristics of defined benefit plans and
the risks that entities are exposed to through participation in those plans. Based on the consolidated figures as per December 31, 2011, AEGON estimates the adverse impact on equity to be approximately EUR 1 billion (post tax).
As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. The amendment becomes effective for annual periods beginning on or after January 1, 2013. As this amendment does not change the presentation of the separate financial statements, AEGON does not expect any impact on the financial position or performance of the Company.
The amendment becomes effective for annual periods beginning on or after January 1, 2013. AEGON is currently assessing the impact of IFRS 11 and IFRS 12, but expects the impact of IAS 28 on the Group’s financial statements to be insignificant.
IAS 32 Financial Instruments: Presentation – Offsetting Financial Assets and Financial Liabilities
The amendments to IAS 32 Financial Instruments: Presentation clarify the application of the offsetting requirements.
The amendments are effective for annual periods beginning on or after January 1, 2014, with earlier application permitted. AEGON is currently assessing the impact of this standard.
AEGON identified an immaterial error in AEGON’s financial statements issued prior to 2008. This error is related to the value of AEGON’s deferred tax and current tax balances in the Americas, resulting in an overstatement of Other assets and receivables, offset by an overstatement of Deferred tax liabilities and understatement of Other liabilities and a net understatement of equity in the comparative periods. AEGON assessed the qualitative and quantitative impact of this correction on previously issued financial statements and concluded that it was immaterial in all prior periods. AEGON has therefore made correcting adjustments to the opening balances of 2009 (increasing Group equity by EUR 115 million) in the current financial statements in accordance with IAS 8 Accounting Policies, Changes in
Other assets and receivables Deferred tax liabilities Other liabilities Share holders’
146 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF AEGON N.V. NOTE 2.3
Changes on impact on other reserves are the result of USD / EUR exchange rate movements.
The consolidated financial statements include the financial statements of AEGON N.V. and its subsidiaries. Subsidiaries are entities over which AEGON has direct or indirect power to govern the financial and operating policies so as to obtain benefits from its activities (‘control’). The assessment of control is based on the substance of the relationship between the Group and the entity and, among other things, considers existing and potential voting rights that are currently exercisable and convertible.
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 principles, which is consistent with IFRS.
Negative goodwill is recognized directly in the income statement. If the fair value of the assets, liabilities and contingent liabilities acquired in the business combination has been determined provisionally, adjustments to these values resulting
from the emergence of new evidence within twelve months after the acquisition date are made against goodwill.
Contingent consideration is discounted and the unwinding is recognized in the income statement as an interest expense. Any changes in the estimated value of contingent consideration given in a business combination prior to the adoption of IFRS 3 (as revised in 2008) are recognized in goodwill. Any changes in the estimated value of contingent consideration given in a business combination after the adoption of IFRS 3 (as revised in 2008) are recognized in the income statement.
Interests in joint ventures are recognized using proportionate consolidation, combining items on a line by line basis from the date the jointly controlled interest commences. Gains and losses on transactions between the Group and the joint venture are recognized to the extent that they are attributable to the interests of other ventures, with the exception of losses that are evidence of impairment and that are recognized immediately. The use of proportionate consolidation is discontinued from the date on which the Group ceases to have joint control.
The Group’s consolidated financial statements are prepared in euros, which is also the Company’s functional currency.
At the balance sheet date, monetary assets and monetary liabilities in foreign currencies and own equity instruments in foreign currencies are translated to the functional currency at the closing rate of exchange prevailing on that date.