The defined benefit obligation is based on the terms and conditions of the plan applicable on the reporting date. In measuring the defined benefit obligation the Group uses the projected unit credit method and actuarial assumptions that represent the best estimate of future variables. The benefits are discounted using an interest rate based on the market yield for high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate the terms of the related pension liability. Actuarial assumptions used in the measurement of the liability include the discount rate, estimated future salary increases, mortality rates and price inflation. To the extent that actual experience deviates from these assumptions, the valuation of defined benefit plans and the level of pension expenses recognized in the future may be affected. Plan improvements
employee benefits under the plan and are not available to the Group’s creditors. They are measured at fair value and are deducted from the defined benefit obligation in determining the amount recognized on the statement of financial position.
The cost of the defined benefit plans are determined at the beginning of the year and comprise the following components: �� Current year service cost which is recognized in profit or loss; and �� Net interest on the net defined benefit liability (asset) which is recognized in profit or loss.
Gains or losses on curtailments or settlements of a defined benefit plan comprise of the difference between: Past service cost is the change in the present value of the defined benefit obligation for employee service, resulting from a plan amendment or curtailment.
The cost for share option plans and long term incentive plans are recognized in the income statement, together with a corresponding increase in shareholders’ equity, as the services are rendered. During this period the cumulative expense recognized at the reporting date reflects management’s best estimate of the number of shares expected to vest ultimately. For cash settled components (such as net settled component of long-term share-based plans) a liability will be recognized using the fair value of the equity settled award based on the elapsed portion of the vesting period. For modifications of the terms and conditions of equity-settled plans that result in
those plans to be classified as cash-settled plans, the liability is recognized using the fair value measured at the modification date.
2.28 Fee and commission income Fees and commissions from investment management services and mutual funds, services where Aegon acts as service provider
Net fair value change of derivatives All changes in fair value are recognized in the income statement, unless the derivative has been designated as a hedging instrument in a cash flow hedge or a hedge of a net investment in a foreign operation. Fair value movements of fair value hedge instruments are offset by the fair value movements of the hedged item, and the resulting hedge ineffectiveness, if any, is included in this line.
2.33 Leases Arrangements that do not take the form of a lease but convey a right to use an asset in return for a payment are assessed at inception to determine whether they are, or contain, a lease. This involves an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset and whether the purchaser (lessee) has the right to control the use of the underlying asset.
Some insurance contracts without a guaranteed or fixed contractual term contain guaranteed minimum benefits. Depending on the nature of the guarantee, it may either be bifurcated and presented as a derivative or be reflected in the value of the insurance liability in
DPAC and VOBA assets respectively, and are amortized to the income statement over time. If the assumptions relating to the future profitability of these policies are not realized, the amortization of these costs could be accelerated and may require write-offs due to unrecoverability.
Actuarial and economic assumptions The main assumptions used in measuring DPAC, VOBA and the liabilities for life insurance contracts with fixed or guaranteed terms relate to mortality, morbidity, investment return and future expenses. Depending on local accounting principles, surrender rates may be considered.
Surrender rates depend on product features, policy duration and external circumstances such as the interest rate environment and competitor behavior. For policies with account value guarantees based on equity market movements, a dynamic lapse assumption is utilized to reflect policyholder behavior based on whether the guarantee is in the money. Own experience, as well as industry published data, are used in establishing assumptions. Lapse experience is correlated to mortality and morbidity levels, as higher or lower levels of surrenders may indicate future claims will be higher or lower than anticipated. Such correlations are accounted for in the mortality and morbidity assumptions based on the emerging analysis of experience.
A 1% decrease in the expected long-term equity growth rate with regard to Aegon’s variable annuities and variable life insurance products in the United States would result in a decrease in DPAC and VOBA balances and reserve strengthening of approximately
EUR 158 million (2015: EUR 147 million). The DPAC and VOBA balances for these products in the United States amounted to
EUR 3.0 billion at December 31, 2016 (2015: EUR 3.0 billion).
A relative 20% increase in the lapse rate assumption would increase net income by approximately EUR 93 million (2015: EUR 76 million).
Any reasonably possible changes in the other assumptions Aegon uses to determine EGP margins (i.e. maintenance expenses, inflation and disability) would reduce net income by less than EUR 19 million (per assumption change) (2015: EUR 37 million).
To operationalize Aegon’s fair value hierarchy, individual instruments (both financial and non-financial) are assigned a fair value level based primarily on the type of instrument and the source of the prices (e.g. index, third-party pricing service, broker, internally modeled).
To manage its risk exposure, Aegon has risk policies in place. Many of these policies are group-wide while others are specific to the unique situation of local businesses. The Group level policies limit the Group’s exposure to major risks such as equity, interest rates, credit, and currency. The limits in these policies in aggregate remain within the Group’s overall tolerance for risk and the Group’s financial resources. Operating within this policy framework, Aegon employs risk management programs including asset liability management (ALM) processes and models and hedging programs (which are largely conducted via the use of derivatives). These risk management programs are in place in each country unit and are not only used to manage risk in each unit, but are also part of the
Aegon operates a Derivative Use Policy to govern its usage of derivatives. This policy establishes the control, authorization, execution and monitoring requirements of the usage of such instruments. In addition, the policy stipulates necessary mitigation of credit risk created through derivatives management tools. For derivatives, credit risk is normally mitigated by requirements to post collateral via credit support annex agreements or through a central clearinghouse.
A risk tolerance framework is in place which sets risk limits per risk type and which promotes diversification across risk types; �� Concentration per counterparty: Risk exposure is measured and risk limits are in place per counterparty as part of the Counterparty
Moreover, concentration of financial risks are measured in Aegon business planning cycle. As part of business planning, the resilience of
Currency exchange rate risk As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure exists mainly when policies are denominated in currencies other than the issuer’s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities is 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 self-imposed capital requirements. Therefore, currency exchange rate fluctuations will affect the level of shareholders’ equity as a result of translation of subsidiaries into euro, the Group’s presentation currency. Aegon holds the remainder of its capital base (perpetual capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of the country units. This balancing mitigates currency translation impacts on shareholders’ equity and leverage ratios. Aegon does not hedge the income streams from the main non-euro units and, as a result, earnings may fluctuate due to currency translation. As Aegon has significant business segments in the Americas and in the United Kingdom, the principal sources of exposure from currency fluctuations are from the differences between the US
The exchange rates for US dollar and UK pound per euro for each of the last five year ends are set forth in the table below: Aegon Group companies’ foreign currency exposure from monetary assets and liabilities denominated in foreign currencies is not material.
Increase by 15% of USD currencies relative to the euro 87 2,179
Decrease by 15% of USD currencies relative to the euro (61) (1,558)
Increase by 15% of USD currencies relative to the euro 71 2,161
Increase by 15% of GBP currencies relative to the euro (165) 566
Decrease by 15% of USD currencies relative to the euro (50) (1,539)
The sensitivity analysis in the table below shows an estimate of the effect of a parallel shift in the yield curves on net income and shareholders’ equity arising from the impact on general account investments and offset due to liabilities from insurance and investment contracts. In general, increases in interest rates are beneficial to Aegon. However, timing and valuation differences between assets and liabilities may cause short-term reductions in net income as rates rise. The rising interest rates would also cause the fair value of the available-for-sale bond portfolio to decline and the level of unrealized gains could become too low to support recoverability of the full deferred tax asset triggering an allowance charge to income. The offsetting economic gain on the insurance and investment contracts is however not fully reflected in the sensitivities because many of these liabilities are not measured at fair value. The short to medium term reduction in net income due to rising interest rates would be offset by higher net income in later years, all else being equal.
The table that follows shows the Group’s maximum exposure to credit risk from investments in general account financial assets, as well as general account derivatives and reinsurance assets, collateral held and net exposure. Please refer to note 49 Transfer of financial assets for further information on collateral given, which may expose the Group to credit risk.
Debt securities – carried at fair value 103,169 - - 392 - - - 392 - 102,777
Private loans – carried at amortized cost 3,166 67 - - - - - 67 - 3,099
Money market and other short-term investments – carried at fair value 7,444 - 984 - - - - 984 - 6,460
Other loans – carried at amortized cost 2,517 - - - - - 2,193 2,193 1,377 1,701
The collateral reported for the money market and short-term investments are related to tri-party repurchase agreements (repos).
The collateral included in the other column represents the policyholders account value for policy loans. The excess of the account value over the loan value is included in the surplus collateral column. For further information on the policy loans refer to note 23.1 Financial assets, excluding derivatives.
Aegon manages credit risk exposure by individual counterparty, sector and asset class, including cash positions. Normally, Aegon mitigates credit risk in derivative contracts by entering into credit support agreement, where practical, and in ISDA master netting agreements for most of Aegon’s legal entities to facilitate Aegon’s right to offset credit risk exposure. Main counterparties to these transactions are investment banks which are typically rated ‘A’ or higher. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of derivative trades, comprised mostly of interest rate swaps, equity swaps, currency swaps and credit swaps. Collateral received is mainly cash (USD and EUR). The credit support agreements that outline the acceptable collateral require high quality instruments to be posted. Over the last three years, there was no default with any derivatives counterparty.
Central Clearing Houses as required by EMIR and the Dodd-Frank act. Credit risk in these transactions is mitigated through posting of initial and variation margins.
At December 31, 2016 Aegon’s largest corporate credit exposures are to American United Mutual Insurance, Reinsurance Group of
Aegon group level long-term counterparty exposure limits are as follows: Group limit Amounts in EUR million 2016 2015
The ratings distribution of general account portfolios of Aegon’s major reporting units, excluding reinsurance assets, are presented in the table that follows, organized by rating category and split by assets that are valued at fair value and assets that are valued at amortized cost. Aegon uses a composite rating based on a combination of the external ratings of S&P, Moody's, Fitch and National
Past due and / or impaired assets 17 1,397 390 77 - - 102 2 - - 492 79
Past due and / or impaired assets - 13 - - 510 1,489 1,999 1 Includes investments of Holding and other activities.
Credit risk concentrations – Government bonds per country of risk 2016 Americas
Credit risk concentrations – Government bonds per country of risk 2015 Americas
Of which past due and / or impaired assets 1 Includes investments of Holding and other activities.
EUR 15 million (2015: EUR 23 million) of real estate. The 2016 additional impairments associated with these loans at the time of foreclosure amounted to EUR 2 million (2015: impairment recoveries of EUR 3 million).
(2015: EUR 29,181 million). The LTV amounted to approximately 83% (2015: 90%). A significant part of the portfolio 57%
(2015: 60%) is government guaranteed. Of the portfolio, 0.4% (2015: 0.8%) is in delinquency (defined as 60 days in arrears).
Monoline insurers About EUR 413 million (2015: EUR 473 million) of the bonds in Aegon USA’s and Asia’s portfolios are insured by Monoline insurers.
Of the EUR 413 million indirect exposure on the Monoline insurers, 37% relates to Municipal Bond Insurance Association, Inc. (MBIA), 14% to Ambac Financial Group, inc. (AMBAC), and 39% to Assured Guaranty Corporation (AGC) (2015: 38% related to MBIA, 14% to
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans 958 (11) 1,710 (38)
As of December 31, 2016, there are EUR 7,739 million (December 31, 2015: EUR 9,029 million) of gross unrealized gains and
Financial and credit market conditions were mixed during 2016. Developed-world growth remains positive, but generally below the targets of the Central Banks, causing policy makers to maintain very accommodative credit market conditions. Concerns about a US
Europe, the US and Japan. Emerging Market economies were negatively impacted by weak commodities prices early in the year, but stabilized with commodities prices in the second half of the year. US equity markets had strong returns, particularly in the fourth quarter, while global developed markets were mixed, with British prices standing out on the downside after the Brexit vote followed by a strong recovery to the end of the year. The US dollar was dramatically stronger versus other developed market currencies, again particularly in the fourth quarter. The US Federal Reserve increased the Fed Funds rate by 25 basis points in December. US Treasury rates with a longer duration, after having fallen sharply early in the year, rose even more sharply late in the year to finish higher. Corporate default rates, with the exception of energy- and commodity-related credits, remained relatively low due largely to readily available access to funding and healthy corporate balance sheet fundamentals. Credit spreads were very volatile over the course of the year, but finished sharply tighter. Oil prices rose from multi-year lows reached in the beginning of the year. The increase in US
Treasury rates was partly offset by tighter spreads, muting changes in the market values of fixed income holdings. European equity markets had a more difficult year. The start of the year was especially volatile due to banking sector concerns and the Brexit vote. Later in the year, investor sentiment turned more positive resulting in a sharp rally. The ECB continued to extend its purchase program. Yields on core countries remained very low. Spreads on peripheral countries increased despite the large Quantitive Easing purchases of the
Individual issuers rated below investment grade in any sector which have unrealized loss positions greater than EUR 25 million are disclosed separately. Furthermore, quality ratings of investment portfolios are based on a composite of the main rating agencies (S&P,
Residential mortgage-backed securities Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 4,162 million (December 31, 2015: EUR 5,011 million) of residential mortgage-backed securities available-for-sale (RMBS), of which EUR 3,494 million (December 31, 2015: EUR 4,233 million) is held by
Additionally, Aegon USA has investments in RMBS of EUR 89 million (December 31, 2015: EUR 93 million), which are classified as fair value through profit or loss.
Aegon’s RMBS asset specialists utilize widely recognized industry modeling software to perform a loan-by-loan, bottom-up approach to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments. Each of these key assumptions
Aegon the Netherlands uses its own proprietary cash flow tools to analyse and stress test RMBS transactions. The key input parameters are default rates and loss given default assumptions, which are established based historical pool characteristics and current loan level data. Cash flows for each bond are modelled in 225 scenarios of varying severity, ranging from our base case to extreme stress to even unrealistic scenarios to establish breaking points of the tranche. The model takes all deal characteristics, such as waterfall or reserve funds, into account and gives us detailed insight in the risk of principal loss or deferral of contractual cash flows.
USA. The housing market in the United States has continued to improve as evidenced by rising home prices and sales volume. The pace of improvement has slowed considerably from the rapid pace seen post-financial crisis, and is expected continue to moderate in the coming years. However, the positive trends in the housing market have led to improvements in borrower delinquencies and prepayment rates as well as liquidation timelines. Loss severities on liquidated properties remain elevated. The improving housing market and underlying loan credit performance has led to credit spread tightening across the asset class for the past few years, a trend that continued in 2016.
The housing market continued to improve in Europe in 2016. Housing prices rose and affordability remained high. Although economic growth is not very robust it is sufficient to support the positive trend in the labour market, which is clearly beneficial for consumer risk in general and retail mortgages in particular. A recent development in Europe is that mostly legacy collateral gets securitised, while funding for new origination is obtained outside the structured credit market. As a result the underlying collateral in most of our holdings is deleveraging and loan-to-values decline. The improving fundamentals, the deleveraging of the collateral and the shortening of the Dutch ABS holdings supported the credit spreads related to these investments.
There are no individual issuers rated below investment grade in this RMBS sector which have unrealized loss position greater than
The fair values of Aegon USA’s available-for-sale (AFS) RMBS instruments were determined as follows: Level II Level III Total 2016 Level II Level III Total 2015
Commercial mortgage-backed securities As of December, 31, 2016, Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 5,579 million (December 31, 2015: EUR 5,636 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 5,340 million (December 31, 2015: EUR 4,969 million) is held by Aegon USA, EUR 195 million (December 31, 2015: EUR 590 million) by Aegon UK and EUR 44 million
The total gross unrealized loss on available-for-sale CMBS of Aegon Americas amounted to EUR 67 million as of December 31, 2016
EUR 87 million (December 31, 2015: EUR 181 million), of which EUR 34 million (December 31, 2015: EUR 61 million) relates to positions of Aegon USA, followed by Aegon UK at EUR 50 million and Aegon the Netherlands at EUR 1 million. CMBS fundamentals continued to slowly improve in 2016 as the pace of credit deterioration moderated and financing availability remained high.
market; however, credit spreads on many legacy subordinate CMBS tranches remain at wide levels.
CMBS of Aegon USA are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are updated and reviewed quarterly. Model output is generated under base and several stress-case scenarios by Aegon’s internal CMBS asset specialists. For conduit securities, a widely recognized industry modeling software is used to perform a loan-by-loan, bottom-up approach. For non-conduit securities, a CMBS asset specialist works closely with Aegon’s real estate valuation group to determine underlying asset valuation and risk. Both methodologies incorporate external estimates on the property market, capital markets, property cash flows, and loan structure. Results are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur.
business loans, bank loans, and other receivables. The underlying assets of the asset backed securities have been pooled together and sold in tranches with varying credit ratings.
The total gross unrealized loss on available-for-sale ABS of Aegon Americas, Aegon the Netherlands and Aegon UK amounted to
United States, increasing investor demand has been met with new issuance in the asset-backed sector. The combination of these factors has led to varied performance by sector with most sectors exhibiting tighter credit spreads over the course of the year.
The breakdown by quality of the available-for-sale (AFS) ABS portfolio of Aegon USA, Aegon the Netherlands and Aegon UK
CDOs backed by ABS, Corp. bonds, Bank loans 1,747 744 304 128 107 3,031 3,004
Aegon UK hold EUR 8,527 million (December 31, 2015: EUR 9,157 million) of AFS bonds issued by banks. In aggregate, the gross unrealized loss on these bonds amounted to EUR 135 million (December 31, 2015: EUR 169 million) and the net unrealized gain on these bonds amounted to EUR 188 million (December 31, 2015: EUR 327 million).
Within the Banking sub-sector, Aegon holds EUR 750 million (December 31, 2015: EUR 1,053 million) of deeply subordinated securities with deferrable coupons that have an associated unrealized loss of EUR 93 million (December 31, 2015 EUR 119 million).
Aegon’s available-for-sale debt securities for Belfius Bank SA have a fair value of EUR 85 million as of December 31, 2016 (December 31, 2015: EUR 90 million). These below investment grade securities had gross unrealized losses of EUR 45 million as of December 31, 2016 (December 31, 2015: EUR 36 million). Belfius provides banking products and services in Belgium. Belfius has been 100% owned by the Belgium Government since it was split out of Dexia in October, 2011 and changed its name to Belfius in June 2012. It has a top tier domestic market position. It offers retail banking such as mortgage loans, commercial banking such as commercial and credit lending, treasury/liquidity management, leasing, working capital finance to debtors, public sector lending/bond portfolio, P&C
insurance, and life insurance. Belfius is based in Brussels and is a subsidiary for the Federal Holding and Investment Company the investment vehicle and subsidiary of The Belgium State. The material de-risking by the bank since 2011, combined with a relatively stable bank-insurance business model, has improved earnings. Aegon evaluated the near-term prospects of the issuer and it believes that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2016.
Corporate - Industrial sector The Corporate – Industrial sector is further subdivided into various sub-sectors. A majority of Aegon’s available-for-sale portfolio gross unrealized loss is in the Consumer Non-Cyclical sub-sector.
The Consumer Non-Cyclical sub-sector encompasses various industries ranging from consumer products to supermarkets. The more significant of these sub-sectors from an unrealized loss perspective are food and beverage and pharmaceuticals. Some large food and beverage balance sheets have weakened due to acquisitions, a product of the continued low volume and low growth environment of the traditional packaged food and beverage business, but they are now firmly in the deleveraging cycle and should improve in 2017 and 2018. The 2016 US presidential campaign put pharmaceutical companies under pressure given the additional scrutiny over drug pricing and elevated concerns regarding potential pricing reform. With the Republican win these concerns have lessened; however are still present. Share repurchases, dividend payments and merger and acquisitions continue to be a prevalent use of capital in the sector, at times resulting in additional leverage. Some pharmaceutical companies face product concentration and or patent risk which has raised concerns that future growth may not be as robust as what was experienced in the past. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of
Reduced recession concerns, supply outages and recent agreements by OPEC members to cut production levels have led to a rise in oil prices heading into year-end 2016. Aegon evaluated the near-term prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2016.
Government bonds Aegon Americas, Aegon the Netherlands and Aegon UK’s government issued available-for-sale debt securities include emerging market government bonds, US Treasury bonds, agency and state bonds. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2016.
This issuer has been separately disclosed above in the Corporate – Financial sector.
Aegon UK for the twelve months ended December 31, 2016, and December 31, 2015. Gross realised gains in 2016 increased compared to 2015 due to the sale of the UK annuity portfolio.
Gross realized gains and (losses) Gross realized gains Gross realized losses
These factors typically require significant management judgment. The impairment review process has resulted in EUR 1 million of impairment charges for the twelve months ended December 31, 2016 (twelve months ended December 31, 2015: EUR 4 million) for
Impairment losses on shares The table below provides the length of time the shares held by Aegon Americas, Aegon the Netherlands and Aegon UK were below cost prior to their impairment in 2016 and 2015.
DPAC amortization and guaranteed minimum benefits provisioning, while moderate scenarios may not. Aegon generally has positive income benefits from equity market increases and negative impacts from equity market declines as it earns fees on policyholder account balances and provides minimum guarantees for account values. Aegon uses options and other equity derivatives to provide protection against the negative impact of equity market declines.
Some liabilities are surrenderable while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, have low liquidity. If Aegon requires significant amounts of cash on short notice in excess of normal cash requirements and existing credit facilities, it may have difficulty selling these investments at attractive prices or in a timely manner.
Aegon held EUR 35,841 million of general account investments in cash, money market products and government bonds that are readily saleable or redeemable on demand (2015: EUR 36,521 million). The Group expects to meet its obligations, even in a stressed liquidity event, from operating cash flows and the proceeds of maturing assets as well as these highly liquid assets. Further, the Group has access to back-up credit facilities, as disclosed in note 39 Borrowings, amounting to EUR 3,885 million which were unused at the end of the reporting period (2015: EUR 3,568 million).
The maturity analysis below shows the remaining contractual maturities of each category of financial liabilities (including coupon interest). When the counterparty has a choice of when an amount is paid, the liability is included on the basis of the earliest date on which it can be required to be paid. Financial liabilities that can be required to be paid on demand without any delay are reported in the category ‘On demand.’ If there is a notice period, it has been assumed that notice is given immediately and the repayment has been presented at the earliest date after the end of the notice period. When the amount payable is not fixed, the amount reported is determined by reference to the conditions existing at the reporting date. For example, when the amount payable varies with changes in an index, the amount disclosed may be based on the level of the index at the reporting date.
Investment contracts for account of policyholders 1) 35,239 2,885 - - 466 38,591
The projected cash benefit payments in the table below are based on management’s best estimates of the expected gross benefits and expenses, partially offset by the expected gross premiums, fees and charges relating to the existing business in force.
Maturity analysis relating to derivatives 1) (Contractual cash flows) 2016 On demand
activities located outside these countries; �� Europe: which covers the following operating segments: the Netherlands, United Kingdom (including Variable Annuities Europe),
Performance Measure A performance measure of reporting segments utilized by the Company is underlying earnings before tax. Underlying earnings before tax reflects Aegon’s profit from underlying business operations and excludes components that relate to accounting mismatches that are dependent on market volatility, updates to best estimate actuarial and economic assumptions and model updates or events that are considered outside the normal course of business. As of 2016 results from assumption updates are no longer reported as part of underlying earnings but as part of Other income / (charges) – refer to the paragraph ‘Change in measurement of Performance measure’ below.
Change in measurement of Performance measure Aegon changed the measurement of underlying earnings before tax to exclude the impact of actuarial assumption updates. In addition, the impact from updates to actuarial assumptions, as well as model updates and updates to economic assumptions previously recorded in fair value items, are recorded in Other income / (charges). The impact of assumption updates are reflected as part of Other income /
(charges). By presenting the impacts from assumption and model updates in one place, management believes it increases the transparency of Aegon’s results.
Comparative numbers have been restated, enabling a like for like comparison. The presentation of the items in the IFRS-EU income statement will remain unchanged and continue to be part of the line ‘Policyholder claims and benefits’. Refer to paragraph 2.4.3 for impact on 2015 and 2014.
Impact from assumption and model updates In 2016 a charge of EUR 118 million (2015: EUR 131 million charge) has been recorded in other income / (charges) in respect of model and assumption updates. The impact is mainly attributable to Aegon’s business in the Americas and the Netherlands. Assumption changes and model updates in the Americas from long-term care led to a net negative impact of EUR 100 million. These were the result of experience updates including morbidity, termination rates and utilization assumptions. For the other business lines in the
During 2015, Aegon implemented actuarial assumption and model updates resulting in a net EUR 131 million charge
Aegon’s businesses in the Netherlands, VA Europe (included in United Kingdom) and Japan are excluded from underlying earnings before tax, and the long-term expected return for these guarantees is set at zero. In addition, fair value items include market related results on our loyalty bonus reserves in the United Kingdom. The value of these reserves are directly related to policyholder investments which value is directly impacted by movements in equity and bond markets.
The reconciliation of this measure to the income before tax is shown below. Aegon believes that underlying earnings before tax, together with the other information included in this report, provides a meaningful measure for the investing public to evaluate
Elimination of share in earnings of joint ventures and associates 48 34 (9)
Realized gains and losses on financial investments 10 327 349 697
Gains and (losses) on investments in real estate 10 70 145 (4)
Realized gains and (losses) on repurchased debt 10 1 2 3
Change in valuation of liabilities for insurance contracts 12 (144) (602) (388)
Change in valuation of liabilities for investment contracts 12 (18) - -
�� Net fair value change of derivatives is reported as part of the respective line in Note 10 and includes: 1) the over- or underperformance of derivatives of EUR 8 million gain (2015: EUR 4 million gain, 2014: EUR 19 million loss) for which the expected long-term return is included in underlying earnings before tax; 2) Net fair value change on economic hedges where no hedge accounting is applied of EUR 121 million loss (2015: EUR 139 million loss, 2014: EUR 241 million loss); 3)
Ineffective portion of hedge transactions to which hedge accounting is applied of EUR 31 million gain (2015: EUR 14 million loss, 2014: EUR 43 million gain).
Amortization of VOBA and future servicing rights of EUR 8 million charge (2015: gain of EUR 63 million; 2014: gain of
EUR 88 million) which is reported as part of the respective line in Note 14. Commissions and expenses include a DPAC/VOBA fair value adjustment of EUR 105 million (2015: EUR 41 million; 2014: EUR (17) million). �� Impairment (charges) reversals include: 1) Impairment charges and reversals on financial assets, excluding receivables of
Impairment charges / (reversals) on non- financial assets and receivables 7 (2) 31 (1) - 29 - - - - 36
Amortization of deferred expenses, VOBA and future servicing rights 545 53 224 78 - 355 10 - 1 (3) 909
Impairment charges / (reversals) on non- financial assets and receivables - 8 6 7 - 21 - - - - 21
Of which Aegon’s share of employees in joint ventures and associates 561 - - - 41 41 5,186 156 - 5,944
Of which Aegon’s share of employees in joint ventures and associates 568 - - - 25 25 3,750 86 - 4,429
Investments for account of policyholders 101,164 26,756 70,760 1,468 87 99,070 - - - (8) 200,226
Investment contracts for account of policyholders 29,842 2,424 57,598 255 - 60,277 - - - - 90,119
Off-balance sheet investments third parties 240,072 952 5,333 3,154 507 9,946 2,734 130,889 - (864) 382,776
Off-balance sheet investments third parties 212,704 897 3,899 2,855 508 8,158 2,317 127,329 - (1,069) 349,440
Total investments on balance sheet 188,784 79,752 84,610 2,379 789 167,529 4,409 74 230 (8) 361,019
Total premium income 23,453 22,925 19,864 - Accident and health insurance 2,609 2,703 2,316
Included in fee and commission income is EUR 55 million of fees on trust and fiduciary activities (2015: EUR 56 million; 2014: EUR 35 million).
Net fair value change on investments in real estate for account of policyholders (26) 67 53
Net fair value change on borrowings and other financial liabilities 21 9 5
Ineffective portion of hedge transactions to which hedge accounting is applied 31 (14) 43
The ineffective portion of hedge transactions to which hedge accounting is applied comprises: 2016 2015 2014
Fair value change on hedging instruments in a fair value hedge (204) 49 (679)
Other income of EUR 66 million for 2016 includes the result on the sale of Transamerica Financial Advisors. This transaction has resulted in a gain of USD 58 million (EUR 52 million). Refer to note 51 Business combinations for more details.
Other income in 2015 included a release of EUR 38 million of the earn out provision regarding Liberbank in Spain. In addition, other income included the results from the sale of Clark Consulting and the 25.1% share in Seven Investment Management (7IM). The 7IM
EUR 15,121 million (2015: EUR (110) million, 2014: EUR 11,226 million). In addition, the line Change in valuation of liabilities for insurance contracts includes an increase of technical provisions for life insurance contracts of EUR 2,349 million (2015: increase of
EUR 17 million (2015: EUR 19 million; 2014: EUR 6 million).
An amount of EUR 46 million is included in employee expenses relating to defined contributions (2015: EUR 51 million; 2014: EUR 43 million).
Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of a plan year.
Staff’ in accordance with the rules applicable to them and their interpretation by relevant supervisory authorities. Of these, the Dutch 2015 Act on compensation in the financial sector (Wet beloningsbeleid financiële ondernemingen Wft) and the Dutch 2014 Decree on sound remuneration policy (Regeling beheerst beloningsbeleid 2014) are prominent examples. The rules have been adopted in Aegon’s
Global Remuneration Framework. After the performance period, and based on the framework, variable compensation, if any, is partially made available and partly deferred. Variable compensation is paid in both cash and in Aegon N.V. shares. The shares were conditionally granted at the beginning of the year at the volume weighted average price (VWAP) on the Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of the plan year. The performance indicators apply over a performance period of one year and consist of Group and/or reporting unit targets (both financial and non-financial) set by the
Management Board who are based in the Netherlands are not entitled to execute any transactions regarding the shares for a period of three years following vesting (with the exception of shares withheld or sold to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the Vesting of the Shares).
For the vested tranches in 2016 Aegon introduced a net settlement option for participants to meet income tax obligations. This means that Aegon will not sell shares on the market, but hold these shares within Aegon and settle directly with the tax authorities in cash rather than in shares. The net settlement option does not change the share based payment right of the participants, therefore there is no incremental fair value, nor a related recognition of incremental fair value.
In compliance with regulations under Dutch law, share appreciation rights and share options may not be exercised in closed periods.
Refer to note 53 Related party transactions for detailed information on conditional shares and share options granted to the
Share appreciation rights The following tables present the movements in number of SARs outstanding.
The liability related to SARs is valued at fair value at each reporting date. There were no costs related to the share appreciation rights in 2016 (2015: nil; 2014: nil).
Impairment reversals on financial assets, excluding receivables, from: 2016 2015 2014
EUR 176 million (2015: EUR 269 million; 2014: EUR 242 million).
Other charges of EUR 774 million in 2015 mainly relate to the book loss on the sale of Aegon’s Canadian life insurance business.
Other charges of EUR 172 million in 2014 mainly included EUR 95 million related to the settlement with Optas, EUR 29 million related to provision for the modification of unit-linked policies in Poland, EUR 23 million related to a provision for the closed block of European direct marketing activities and EUR 15 million related to the reduction of the carrying amount of non-current financial assets related to the sale of the Canada operations.
Deferred tax 43 Origination / (reversal) of temporary differences 148 (197) 263
Changes in tax rates / bases 93 (22) (12) Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences (54) (8) (63)
Changes in deferred tax assets as a result of recognition / write off of previously not recognized / recognized tax losses, tax credits and deductible temporary differences (54) (8) (63)
Tax effect of (profit) / losses from joint ventures and associates (7) (8) (8)
Income tax for the period (income) / charge 219 (111) 280
Changes in tax rate/base in 2016 is heavily impacted by the release of profits from OCI to income statement in the United Kingdom.
In the UK, the corporate income tax rate will decrease to 19% as per April 1, 2017. The beneficial impact of this change is reflected in the 2015 change in tax rate/base. The tax rate will continue to decrease from 19% to 17% with effect from April 1, 2020. The minor impact of this tax rate change is included in the 2016 change in tax rate/base. In Spain, the corporate income tax rate decreased from 28% to 25% as from 2016. The impact of the change of the Spanish tax rate was included in the 2014 change in tax rate/base. In
Tax credits in 2015 includes tax benefits related to solar investments in the United States.
Adjustments to prior years includes a one-time tax benefit in the United States caused by the revised tax deduction for dividends received on prior filed tax returns.
The following tables present income tax related to components of other comprehensive income and retained earnings.
1 The weighted average applicable statutory tax rate in 2015 is impacted by a disproportional loss in the United Kingdom.
Items that will not be reclassified to profit and loss: Changes in revaluation reserve real estate held for own use (3) (2) (2)
Total income tax related to components of other comprehensive income 311 706 (1,685)
Income tax related to equity instruments and other Income tax related to equity instruments 33 44 46 47
Net income / (loss) attributable to owners for basic earnings per share calculation 453 (663) 1,043
Net income / (loss) attributable to common shareholders 449 (659) 1,035
Net income / (loss) attributable to common shareholders B 3 (5) 7
Weighted average number of common shares B outstanding (in million) 575 584 580
Diluted earnings per share Diluted earnings per share is calculated by adjusting the average number of shares outstanding for share options. For the purpose of calculating diluted earnings per share, Aegon assumes that all dilutive share options have been exercised at the exercise price, or adjusted exercise price if necessary. A share option is considered dilutive if the exercise price was lower than the average market price for the period. The assumed proceeds from the exercise of share options are regarded as having been received from the issue of common shares at the average market price of the Aegon N.V. share during the year. The difference between the number of dilutive options considered exercised and the number of common shares that would have been issued at the average market price has been treated as an issue of common shares for no consideration.
The number of share options that has not been included in the weighted average number of common shares used in the calculation of diluted earnings per share amounted to nil in 2016 and 2015 (2014: 4,900,086). The average share price did not exceed the exercise prices in these option contracts. At year end, Aegon has no share options outstanding as all outstanding share options have expired as of March 11, 2015. Aegon has no share options on common shares B.
The diluted earnings per share equaled the basic earnings per share for all years disclosed since there were no share options considered dilutive as mentioned above.
20 Dividend per common share Final dividend 2016 It will be proposed to the Annual General Meeting of Shareholders on May 19, 2017, absent unforeseen circumstances, to pay a final dividend for the year 2016 of EUR 0.13 per common share. After taking into account the interim dividend 2016 of EUR 0.13 per common share, this will result in a total 2016 dividend of EUR 0.26 per common share. Proposed final dividend for the year and proposed total 2016 dividend per common share B are EUR 0.00325 and EUR 0.0065 respectively.
The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 16, 2016.
To neutralize the dilutive effect of the 2016 interim dividend paid in shares, Aegon executed a program to repurchase 30,765,224 common shares. Between October 3, 2016, and November 11, 2016, these common shares were repurchased at an average price of
EUR 3.8406 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
EUR 0.12 per common share, the stock dividend amounted to one new Aegon common share for every 45 common shares held.
The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 18, 2015.
EUR 6.6324 per share. These shares will be held as treasury shares and will be used to cover future stock dividends.
The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 19, 2014.
The interim dividend 2014 for common shares B amounted to 1/40th of the dividend paid on common shares.
EUR 8 billion (2015: EUR 8 billion) of cash collateral is received related to securities lending, repurchase agreements and margins on derivatives transactions. A corresponding liability to repay the cash is recognized in other liabilities (note 44 Other liabilities). Refer to note 49 Transfer of financial assets for details on collateral received and paid. Investment of cash collateral received is restricted through limitations on credit worthiness, duration, approved investment categories and borrower limits. EUR 16 million (2015: EUR 463 million) of the cash collateral received is included in cash and cash equivalents and the remainder is included in other asset classes as that collateral is typically reinvested. Aegon earns a share of the spread between the collateral earnings and the rebate paid to the borrower of the securities. The decrease in 2016 is mainly driven by lower exposure to derivative transactions in the UK due to the sale of the UK annuity portfolio. Income from securities lending programs was approximately EUR 13 million (2015: EUR 8 million; 2014: EUR 7 million).
For the purposes of the cash flow statement, cash and cash equivalents comprise the following: Cash and cash equivalents 11,347 9,594 10,610
Cash classified as Assets held for sale 22 - - 43
Aegon Bank N.V. to place 1% of their deposits with agreed maturity or the savings accounts (without restrictions to withdraw their money) in an account with the Dutch Central Bank. This deposit is renewed every 42-49 days, based on an updated valuation of total assets. The interest received on this deposit is equal to the ECB deposit rate (which was -30bp in the months January and February of 2016 and -40bp the rest of the year). The year end minimum required balance on deposit by the Dutch Central Bank was
Net cash flows from investing activities increased by EUR 685 million to a EUR 615 million inflow (2014: EUR 71 million outflow).
The increase is mainly driven by the sale of La Mondiale, Aegon’s life insurance operations in Canada, Clark Consulting and 7IM.
This increase is partly offset by the acquisition of Mercer and a 25% stake in La Banque Postale Asset Management.
Refer to note 47 Fair value for information on fair value measurement. Loans are held at amortized cost, but the estimated fair value is also disclosed in note 47.
Of the debt securities, money market and other short-term investments, mortgage loans and private loans EUR 15,762 million is current (2015: EUR 14,828 million).
In 2015, other movement includes the impact of the conversion of the mortgage loans in Hungary, which were formerly denominated in a foreign currency, into HUF denominated loans as required by Hungarian law. As a result of the changed conditions, the former mortgage loans were derecognized and the new mortgage loans have been subsequently recognized at fair value.
(2015: 95%), of which 98% was performed by independent external appraisers (2015: 99%).
Rental income of EUR 69 million (2015: EUR 61 million; 2014: EUR 54 million) is reported as part of investment income in the income statement. Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period amounted to EUR 79 million (2015: EUR 97 million; 2014: EUR 72 million). In 2016, EUR 1 million of direct operating expenses is related to investment properties that did not generate rental income during the period (2015: EUR 1 million; 2014: 11 million).
Total investments for account of policyholders at fair value through profit or loss, excluding derivatives 202,924 199,204
Derivatives for general account Derivatives not designated in a hedge 6,516 8,982 7,819 9,626
Derivatives for account of policyholders Derivatives not designated in a hedge 402 903 107 226 1 Refer to note 47 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss.
Of the derivatives EUR 1,030 million (2015: EUR 726 million) and EUR 2,537 million (2015: EUR 1,179 million) are current derivative assets and liabilities respectively.
For the year ended December 31, 2016, Aegon the Netherlands recognized a negative amount of EUR 176 million (2015: EUR 98 million positive) of fair value changes on derivatives designated under fair value hedge accounting under the ‘EU carve-out’ in the income statement. This amount was offset by EUR 195 million positive (2015: EUR 120 million negative) fair value changes recognized on hedged items. During 2016 Aegon the Netherlands changed their risk management policy and decided to take on more interest rate risk, in order to economically offset the interest rate risk on the insurance liabilities. This has resulted in a de-designation for some of the fair value hedge accounting portfolios. The remaining base adjustment (EUR 70 million) will be amortized over the weighted average duration (7 to 9 years) of the mortgage portfolios to which hedge-accounting was applied at the date of de-designation.
Derivatives designated as cash flow hedges Aegon has entered primarily into interest rate swap agreements that effectively convert certain variable-rate assets and liabilities to a fixed-rate basis in order to match the cash flows of the assets and liabilities within Aegon’s portfolio more closely. These agreements involve the payment or receipt of variable-rate interest amounts in exchange for fixed-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Aegon hedges its exposure to the variability of future cash flows from the interest rate movements for terms up to 28 years for hedges converting existing floating-rate assets and liabilities to fixed-rate assets.
transaction at which time the interest rate swaps will be terminated. The accumulated gain or loss in equity will be amortized into investment income as the acquired asset affects income. Aegon hedges its exposure to the variability of future cash flows from interest rate movements for terms up to 27 years. The cash flows from these hedging instruments are expected to affect the profit and loss for approximately the next 36 years. For the year ended December 31, 2016, the contracts for which cash flow hedge accounting was terminated resulted in deferred gains of EUR 407 million (2015: EUR 388 million) that are recognized directly in equity to be reclassified into net income during the period when the cash flows occur of the underlying hedged items. During the year ended
December 31, 2016, none of Aegon’s cash flow hedges were discontinued, as it was highly probable that the original forecasted transactions would occur by the end of the originally specified time period documented at the inception of the hedging relationship. Aegon projects investment needs many years into the future in order to support the insurance liabilities and pay all contractual obligations arising from the policies in force today.
(2015: EUR 13 million loss, 2014: EUR 1 million loss). The amount of deferred gains or losses to be reclassified from equity into net income during the next 12 months is expected to be EUR 66 million gain.
The periods when the cash flows are expected to occur are as follows: < 1 year 1 – 5 years 5 – 10 years > 10 years 2016 Total
< 1 year 1 – 5 years 5 – 10 years > 10 years 2015 Total
Net foreign investment hedges Aegon funds its investments in insurance subsidiaries with a mixture of debt and equity. Aegon aims to denominate debt funding in the same currency as the functional currency of the investment. Investments outside the eurozone, the United States and the
United Kingdom are funded in euros. When the debt funding of investments is not in the functional currency of the investment,
Share in changes in joint ventures equity (note 32.6) 9 (8)
All joint ventures are unlisted and are accounted for using the equity method and are considered to be non-current. The investments in joint ventures include interest in insurance companies that are required to maintain a minimum solvency margin based on local directives. Such restrictions can affect the ability of these joint ventures to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. Refer to note 48 Commitments and contingencies for any commitments and contingencies related to investments in joint ventures. There are no unrecognized shares of losses in joint ventures. The financial statements of the principal joint ventures have the same reporting date as the Group. Refer to note 52 Group companies for a listing of the investments in joint ventures and the Group’s percentage holding.
Summarized statement of financial position Cash and cash equivalents 135 176 373 353
Current financial liabilities excluding trade payables and other provisions - - 60 5
Group share of net assets of joint venture, excluding goodwill 877 837 338 358
Post-tax profit or loss 106 76 28 66 27 Investments in associates
Amounts due from reinsurers in respect of claims already paid by the Group are included in note 30 Other assets and receivables.
Gross premium and deposits – existing and new business 2,257 67 2,325
Aegon’s life reinsurance business from Transamerica Reinsurance (TARe) to SCOR, completed on August 9, 2011. The divestment of
At December 31, 2016 the reinsurance asset linked to the sale is reported as part of note 22 Assets and liabilities held for sale.
For disclosure of the immediate loss recognized in the consolidated income statement and more details on the transaction, refer to note 17 Other charges and note 51 Business combinations, respectively.
Individual savings and retirement products 1,924 - - - - - - - - 1,924
None of the equipment is held for lease (2015: none). Equipment has not been pledged as security for liabilities, nor are there any restrictions on title. Depreciation expenses have been recorded in Commissions and expenses in the income statement.
The increase in receivables from policyholders compared to prior year is driven by a change in netting. This also affected other liabilities
Of accrued income EUR 1,547 million is current (2015: EUR 1,761 million).
With the exception of goodwill, all intangible assets have a finite useful life and are amortized accordingly. VOBA and future servicing rights are amortized over the term of the related insurance contracts, which can vary significantly depending on the maturity of the acquired portfolio. VOBA currently recognized is amortized over an average period of 24 years, with an average remaining amortization period of 8 years (2015: 11 years). Future servicing rights are amortized over an average period up to 30 years, of which 9 years remain at December 31, 2016 (2015: 10 years). Software is generally depreciated over an average period of 5 years. At December 31, 2016, the remaining average amortization period was 3 years (2015: 3 years).
To reflect the restructuring of the business, goodwill in Aegon USA is allocated to a group of cash-generating units including variable annuities and fixed annuities and the retirement plans cash-generating unit. Value in use calculations of Aegon USA have been actuarially determined based on business plans covering a period of typically three years and pre-tax risk adjusted discount rates. The value in use tests in the USA for the group of annuities cash-generating units (EUR 131 million; 2015: EUR 134 million) and the retirement plans cash-generating unit (EUR 57 million; 2015: EUR 66 million) assume business plans covering a period of three years further extrapolated to ten years where the new business levels for years 4-10 assumed a 0% growth rate (2015: 5%). The pre-tax adjusted discount rate was 17% for annuities and 18% for retirement plans as determined at date of acquisition.
To determine the recoverable amounts of the cash generating units of Aegon Central & Eastern Europe (CEE), value in use was calculated, and compared to the carrying amounts. Value in use has been determined based on a business plan covering a period of typically 5 years, that, in certain instances was further extrapolated to 20 years where the new business levels for years 6-20 assumed a growth rate based on the business plan of the fifth year, prudentially decreased by 20% (2015: 20%-40%). Other key assumptions used for the calculation were pre-tax risk adjusted discount rate of 7.4%-15.9% (2015: 8.4%-16.4%), new business contribution, renewals, asset fees, investment return, persistency and expenses. Operating assumptions are best estimate assumptions and based on historical data where available. Economic assumptions are based on observable market data and projections of future trends.
Following the acquisition of Mercer, goodwill was recognized in 2015 for an amount of EUR 66 million reflecting the expected profitability of new business.
VOBA The movement in VOBA over 2016 can be summarized and compared to 2015 as follows: Amortization / depreciation through income statement (178) (139)
Individual savings and retirement products 181 - - - - - - - 181
In June 2016, Aegon distributed to its shareholders who elected stock dividend a total number of 29,258,662 common shares in respect to the final dividend for 2015. This stock dividend distribution was paid from treasury shares (note 32.3 Treasury shares) and with the issuance of 9,121,989 common shares with a par value of EUR 0.12.
This stock dividend distribution was paid from treasury shares (note 32.3 Treasury shares) and with the issuance of 1,506,562 common shares with a par value of EUR 0.12.
This stock dividend distribution was paid from 19,047,358 treasury shares (note 32.3 Treasury shares) and with the issuance of 1,089,315 common shares with a par value of EUR 0.12.
In 2015, following each distribution of stock dividend, Aegon completed a share buyback program to neutralize the dilutive effect of the 2014 final dividend and 2015 interim dividend paid in shares, and repurchased a total of 36,416,606 common shares.
Furthermore, in 2014, Aegon issued 2,320,280 common shares B with a par value of EUR 0.12 to compensate for the dilution of
Meeting of Shareholders. Moreover, repayment on common shares B needs approval of the related shareholders. Refer to ‘Other information’ for further information on dividend rights.
32.3 Treasury shares On the reporting date, Aegon N.V. and its subsidiaries held 48,780,045 (2015: 44,531,558) of its own common shares and 17,324,960
(2015: nil) own common shares B with a par value of EUR 0.12 each.
Movements in the number of treasury common shares of Aegon N.V. were as follows: Number of shares (thousands) Amount
Net (gains) / losses transferred to income statement (485) - (13) (498)
The foreign currency translation reserve includes the currency results from investments in non-euro denominated subsidiaries. The amounts are released to the income statement upon the sale of the subsidiary.
The equity movements of joint ventures and associates reflect Aegon’s share of changes recognized directly in the joint venture's and associate’s equity.
Redemption of junior perpetual capital securities (1,184) - - - (1,184)
USD 250 million floating LIBOR rate 1) Quarterly, December 15 2017 212 212 212
USD 500 million floating CMS rate 2) Quarterly, July 15 2017 402 402 402
EUR 950 million floating DSL rate 3) Quarterly, July 15 2017 950 950 950 1 The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. 2 The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%. 3 The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%.
Subordinated borrowings include a liability of EUR 72 million (2015: EUR 65 million) relating to the USD 525 million non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes is related to the redemption amount. For further information on the non-cumulative subordinated notes and their subordination refer to note 33 Other equity instruments.
Coupon rate Coupon date Year of issue Year of maturity Year of next call 2016 2015
USD 190 million 1) 7.625% Semi-annually, November 15 1997 2037 n.a. 47 46 1 Issued by a subsidiary of, and guaranteed by Aegon N.V.
The fair value of these loans amounted to EUR 141 million (2015: EUR 146 million).
36 Insurance contracts 36.1 Underwriting risk Aegon’s earnings depend significantly upon the extent to which actual claims experience differs from the assumptions used in setting the prices for products and establishing the technical liabilities and liabilities for claims. To the extent that actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, income would be reduced. Furthermore, if these higher claims were part of a permanent trend, Aegon may be required to change best estimate assumptions for future claims which could increase liabilities, which could reduce income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the statement of financial position and are being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs could be accelerated and may even require write offs should there be an expectation of unrecoverability. This could have a materially adverse effect on Aegon’s business, results of operations and financial condition.
The sensitivities represent an increase or decrease of mortality (net of longevity) and morbidity rates over best estimate. Increases in mortality rates lead to an increase in the level of benefits and claims. Underwriting sensitivities were run using a permanent shock whereas prior year sensitivities were run using a temporary shock. The comparative numbers have been restated accordingly.
The change in methodology generally increased underwriting sensitivities compared to the prior year especially in mortality and morbidity sensitivities for life, health and variable annuity products. Life insurers are also exposed to longevity risk in some products.
Increased life expectation above Aegon’s assumed life expectation at the time of underwriting negatively impacts its results for these products.
Aegon the Netherlands partially hedges the risk of future longevity increases in the Netherlands related to a part of its insurance liabilities. In 2012, Aegon the Netherlands bought a longevity index derivative, with a notional amount of EUR 12 billion, constructed to pay out if by 2032 the mortality rates have decreased more than a predetermined percentage compared to the base scenario at the moment of signing the contract. Payout of the derivative is defined based on a ‘cumulative cash index', which represents the cumulative payout to a predefined (synthetic) insured population in relation to the expected payout (in the base scenario) to this same population.
Both parties in the contract have the possibility to terminate the contract after 10 years (early termination clause). The payout is maximized at a predetermined percentage compared to the base scenario.
To further protect the longevity position of Aegon the Netherlands and combining this with protection for catastrophe mortality in the
US, Aegon bought an additional longevity index derivative in 2013. This derivative was constructed to pay out in 2035, if some combination of higher than expected mortality rates in the US and/or lower than expected mortality rates in the Netherlands persists over the next twenty years from 2013 and, at that time, is expected to continue to do so. Payout of the derivative is defined based on a ‘terminal present value', which represents the sum of 1) the cumulative payout to a predefined (synthetic) insured population over the years and 2) the remaining expected liability on this same population. The preceding sum is compared to amounts set at the moment of signing the contract to determine the actual payout. As part of Aegon’s ongoing in-force portfolio review, this derivative was partially amended in 2016, as the underlying liabilities changed.
As a next step, Aegon the Netherlands bought another longevity hedge in 2015. The floating leg is a single payout in 2065. The payout depends on an index which is constructed as the aggregate benefit payments over the term of 50 years on an underlying book of annuities, which includes a significant portion of deferred annuities. The development of the index only depends on Dutch population mortality. The hedge provides out-of-the-money protection. The payout depends on where the index ends up relative to contractually agreed attachment and detachment points. In 2015, Aegon entered into this hedge for an amount of EUR 6 billion with Canada Life Re.
Gross premium and deposits – existing and new business 6,356 7,168
Net exchange differences 55 7,644 1 Linked to the sale of Aegon UK’s annuity portfolio, reported in Assets held for sale, refer to note 22 Assets and liabilities held for sale and note 51 Business combinations.
Gross premium and deposits – existing and new business 6,553 1,724 8,277
Transfer (to) / from insurance contracts for account of policyholders - 808 808
Gross premium and deposits – existing and new business 9,863 2,164 12,027
Transfer (to) / from insurance contracts for account of policyholders - (911) (911)
In addition to the guarantees mentioned above, Aegon has traditional life insurance contracts that include minimum guarantees that are not valued explicitly; however, the adequacy of all insurance liabilities, net of VOBA and DPAC, and including all guarantees, are assessed periodically (note 2.19).
The sum insured at maturity or upon the death of the beneficiary has a minimum guaranteed return (in the range of 3% to 4%) if the premium has been paid for a consecutive period of at least ten years and is invested in a mixed fund and/or fixed-income funds. No guarantees are given for equity investments only.
3 Balances are included in the derivatives liabilities on the face of the statement of financial position; refer to note 25 Derivatives. 4 Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and fair value movements during the reporting year.
Average attained age of contract holders 69 69 69 69 1 Guaranteed minimum death benefit in the United States.
Premiums are paid by customers at inception or over the term of the contract. The accumulation products pay benefits on the policy maturity date, subject to survival of the insured. In addition, most policies also pay death benefits if the insured dies during the term of the contract. The death benefits may be stipulated in the policy or depend on the gross premiums paid to date. Premiums and amounts insured are established at inception of the contract. The amount insured can be increased as a result of profit sharing, if provided for under the terms and conditions of the product. Minimum interest guarantees exist for all generations of traditional accumulation products written. Older generations contain a 4% guarantee; in 1999 the guarantee decreased to 3% and in 2013 the guarantee decreased to 0%.
employees so that their pension benefit is guaranteed. Large group contracts also share technical results (mortality risk and disability risk). The contract period is typically five years and the premiums are fixed over this period.
The following table provides information on the liabilities for guarantees that are included in the valuation of the host contracts, net of the present value of the expected future premiums that are received to cover these guarantees: Incurred guarantee benefits 3) 801 (692)
Fair value measurement of guarantees in insurance contracts The fair values of guarantees mentioned above (with the exception of life contingent guarantees in the United States) are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. For further details refer to note 47 Fair value.
For equity volatility, Aegon uses a term structure assumption with market-based implied volatility inputs for the first five years and a long-term forward rate assumption of 25% thereafter. The volume of observable option trading from which volatilities are derived generally declines as the contracts’ term increases, therefore, the volatility curve grades from implied volatilities for five years to the ultimate rate. The resulting volatility assumption in year 20 for the S&P 500 index (expressed as a spot rate) was 24.0% at December 31, 2016, and 24.2% at December 31, 2015. Correlations of market returns across underlying indices are based on historical market returns and their inter-relationships over a number of years preceding the valuation date. Assumptions regarding policyholder behavior, such as lapses, included in the models are derived in the same way as the assumptions used to measure insurance liabilities.
Aegon utilizes different risk management strategies to mitigate the financial impact of the valuation of these guarantees on the results including asset and liability management and derivative hedging strategies to hedge certain aspects of the market risks embedded in these guarantees.
Guarantees valued at fair value contributed a net loss before tax of EUR 61 million (2015: gain of EUR 21 million) to earnings. The main drivers of this loss before tax are negative results related to increases in risk free rates of EUR 1,159 million (2015: EUR 543 million gain) and DPAC offset and other contributed a loss of EUR 279 million (2015: EUR 493 million gain) partly offset by hedges related to the guarantee reserves contributed fair value gain of EUR 325 million to income before tax (2015: EUR 670 million loss), a gain of EUR 404 million related to increasing own credit spread (2015: EUR 202 million loss), a gain of EUR 671 million related to a increase in equity markets (2015: EUR 114 million loss) and a gain of EUR 7 million related to decreases in equity volatilities
Aegon’s USD 6 billion debt issuance program at a price of 99.210%, and will carry a coupon of 1.00%.
EUR 500 million Unsecured Notes 3% July 18 2012 / 17 500 499
EUR 75 million Medium-Term Notes 1) 4.625% December 9 2004 / 19 84 86
GBP 250 million Medium-Term Notes 6.125% December 15 1999 / 31 291 337
In addition, Aegon entered into a USD 3 billion new liquidity program from the Federal Home Loan Bank and issued a EUR 500 million covered bond.
EUR 225 million ECB MRO 1) Floating At Maturity 2015 / 16 - 225
EUR 1,500 million ‘SAECURE 10’ RMBS Note 1) Floating Quarterly 2011 / 16 - 1,094
EUR 1,367 million ‘SAECURE 14’ RMBS Note 1), 4) Floating Quarterly 2014 / 19 1,126 1,230
USD 1.54 billion Variable Funding Surplus Note 8), 9) Floating Quarterly 2006 / 36 1,505 1,448
6 The maturity date is 1 December 2020; the extended due for payment date is 1 December 2052. 7 The maturity date is 25 May 2023; the extended due for payment date is 25 May 2055. 8 Outstanding amounts can vary up to the maximum stated nominal amount. 9 This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements. A guarantee has been provided by
Aegon N.V. - refer to note 48 Commitments and contingencies. 10 This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements.
Aegon’s credit spread had a negative impact of EUR 1 million on income before tax (2015: negative impact of EUR 4 million) and a negative impact of EUR 1 million on shareholders’ equity (2015: negative impact of EUR 3 million). The cumulative negative impact of Aegon’s credit spread for borrowings in portfolio at year end, based on observable market data, on income before tax amounted to
Floating-rate - Expiring within one year 463 230 - Expiring beyond one year 3,422 3,338
The remaining provisions mainly consist of provisions regarding fees payable upon purchase and surrender of unit-linked policies in the
Polish Life Insurance portfolio of EUR 24 million (2015: EUR 12 million), restructuring provisions of EUR 39 million (2015: EUR 68 million), provisions for unearned commission of EUR 25 million (2015: EUR 27 million), litigation provisions of EUR 11 million (2015: EUR 14 million) and other provisions of EUR 74 million (2015: EUR 54 million) including the remaining provision related to the harbor workers’ former pension fund Optas.
Present value of wholly or partly funded obligations 4,834 - 4,834 4,731 - 4,731
Fair value of plan assets (3,793) - (3,793) (3,569) - (3,569)
Net interest on the net defined benefit liability (asset) 123 11 134 119 10 129
in 2016 or 2015. However, with the approval of the Aegon NV Management Board, Aegon USA made a pension plan contribution of
USD 250 million (EUR 226 million) in September 2016 that was over and above the minimum required funding levels as set forth by the Internal Revenue Code.
Transamerica Corporation, or the Compensation Committee of the Board of Directors has the full power and discretion to apply all of
the plan’s provisions, including such responsibilities as, but not limited to, interpret the plan provisions, to make factual determinations under the plan, to determine plan benefits, and to comply with any statutory reporting and disclosure requirements. The benefits are based on years of service and the employee’s eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The company funds the benefit payments of the supplemental retirement plans from its general account assets. The unfunded amount related to these plans, for which a liability has been recorded, was EUR 286 million
funds the benefit payments of the post-retirement health care plans from its general account assets. The post-retirement health benefit liability amounted to EUR 246 million (2015: EUR 235 million).
The weighted average duration of the defined benefit obligation is 13.3 years (2015: 13.2 years).
Nederland reviews the terms of the plans and makes changes to the plans if and when appropriate. The liabilities related to these other post-employment benefit plans are fully unfunded and amount to EUR 68 million at December 31, 2016 (2015: EUR 61 million).
In previous years fixed percentages were used for the salary increase rate, price inflation and indexation. Aegon the Netherlands changed these inputs to make use of curves based on the Dutch Consumer Price Index.
100 basis points decrease in discount rate 732 587 100 basis points increase in salary increase rate 19 15 100 basis points decrease in salary increase rate (19) (14)
The above sensitivity analysis is based on a change in one assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the defined benefit obligation recognized within the statement of financial position.
Aegon UK in accordance with UK pensions legislation and guidance issued by the Pensions Regulator in the UK. The schedule of contributions includes deficit reduction contributions to clear any scheme deficit. Under IAS 19, the defined benefit plan has a deficit of
The weighted average duration of the defined benefit obligation is 23.0 years (2015: 23.0 years).
100 basis points decrease in discount rate 513 470 100 basis points increase in price inflation 213 192 100 basis points decrease in price inflation (289) (347)
All other operating segments Businesses included in all other operating segments mostly operate defined contribution plans.
The following table provides a movement schedule of net deferred tax broken-down by those items for which a deferred tax asset or liability has been recognized.
�� The movement in Insurance contracts and Intangible assets mainly relates to the reclassification through these categories. �� The increase in Other mainly relates to the deferral of tax credits in 2016.
In 2015, the decrease of deferred income tax liabilities primarily relates to a decrease of unrealized profits in respect of financial assets mainly driven by higher interest rates and widening credit spread.
Deferred corporate income tax asset dependent on retaining bonds and similar investments until the earlier of market recovery or maturity 816 1,766 286 617
Deferred corporate income tax asset dependent on future taxable profits 362 52 64 12
Deferred corporate income tax liabilities have not been recognized for withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries. The unremitted earnings totaled gross EUR 1,770 million; tax EUR 441 million (2015: gross
As per January 1, 2016 Aegon moved to Solvency II for capital management purposes and redefined its capital measure prospectively.
This capital measure is significantly different compared to the Solvency I capital ratio used in 2015. As a consequence these numbers are not included as comparative information for Solvency II related disclosures.
ratio, required capital for the life insurance companies in the US was calculated as two times the upper end of the Company Action
Level range (200%) as applied by the National Association of Insurance Commissioners in the United States. The calculation of the IGD
Strategic importance Aegon’s approach towards capital management plays a vital role in supporting the execution of Aegon’s strategy. Next to ensuring adequate capitalisation to cover Aegon’s obligations towards its customers, Aegon’s capital management priorities also include the shift of capital to products that offer higher growth prospects and return prospects, the shift from capital intensive spread business to capital light fee business and Aegon’s aim to provide for a sustainable dividend to Aegon’s shareholders, which can grow over time if
Aegon’s ERM framework ensures that the Aegon Group and its operating companies are adequately capitalized and that Aegon’s obligations towards policyholders are always adequately met. As specific part of this larger framework, Aegon’s capital management framework builds on a set of key pillars: the use of internal target capital management zones, an internal target range for the use of gross financial leverage and, supported by robust risk and capital monitoring processes that timely trigger and escalate interventions if and when needed to ensure that capital is always being managed towards these internal target ranges and is prevented from falling below the regulatory minimum capital requirements.
EEA-domiciled legal entities and therefore had an impact on the capitalization levels used to assess capital adequacy of Aegon’s
EEA-domiciled operating units and for the Aegon Group as a whole. Aegon has updated its target capitalization levels under its capital management framework accordingly.
The capitalization of the Aegon Group and its operating units is managed in relation to the most stringent of local regulatory requirements, rating agency requirements and/or self-imposed criteria. Aegon manages its Solvency II capital in relation to the required capital. Under Aegon’s capital management framework the own funds are managed in such a way that the Group Solvency II ratio remains within the target range of 140% – 170%.
An irreparable breach of the MCR would lead to the withdrawal of the insurance license. Similarly, for the US insurance entities the withdrawal of the insurance license is triggered by a breach of 100% of the Authorized Control Level (ACL), which is 50% of the
During 2016, the Aegon Group and all of its regulated entities that are subject to capital requirements on a solo-level continued to comply with the SCR requirements.
Capital quality Aegon’s capital consists of 3 Tiers that indicate its quality of the capital. It is noted that the Group own funds do not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past as the potential liability cannot be reliably quantified at this point.
Aegon’s Tier 2 capital consists of its grandfathered dated subordinated notes, and certain deferred tax asset balances related to the inclusion of (provisional) equivalent regimes in Aegon’s Solvency II calculation.
The grandfathered restricted Tier 1 and Tier 2 capital instruments are grandfathered in order that they are considered as capital under the Solvency II framework for up to 10 years as from January 1, 2016.
It is to be noted that the difference between the amounts mentioned above for junior perpetual capital securities and perpetual cumulative subordinated bonds, and those in note 33 and note 34 to the consolidated financial statements, stem from valuation differences between Solvency II and IFRS-EU (market value versus par value).
Available own funds 18,112 1 Amongst others this contains the exclusion of Aegon Bank.
The revaluation differences stem from the difference in valuation between IFRS-EU and Solvency II frameworks, which can be grouped into three categories: �� Items which are not recognized under Solvency II. The most relevant examples of this category for Aegon include Goodwill,
DPAC and other intangible assets (EUR 2,118 million); �� Items which have a different valuation treatment between IFRS-EU and Solvency II. Solvency II is a market consistent framework hence all assets and liabilities are to be presented at fair value while IFRS-EU also includes other valuation treatments in addition to fair value. The most relevant examples of this category for Aegon Group include Loans and Mortgages, Reinsurance Recoverables and Technical provisions. The revaluation difference stemming from this category amounted to EUR (1,918) million compared to the IFRS-EU Statement of Financial Position; �� The Net Asset Value of subsidiaries that are included under Deduction & Aggregation method (on provisional equivalence or
EUR (6,622) million compared to the IFRS-EU Statement of Financial Position.
The availability adjustments are changes to the availability of own funds of Aegon Group due to the Solvency II requirements.
Aegon aims to keep total gross financial leverage within a range of 26% to 30% of total capitalization as measured by the gross financial leverage ratio.
or otherwise becomes due and payable prior to its specified maturity as a result of an event of default.
All financial agreements are closely monitored periodically to assess the likelihood of a breach of any financial covenant and the likelihood thereof in the near future. No breach of any such covenant has occurred in 2016.
The ability of Aegon’s subsidiaries, principally insurance companies, to pay dividends to the holding company is constrained by the need for these subsidiaries to remain adequately capitalized to the levels set by local insurance regulations and governed by local insurance supervisory authorities. Based on the capitalization level of the local subsidiary, local insurance supervisors are able to restrict and/or prohibit the transfer of dividends to the holding company. In addition, the ability of subsidiaries to pay dividends to the holding company can be constrained by the need for these subsidiaries to have sufficient shareholders’ equity as determined by law. The capitalization level and shareholders’ equity of the subsidiaries can be impacted by various factors (e.g. general economic conditions, capital markets risks, underwriting risk factors, changes in government regulations, legal and arbitrational proceedings). To mitigate the impact of such factors on the ability of subsidiaries to pay dividends, the subsidiaries hold additional capital in excess of the levels required by local insurance regulations, which is reflected in Aegon’s target capitalization ranges.
EUR 1.0 to 1.5 billion. For this Aegon takes into account the liquidity in Aegon’s centrally managed (unregulated) holding companies.
Valuation techniques are used when Aegon determines the market is inactive or quoted market prices are not available for the asset or liability at the measurement date. However, the fair value measurement objective remains the same, that is, to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). Therefore, unobservable inputs reflect Aegon’s own assumptions about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). These inputs are developed based on the best information available.
Fair value hierarchy The table below provides an analysis of assets and liabilities recorded at fair value on a recurring basis by level of the fair value hierarchy: Level I Level II Level III Total 2016
Investment contracts for account of policyholders 156 (14) - 45 (12) - 2 - - (2) - 176 1 1 Includes impairments and movements related to fair value hedges. Gains and losses are recorded in the line item Results from financial transactions of the income statement.
Tr an sf er s to d is po sa l gr ou ps
To ta l u nr ea liz ed g ai ns an d lo ss es f or t he pe rio d re co rd ed in t he
L fo r in st ru m en ts he ld a t
Other investments at fair value 1,237 (20) - 179 (397) - 139 - 291 (162) - 1,265 17
Total assets at fair value 11,734 (32) 77 2,224 (2,339) (249) 681 - 473 (614) - 11,954 (2)
EUR 1,077 million (2015: EUR 473 million). Since the transfer, all such assets have been valued using valuation models incorporating significant non market-observable inputs or uncorroborated broker quotes.
Assets carried at fair value Available-for-sale Shares Net asset value 3) n.a. 262 n.a. 132 n.a.
Fair value through profit or loss Shares Other n.a. 50 n.a. - n.a.
Liabilities carried at fair value Derivatives Embedded derivatives in insurance contracts Discounted cash flow Own credit
Total liabilities at fair value 2,467 2,104 1 Other in the table above (column Valuation technique) includes investments for which the fair value is uncorroborated and no broker quote is received. 2 Not applicable (n.a.) has been included when no significant unobservable assumption has been identified. 3 Net asset value is considered the best approximation to the fair value of these financial instruments. 4 Investments for account of policyholders are excluded from the table above and from the disclosure regarding reasonably possible alternative assumptions.
Financial liabilities carried at fair value Embedded derivatives in insurance contracts 2,083 205 (194) 2,072 196 (187)
Total estimated fair value 2016 Level I Level II Level III
Assets Mortgage loans - held at amortized cost 34,206 - - 38,498 38,499
Private loans - held at amortized cost 3,166 - 52 3,516 3,569
Liabilities Subordinated borrowings - held at amortized cost 767 703 140 - 844
Trust pass-through securities - held at amortized cost 156 - 141 - 141
Total estimated fair value 2015 Level I Level II Level III
Other loans - held at amortized cost 2,517 - 2,301 215 2,517
Investment contracts - held at amortized cost 17,260 - 7,219 10,641 17,860
Available-for-sale shares include shares in a Federal Home Loan Bank (FHLB) for an amount of EUR 237 million (2015: EUR 120 million), which are reported as part of the line-item Net asset value. A FHLB has implicit financial support from the United
Real estate funds, private equity funds and hedge funds The fair values of investments held in non-quoted investment funds are determined by management after taking into consideration information provided by the fund managers. Aegon reviews the valuations each month and performs analytical procedures and trending analyses to ensure the fair values are appropriate. The net asset value is considered the best valuation method that approximates the fair value of the funds.
Periodically, Aegon performs an analysis of the inputs obtained from third-party pricing services and brokers to ensure that the inputs are reasonable and produce a reasonable estimate of fair value. Aegon’s asset specialists and investment valuation specialists consider both qualitative and quantitative factors as part of this analysis. Several examples of analytical procedures performed include, but are not limited to, recent transactional activity for similar debt securities, review of pricing statistics and trends and consideration of recent relevant market events. Other controls and procedures over pricing received from indices, third-party pricing services, or brokers include validation checks such as exception reports which highlight significant price changes, stale prices or unpriced securities.
Additionally, Aegon performs back testing on a sample basis. Back testing involves selecting a sample of securities trades and comparing the prices in those transactions to prices used for financial reporting. Significant variances between the price used for financial reporting and the transaction price are investigated to explain the cause of the difference.
Aegon’s portfolio of debt securities can be subdivided in Residential mortgage-backed securities (RMBS), Commercial mortgage-backed securities (CMBS), Asset-backed securities (ABS), Corporate bonds and Government debt. Below relevant details in the valuation methodology for these specific types of debt securities are described.
Tax credit investments The fair value of tax credit investments is determined by using a discounted cash flow valuation technique. This valuation technique takes into consideration projections of future capital contributions and distributions, as well as future tax credits and the tax benefits of future operating losses. The present value of these cash flows is calculated by applying a discount rate. In general, the discount rate is determined based on the cash outflows for the investments and the cash inflows from the tax credits and/or tax benefits (and the timing of these cash flows). These inputs are unobservable in the market place. The discount rate used in valuation of tax credit investments has decreased to 5.6% (December 31, 2015: 7.4%).
Mortgage loans, policy loans and private loans (held at amortized cost) For private loans, fixed interest mortgage loans and other loans originated by the Group, the fair value used for disclosure purposes is estimated by discounting expected future cash flows using a current market rate applicable to financial instruments with similar yield and maturity characteristics. For fixed interest mortgage loans, the market rate is adjusted for expenses, prepayment rates, lapse
Netherlands, including group pension and traditional products; variable annuities sold in Europe. Additionally, Aegon offers guarantees on variable annuities sold through its joint venture in Japan.
Since the price of these guarantees is not quoted in any market, the fair values of these guarantees are based on discounted cash flows calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined by using stochastic models under a variety of market return scenarios. A variety of factors are considered, including own credit spread, expected market rates of return, equity and interest rate volatility, correlations of market returns, discount rates and actuarial assumptions. The most significant unobservable factor is own credit spread. The weighted average own credit spread used in the valuations of embedded derivatives in insurance contracts increased to 0.4% (2015: 0.3%).
The expected returns are based on risk-free rates. Aegon added a premium to reflect the credit spread as required. The credit spread is set by using the Credit default swap (CDS) spreads of a reference portfolio of life insurance companies (including Aegon), adjusted to reflect the subordination of senior debt holders at the holding company level to the position of policyholders at the operating company level (who have priority in payments over other creditors). Aegon’s assumptions are set by region to reflect differences in the valuation of the guarantee embedded in the insurance contracts.
Real estate Valuations of both investments in real estate and real estate held for own use are conducted in full by independent external appraisers at least every three to five years and reviewed at least once a year by qualified internal appraisers to ensure the value correctly reflects the fair value at the reporting date. Appraisals are different for each specific local market, but are based on market guidelines such as
variety of factors are considered, including time value, volatility, policyholder behavior, servicing costs and fair values of similar instruments.
Derivatives with positive values not designated as hedges 6,918 - 9,885 -
Total financial assets at fair value through profit or loss 6,984 208,001 9,959 204,947
Total financial liabilities at fair value through profit or loss 7,926 43,413 9,852 40,981
Investment contracts for account of policyholders With the exception of the financial liabilities with discretionary participating features that are not subject to the classification and measurement requirements for financial instruments, all investment contracts for account of policyholders that are carried at fair value or at the fair value of the linked assets are included in the table above.
48 Commitments and contingencies Investments contracted In the normal course of business, the Group has committed itself through purchase and sale transactions of investments, mostly to be executed in the course of 2016. The amounts represent the future outflow and inflow, respectively, of cash related to these investment transactions that are not reflected in the consolidated statement of financial position.
Transamerica Corporation, a wholly-owned subsidiary of Aegon N.V., has provided a parental guarantee to TLIC Riverwood Reinsurance,
Aegon N.V. entered into a contingent capital letter for an amount of JPY 6 billion (EUR 49 million) to support its joint venture
EUR 1,505 million (2015: EUR 1,448 million) and is included in the Operational funding table in note 39 Borrowings of the consolidated financial statements of the Group in the line ‘USD 1.54 billion Variable Funding Surplus Note'; �� Due and punctual payment of payables by the consolidated group companies Transamerica Corporation, Aegon Funding Company
Many of Aegon’s products are affected by fluctuations in equity markets as well as interest rate movements, which may prove to be volatile or disappointing to customers. Significant investment risks are often borne by the customer. Disputes and investigations initiated by governmental entities and private parties may lead to orders or settlements including payments or changes to business practices even if Aegon believes the underlying claims are without merit.
Unclaimed property administrators and state insurance regulators performed examinations of the life insurance industry in the United
States, including certain of Aegon’s subsidiaries, including multi-state examinations. One such action remains unresolved in the State of
Aegon’s US operations also face employment-related lawsuits from time to time. Aegon is defending a suit filed by self-employed independent insurance agents associated with one of Aegon’s financial marketing units who have claimed that they are, in fact, employees of the organization. Recently the court granted Aegon’s motion to only allow individual claims to move forward and cease collective action proceedings in this case. Management believes that the potential direct financial exposure in this case is not material, and it has a strong case on the merits. However, if collective proceedings were to be reinstated on appeal and the case were to ultimately be decided adversely to Aegon, it could affect Aegon’s business model and have a material adverse effect on Aegon’s business and results of operations.
A former subsidiary of Transamerica Corporation was involved in a contractual dispute with a Nigerian travel broker over an alleged contract dispute that arose in 1976. That dispute was resolved in Delaware court for USD 235,000 plus interest in 2010. The plaintiff took the Delaware judgment relating to the 1976 dispute to a Nigerian court and alleged that it was entitled to approximately the same damages for 1977 through 1984 despite the absence of any contract relating to those years. The Nigerian trial court issued a judgment in favor of the plaintiff of the alleged actual damages as well as pre-judgment interest of approximately USD 120 million.
On appeal this decision was reversed in 2016 but a new trial remains possible. Aegon has no material assets located in Nigeria.
In the Netherlands, unit linked products (‘beleggingsverzekeringen’) have been controversial and the target of litigation since at least 2005. Allegations include excessive cost, inadequate disclosure, and failure to perform as illustrated. Consumer groups have formed to address these issues and initiate mass claims against insurers. Regulators as well as the Dutch Parliament have been involved ever
The claim related to a range of unit-linked products that Aegon sold in the past, including Aegon products involved in earlier litigation.
Securities leasing products (‘aandelenlease producten’) have also been the subject of litigation in the Netherlands. Although sales of securities leasing products ended more than a decade ago, litigation relating to these products has resurfaced. In 2016, the Dutch
Sprintplan. Allegations include, among other things, a lack of a proper license of the brokers involved. Aegon defends itself vigorously against these claims. Due to the highly individualized nature, Aegon at this stage is unable to estimate the range or potential maximum liability. There can be no assurances that this matter will not ultimately result in a material adverse effect on Aegon’s business, results of operations and financial position.
49 Transfers of financial assets Transfers of financial assets occur when Aegon transfers contractual rights to receive cash flows of financial assets or when Aegon retains the contractual rights to receive the cash flows of the transferred financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients in that arrangement.
The transferred assets are not derecognized. The obligation to repay the cash collateral is recognized as a liability. The non-cash collateral is not recognized on the balance sheet; and
Non-cash collateral that can be sold or repledged in the absence of default 991 1,390
Non-cash collateral that can be sold or repledged in the absence of default 3,288 3,462
50 Offsetting, enforceable master netting arrangements and similar agreements The following table includes financial instruments that are set off in the statement of financial position. In addition, it includes financial instruments that are subject to a legally enforceable master netting arrangement or similar agreements, not set off in the financial statements. The table provides details relating to the effect, or potential effect, of netting arrangements, including rights to set-off, associated with the entity's recognized financial assets and recognized financial liabilities.
As shown in the second column there are no financial assets and liabilities offset in 2016 and 2015.
Note that the 2015 numbers are updated compared to the Annual report 2015 to exclude derivatives that cannot be set off.
The 2015 net exposure for derivative assets and liabilities is lowered by EUR 188 million and EUR 192 million respectively.
Aegon mitigates credit risk in derivative contracts by entering into collateral agreements, where practical, and in ISDA master netting agreements for each of the Aegon’s legal entities to facilitate Aegon’s right to offset credit risk exposure. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of over-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit swaps. These transactions are conducted under terms that are usual and customary to standard long-term borrowing, derivative, securities lending and securities borrowing activities, as well as requirements determined by exchanges where the bank acts as intermediary.
Under the purchase agreement, Aegon will acquire approximately GBP 12 billion (EUR 15 billion) of assets and 350,000 customers from BlackRock, which serves institutional and retail clients. The transaction is subject to a Part VII transfer of the underlying assets and liabilities to Aegon, which is subject to regulatory and court approval.
Legal & General. Aegon incurred a book loss on the transaction before tax of GBP 530 million (EUR 682 million), reported in the line other charges in the consolidated income statement. The transaction resulted in a tax benefit of GBP 41 million (EUR 53 million). Under the terms of the agreements, Aegon reinsured GBP 6.8 billion of liabilities to Rothesay Life and Legal & General, followed by a Part VII
transfer1, which is subject to court approval. The loss on the reinsurance transaction is GBP 1.9 billion (EUR 2.4 billion) being the difference of the reinsurance premium paid and the reinsurance asset received related to the insurance liabilities. Upon disposal an amount of GBP 1.4 billion (EUR 1.8 billion) related to a positive revaluation reserve has been reclassified from Other Comprehensive
Clark Consulting for USD 177.5 million (EUR 160 million) was announced on July 10, 2015 and resulted in a gain of USD 8 million
On September 7, 2015, Aegon completed the sale of its 25.1% share in platform provider and discretionary fund manager
Americas �� Transamerica Advisors Life Insurance Company, Little Rock, Arkansas (United States); �� Transamerica Casualty Insurance Company, Columbus, Ohio (United States); �� Transamerica Corporation, Wilmington, Delaware (United States); �� Transamerica Financial Life Insurance Company, Inc., Albany, New York (United States); �� Transamerica Life Insurance Company, Cedar Rapids, Iowa (United States); �� Transamerica Premier Life Insurance Company, Cedar Rapids, Iowa (United States).
Europe The Netherlands �� Aegon Bank N.V., The Hague; �� Aegon Hypotheken B.V., The Hague; �� Aegon Levensverzekering N.V., The Hague; �� Aegon Schadeverzekering N.V., The Hague; �� Aegon Spaarkas N.V., The Hague; �� Optas Pensioenen N.V., Rotterdam; �� TKP Pensioen B.V., Groningen; �� Unirobe Meeùs Groep B.V., The Hague; �� Aegon PPI B.V., The Hague; �� Cappital Premiepensioeninstelling B.V., Groningen.
United Kingdom �� Aegon Investment Solutions Ltd., Edinburgh; �� Scottish Equitable plc, Edinburgh.
Central & Eastern Europe �� Aegon Magyarország Általános Biztosító Zártkörűen Működő Részvénytársaság, Budapest (Hungary); �� Aegon Towarzystwo Ubezpieczeń na Życie Spółka Akcyjna, Warsaw (Poland); �� Aegon Powszechne Towarzystwo Emerytaine Spólka Akcyjna (Poland); �� Aegon Emeklilik ve Hayat A.S. (Turkey); �� Aegon Pensii Societate de Administrare a Fondurilor de Pensii Private A.S. (Romania); �� Aegon Pojištovna, a.s. (Czech Republic); �� Aegon Životná poist'ovňa, a.s. (Slovakia); �� Aegon, d.s.s., a.s. (Slovakia).
Asset Management �� Aegon Asset Management Holding B.V., The Hague; �� Kames Capital Holdings Ltd, Edinburgh; �� TKP Investments B.V., Groningen
Joint ventures The principal joint ventures are listed by geographical segment.
Asia �� Aegon Industrial Fund Management Co., Ltd, Shanghai (China), (49%); �� Aegon Sony Life Insurance Co, Tokyo (Japan), (50%); �� Aegon-THTF Life Insurance Company Ltd, Shanghai (China), (50%); �� SA Reinsurance Ltd, Hamilton (Bermuda), (50%).
Asset Management �� La Banque Postale Asset Management, Paris (France), (25%).
Technology Officer, Global Head HR and General Counsel which increased the total remuneration for 2016. The total remuneration for the members of the Management Board over 2016 was EUR 18.6 million (2015: EUR 15.2 million; 2014: EUR 14.9 million), consisting of EUR 7.0 million (2015: EUR 6.3 million; 2014: EUR 5.1 million) fixed compensation, EUR 6.4 million variable compensation awards
EUR 3.4 million (2015: EUR 2.5 million; 2014: EUR 2.6 million) pension premiums. Amounts are reflective of time spent on the
Expenses as recognized under IFRS-EU in the income statement for variable compensation and pensions differ from the variable compensation awards and pension premiums paid due to the accounting treatment under respectively IFRS 2 and IAS 19. IFRS-EU
EUR 3.2 million (2015: EUR 3.4 million; 2014: EUR 2.0 million) for pensions. Total IFRS-EU expenses for the members of the
Total conditional variable compensation awards 1,791 1,707 1,513 1 Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Conditional variable compensation is disclosed for the period that
The amounts in the table represent the conditional variable compensation awards earned during the related performance year.
Expenses recognized under IFRS-EU accounting treatment in the income statement for conditionally awarded cash and shares differ from the awards. For the performance year 2016 and previous performance years, expenses under IFRS-EU for Mr. Wynaendts amounted to EUR 956 (2015: EUR 900; 2014: EUR 958).
For Mr. Button, the expenses under IFRS-EU with regard to conditionally awarded cash and shares recognized in the income statement during the performance year 2016 for his role as CFO and member of Aegon’s Executive Board amounted to EUR 709 (2015: EUR 683; 2014: EUR 466). Expenses related to conditional variable compensation awards are recognized in full at retirement date. Therefore, expenses under IFRS-EU in 2016 for Mr. Button relate to the conditional variable compensation awards for the performance year 2016 as well as for previous performance years. Expenses recognized in the income statement for Mr. Button amount to EUR 1,237
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2015, 40% is payable in 2016. Accordingly, Mr. Wynaendts and Mr. Button will receive a cash payment of
EUR 185 and EUR 157 respectively. The number of shares to be made available in 2016 relating to performance year 2015 is 30,219 and 23,621 for Mr. Wynaendts and Mr. Button respectively. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
The remaining part of variable compensation for the performance year 2015 (60%), for Mr. Wynaendts EUR 277 and 45,330 shares and for Mr. Button EUR 235 and 35,433 shares, is to be paid out in equal portions in 2017, 2018 and 2019, subject to ex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and an allocation of shares vesting.The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2014, 40% was payable in 2015. Accordingly, Mr. Wynaendts and Mr. Button received a cash payment of
The remaining part of variable compensation for the performance year 2014 (60%), for Mr. Wynaendts EUR 274 and 40,656 shares and for Mr. Button EUR 180 and 25,956 shares, is to be paid out in equal portions in 2016, 2017 and 2018, subject to ex-post assessments, which may result in downward adjustments and may be subject to additional conditions being met. Any payout will be split 50/50 in a cash payment and an allocation of shares vesting. The vested shares, less the number of shares to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
Jan J. Nooitgedagt 1 The number of shares is based on a volume weighted average price of EUR 4.727. After vesting a 3 year holding period applies to shares vested. 2 The number of shares is based on a volume weighted average price of EUR 3.126. After vesting a 3 year holding period applies to shares vested. 3 The number of shares is based on a volume weighted average price of EUR 4.917. After vesting a 3 year holding period applies to shares vested. 4 The number of shares is based on a volume weighted average price of EUR 6.739. After vesting a 3 year holding period applies to shares vested. 5 The number of shares is based on a volume weighted average price of EUR 6.106. After vesting a 3 year holding period applies to shares vested. 6 The number of shares is based on a volume weighted average price of EUR 5.128 After vesting a 3 year holding period applies to shares vested 7 During the vesting period, dividend payments on these shares are deposited in blocked savings accounts on behalf of the executive members. For active members of the Executive Board 50% of the shares vested in 2012 and 50% vested in 2016.
Total pension contributions 2,422 1,434 1,905 1 Mr. Button stepped down as CFO and member of Aegon’s Executive Board on December 1, 2016. Pension contributions are disclosed for the period that Mr. Button has been part of the Executive Board and are reflective of his time with Aegon until December 1, 2016
The amounts as presented in the table are the pension contributions in the related book year. The 2014 and 2016 contributions for
Mr. Wynaendts to the Aegon pension funds reflect the increase to his fixed salary as well as the current low interest rates. Under
IFRS-EU, the service cost as recognized in the income statement related to the defined benefit obligation of Mr. Wynaendts amounted to EUR 1,666 (2015: EUR 1,962; 2014: EUR 951). Service cost for Mr. Button amounted to EUR 375 (2015: EUR 215; 2014: EUR 177).
Total The total amount of remuneration, consisting of the fixed compensation, conditional variable compensation awards, other benefits and pension contributions, for Mr. Wynaendts related to 2016 was EUR 4,538 (2015: EUR 3,446; 2014: EUR 3,947) and for Mr. Button
EUR 2,793 (2015: EUR 2,518; 2014: EUR 2,113). The remuneration of Mr. Button is charged from his home country to the Netherlands.
EUR 4,086 (2015: EUR 4,167; 2014: EUR 3,214) and for Mr. Button EUR 3,928 (2015: EUR 2,946; 2014: EUR 2,750). Total IFRS-EU
expenses for the members of the Executive Board over 2016 was EUR 8.0 million (2015: EUR 7.1 million; 2014: 6.0 million).
and member of Aegon’s Executive Board on December 1, 2016. Mr. Button held 323,901 shares on December 1, 2016 (shares held on
At the reporting date, Mr. Wynaendts had no loans with Aegon (mortgage loan 2015: EUR 249,158). In 2016 Mr. Wynaendts made a repayment on the mortgage loan totalling EUR 249,158. No other outstanding balances such as guarantees or advanced payments exist.
Robert W. Dineen (as of May 21, 2014) 115,000 121,000 70,125
Irving W. Bailey, II (up to May 20, 2016) 53,625 135,000 122,750
Aegon’s Supervisory Board members are entitled to the following: �� A base fee for membership of the Supervisory Board. No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings (2016: 8 meetings; 2015: 7 meetings; 2014: 7 meetings); �� An attendance fee of EUR 3,000 for each extra Board meeting attended, be it in person or by video and/or telephone conference; �� A committee fee for members on each of the Supervisory Board’s Committees; �� An attendance fee for each Committee meeting attended, be it in person or through video and/or telephone conference; and �� An additional fee for attending meetings that require intercontinental travel between the Supervisory Board member's home location and the meeting location.
Notes to the financial statements 1 General information 306 2 Summary of significant accounting policies 306 3 Investment income 309 4 Results from financial transactions 309 5 Commissions and expenses 309 6 Interest charges and related fees 309 7 Income tax 310 8 Shares in group companies 310 9 Loans to group companies 310 11 Other assets 311 12 Share capital 311 13 Shareholders’ equity 312 14 Other equity instruments 315 15 Subordinated borrowings 316 16 Long-term borrowings 316 17 Other liabilities 317 18 Commitments and contingencies 317 19 Number of employees 317 20 Accountants remuneration 317 21 Events after the reporting period 317 22 Proposal for profit appropriation 318
Remeasurement of defined benefit plans of group companies 13 (1,820) (1,532)
Aegon N.V. (or ‘the Company’) and its subsidiaries (‘Aegon’ or ‘the Group’) have life insurance and pensions operations in more than 20 countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the Netherlands.
2.2 Foreign exchange translation Aegon N.V.'s financial statements are prepared in euros, which is also Aegon N.V.'s functional currency. The euro is also the currency of the primary economic environment in which Aegon N.V. operates. Each company in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are translated to the functional currency using the exchange rates prevailing at the date of the transaction.
For assets denominated in a foreign currency, a decline in the foreign exchange rates is considered an indication of impairment.
Non-cumulative subordinated notes are identified as a compound instrument due to the nature of this financial instrument. For these non-cumulative subordinated notes, Aegon has an unconditional right to avoid delivering cash or another financial asset to settle the coupon payments. The redemption of the principal is however not at the discretion of Aegon and therefore Aegon has a contractual obligation to settle the redemption in cash or another financial asset or through the exchange of financial assets and liabilities at
2.11 Investment income For interest-bearing assets, interest is recognized as it accrues and is calculated using the effective interest rate method. Investment income includes the interest income of intercompany loans and derivatives.
2.12 Results from financial transactions Results from financial transactions include: Net fair value change of derivatives All changes in fair value are recognized in the income statement, unless the derivative has been designated as a hedging instrument in a cash flow hedge or a hedge of a net investment in a foreign operation. Fair value movements of fair value hedge instruments are offset by the fair value movements of the hedged item, and the resulting hedge ineffectiveness, if any, is included in this line.
3 Investment income Investment income consists of interest income of intercompany loans and interest income from derivatives.
Results from financial transactions comprise: Net fair value change of derivatives (68) (39)
Net fair value change on borrowings and other financial liabilities 2 2
Reconciliation between standard and effective tax Income before tax (121) (63)
Differences due to the effect of: Non deductible expenses (6) (2)
Adjustment to prior years - 10 8 Shares in group companies
The following table shows the movement during the year in the number of common shares: Number of common shares (thousands) 2016 2015
The weighted average number of EUR 0.12 common shares B for 2016 was 575,128,960 (2015: 583,607,720).
At January 1, 2015 (as previously stated) 327 8,270 8,335 (1,611) (105) 2,542 5,668 (319) 1,186 24,293
Changes in accounting policies relating to Deferred cost of reinsurance - - - - (9) - (109) - 8 (110)
Foreign currency translation differences and movement in foreign investment hedging reserves - - - (86) 1,378 - - - - 1,292
The balance of the revaluation account, which includes revaluation reserves for real estate and investments that do not have a frequent market listing, consisted for EUR 6,113 million (2015: EUR 7,613 million) of items with positive revaluation and for EUR 663 million of items with negative revaluation (2015: EUR 1,062 million).
On the reporting date, Aegon N.V., and its subsidiaries held 48,780,045 of its own common shares (2015: 44,531,558) with a nominal value of EUR 0.12 each. Most of the shares have been purchased to neutralize the dilution effect of issued share dividend and to hedge share based payment plans for executives and employees. Aegon N.V. held 17,324,960 of its own common shares B (2015: nil) with a nominal value of 0.12 each. Movements in the number of repurchased own shares held by Aegon N.V. were as follows: Number of shares (thousands) Amount
Transactions in 2016 Purchase: transactions, average price EUR 4.81 83,117 400
Shares granted / Share options cost incurred - - 13 - 13
Shares vested / Share options forfeited - - (16) - (16)
Junior perpetual capital securities Coupon rate Coupon date, as of Year of next call 2016 2015
USD 500 million floating CMS rate 2) Quarterly, July 15 2017 402 402
EUR 950 million floating DSL rate 3) Quarterly, July 15 2017 950 950 1 The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%.
These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into an equity component and a liability component. At December 31, 2016, the equity component amounted to
These securities are subordinated and rank senior to the junior perpetual capital securities, equally with the perpetual cumulative subordinated bonds, fixed floating subordinated notes and non-cumulative subordinated notes, and junior to all other liabilities.
Subordinated borrowings include a liability of EUR 72 million (2015: EUR 65 million) relating to the USD 525 million non-cumulative subordinated notes issued on February 7, 2012. The liability component of the non-cumulative subordinated notes is related to the redemption amount. For further information on the non-cumulative subordinated notes and their subordination refer to note 14 Other equity instruments.
The repayment periods of borrowings vary from within one year up to a maximum of 25 years. The interest rates vary from 1.000% to 6.625% per annum. The market value of the long-term borrowings amounted to EUR 2,221 million (2015: EUR 1,821 million).
18 Commitments and contingencies Aegon N.V. entered into a contingent capital letter for an amount of JPY 6 billion (EUR 49 million) to support its joint venture Aegon
Transamerica Corporation at December 31, 2016 amounted to EUR 3,563 million (2015: EUR 3,467 million) as of that date no amounts had been drawn, or were due under letter of credit facilities. The guarantees partly related to debt amounted to
19 Number of employees There were no employees employed by Aegon N.V. in 2016. Other than Mr. Wynaendts there were no employees employed by
Independent auditor’s report To: The Annual General Meeting of Shareholders and Supervisory Board of Aegon N.V.
The financial statements include the consolidated financial statements of Aegon N.V. and its subsidiaries (together: ‘the Group’) and the stand-alone financial statements of the Company.
The stand-alone financial statements comprise: �� the statement of financial position as at December 31, 2016; �� the income statement for the year then ended; and �� the notes, comprising a summary of significant accounting policies and other explanatory information.
We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements.
Given the significant estimation uncertainty the valuation of insurance contracts and insurance contracts for account of policyholders including the design and application of complex valuation models, valuation of deferred policy acquisition costs (DPAC) and value of business acquired (VOBA), determining the fair value of ‘hard to value’ financial instruments and uncertainties in policyholder claims and litigation, we considered these to be key audit matters as set out in the key audit matter section of this report. Furthermore, we identified the sale of the UK Annuity Portfolio in two parts as key audit matter because of the complexity of the transaction and its non-routine nature.
Audit scope � We conducted audit work on six regional units, of which three are considered to be individually significant.
� In order to take responsibility for the entire Group, the Group engagement team performed oversight procedures on the work of component teams for all in scope regional units including the Netherlands, the Americas, the United Kingdom, Central and Eastern Europe, Spain and Aegon Asset Management.
Key audit matters � Valuation of insurance contracts and insurance contracts for account of policyholders including the design and application of complex valuation models and the economic and actuarial assumptions that support the calculation.
� Deferred policy acquisition costs (DPAC) and value of business acquired (VOBA). � Fair value of ‘hard to value’ financial instruments. � Uncertainties in policyholder claims and litigation. � Sale of the UK annuity portfolio in two parts.
Materiality The scope of our audit is influenced by the application of materiality which is further explained in the section ‘Our responsibility for the audit of the financial statements'.
We evaluated the income before tax amounts for 2016 and prior years noting significant fluctuations from year to year. As a result, we used the average of 2016, 2015 and 2014 income before tax for purposes of determining our group materiality. Using an average helps to maintain an appropriate materiality level giving more consideration to the users’ view of the scale of the financial position and poerations rather than volatile cicumstances. Also, to normalize the 2016 and 2015 income before tax given the infrequent nature of the event, we excluded the realized loss from the sale of the UK annuities business and Canadian operations. The sale of the UK annuities business and Canadian operations was in scope of our audits. Refer to the key audit matter section of this report.
(2015: EUR 4 million) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
The regional units supported by local finance, risk management, actuarial and tax functions, maintain their own accounting records and controls and report to the Group finance team in The Hague, the Netherlands through an integrated consolidation system.
In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at each of the regional units by us, the Group engagement team, or component auditors within PwC Netherlands and from component auditors operating under our instructions.
Spain and Asset Management to ensure we obtained appropriate coverage across all account balances.
With regards to the comparison of key audit matters between 2016 and 2015, we determined the Sale of the UK annuities business in two parts to be an additional key audit matter in 2016. We also determined that Disclosure and estimated impact to equity and income before tax as a result of adoption of voluntary changes in accounting policies was no longer a key audit matter in 2016.
�� Valuation of insurance contracts and insurance contracts for account of policyholders. including the design and application of complex valuation models and the economic and actuarial assumptions that support the calculation. �� Deferred policy acquisition costs (DPAC) and value of business acquired (VOBA). �� Fair value of ‘hard to value’ financial instruments.
For the assumption setting process, we assessed the experience analyses performed by the Company. Our assessments also included challenging, as necessary, specified economic and actuarial assumptions considering management's rationale for the actuarial judgments applied along with comparison to applicable industry experiences.
We tested the validity of management's liability adequacy testing which is a key test performed to check that the liabilities are adequate as compared to the expected future contractual obligations. Our work on the liability adequacy tests included assessing the reasonableness of the projected cash flows and challenging the assumptions adopted in the context of both the
We also assessed the adequacy of the disclosures regarding these liabilities in the consolidated financial statements to determine they were in accordance with IFRS-EU as well as the change in the
The recoverability is based in part on the adequacy of the insurance liabilities and projected future cash flows and, if determined to be insufficient, would trigger a write-down of the asset. The DPAC and VOBA associated with the investment and retirement business in Aegon Americas, which represents 82.6%
We used our own actuarial specialists to assist us in performing our audit procedures and paid specific attention to the investment and retirement business in Aegon Americas.
We also considered the adequacy of the Group’s disclosures in the consolidated financial statements.
The Group’s investment portfolio including net derivative assets totalling EUR 156,3 billion represents 36,7% of the Group’s total assets. Quoted prices from liquid market sources can be obtained for a majority of the portfolio.
We assessed pricing model methodologies against industry practice and valuation guidelines.
Uncertainties in policyholder claims and litigation Refer to note 48 ‘Commitments and contingencies’.
Company. We also obtained lawyers’ letters to the extent considered necessary for our audit. For all (potentially) material claims we tested the underlying facts and circumstances considered relevant for the legal advisors to come to their assessments and assessed the best estimate of outflows as determined by the Company.
The Company sold its UK annuity portfolio in two parts which resulted in a pre-tax book loss of EUR 682 million. The accounting for this transaction is inherently complex and subjective, given that the transaction is in two parts and the resulting loss consisted of several components for which management had to estimate its valuation based on assumptions, such as expected fee income, the reinsurance asset, the deferred income reserve and the gross annuity liabilities. Additionally, due to the nonroutine nature of the transaction, there is less likelihood of the transaction being subject to routine internal control procedures.
Considering these risks as well as the size of the transaction, we determined this as a key audit matter.
We assessed the contractual terms and conditions of the sale in two parts as well as management’s accounting policy and tested the completeness and adequacy of the related disclosures to determine they were in accordance with IFRS-EU.
We assessed the reasonableness of the methodology and audited the spreadsheet calculation used to calculate the expected fee income from reinsurers.
By performing our procedures, we comply with the requirements of Part 9 Book 2 of the Dutch Civil Code and the Dutch Standard 720.
The scope of such procedures were substantially less than the scope of those performed in our audit of the financial statements.
As part of the preparation of the financial statements, management is responsible for assessing the Company's ability to continue as a going concern. Based on the financial reporting frameworks mentioned, management should prepare the financial statements using the going concern basis of accounting unless management either intends to liquidate the company or to cease operations, or has no realistic alternative but to do so. Management should disclose events and circumstances that may cast significant doubt on the
Company's ability to continue as a going concern in the financial statements.
The Supervisory Board is responsible for overseeing the Company's financial reporting process.
Appendix to our auditor's report on the financial statements 2016 of Aegon N.V. In addition to what is included in our auditor's report we have further set out in this appendix our responsibilities for the audit of the financial statements and explained what an audit involves.
�� Evaluating the overall presentation, structure and content of the financial statements, including the disclosures, and evaluating whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Considering our ultimate responsibility for the opinion on the company's consolidated financial statements we are responsible for the direction, supervision and performance of the group audit. In this context, we have determined the nature and extent of the audit procedures for components of the group to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole. Determining factors are the geographic structure of the group, the significance and/or risk profile of group entities or activities, the accounting processes and controls, and the industry in which the group operates. On this basis, we selected group entities for which an audit or review of financial information or specific balances was considered necessary.
We provide the Supervisory Board with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
EUR 0.12 per share and 3,000,000,000 common shares B with a par value of EUR 0.12 per share. At the same date, there were 2,074,548,842 common shares and 585,022,160 common shares B issued. Of the issued common shares, 47,473,325 common shares and 17,324,960 common shares B were held by Aegon as treasury shares and 1,306,720 treasury shares were held by its subsidiaries.
As of December 31, 2016, 286 million common shares were held in the form of New York Registry shares. As of December 31, 2016, there were approximately 17,870 record holders of Aegon’s New York Registry shares resident in the United States.
Vereniging Aegon Vereniging Aegon is the continuation of the former mutual insurer AGO. In 1978, AGO demutualized and Vereniging AGO became the only shareholder of AGO Holding N.V., which was the holding company for its insurance operations. In 1983, AGO Holding N.V. and
As Special Cause qualifies the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the
Long Term Incentive Plans for senior management. On January 1, 2015 Vereniging Aegon exercised its options rights to purchase in aggregate 9680 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on January 1, 2015, in connection with the Long Term Incentive Plans for senior management. On May 21, 2015 Vereniging Aegon exercised its options rights to purchase in aggregate 3,686,000 common shares B at fair value of a common share B (being 1/40th of the market value of a common share in the capital of the Company at the time of issuance) to mitigate dilution caused by Aegon’s issuance of shares on
Accordingly, at December 31, 2016, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.4%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.).
At December 31, 2016, the General Meeting of Members of Vereniging Aegon consisted of 17 members. The majority of the voting rights is with the 16 members who are not employees or former employees of Aegon N.V. or one of the Aegon Group companies, nor current or former members of the Supervisory Board or the Executive Board of Aegon N.V. The other member is from the
Other major shareholders In this section below where reference is made to any filings with the Dutch Autoriteit Financiële Markten or the US Securities and
Exchange Commission (SEC) the terms ‘capital issued’ and ‘votes’ are used as defined in the Wet op het Financieel Toezicht.
Fund holds 134,654,439 common shares, which represent 5.1% of the capital issued and 5.1% of the votes as at December 31, 2016.
The remainder of the common shares registered in name of Dodge & Cox with the SEC are held by Dodge & Cox on behalf of its other clients, including investment companies registered under the Investment Company Act of 1940 and other managed accounts.
Based on its filing with the Dutch Autoriteit Financiële Markten as at December 29, 2016, BlackRock, Inc. stated to hold 80,649,787 shares as defined in the Wet op het Financieel Toezicht, representing 3.0% of the capital issued and 90,812,987 voting rights, representing 3.4% of the votes as at December 31, 2016.
Real estate: Investments in real estate 1,999 1,999 1 Cost is defined as original cost for available-for-sale shares and amortized cost for available-for-sale and held-to-maturity bonds.
Issuance, repurchase and coupons of non-cumulative subordinated notes (38) (38) (32)
Dividends from and capital contributions to business units Aegon received EUR 1.1 billion of dividends from its business units during 2016 from the Americas, asset management,
Aegon received EUR 1.1 billion of dividends from its business units during 2015, almost all of which from the Americas.
Aegon received EUR 1.1 billion of dividends from its business units during 2014, almost all of which from the Americas.
The provisions can be analyzed as follows: Other financial information Schedule V
Compliance with regulations Iran Threat Reduction and Syria Human Rights Act Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (‘ITRA’), which was signed into law on August,10 2012, added a new subsection (r) to Section 13 of the Securities Exchange Act of 1934, as amended, which requires Aegon to disclose whether Aegon N.V. or any of its affiliates has engaged during the calendar year in certain Iran-related activities, including any transaction or dealing with the Government of Iran that is not conducted pursuant to a specific authorization of the U.S. government.
Aegon maintained a limited number of individual personal pensions which were in-force during 2016 where the payer / beneficiary of the pension benefit is a party subject to relevant U.S. sanctions.
[IRAN], and [IFSR], and the Iranian bank makes contributions to the customer’s pension. The customer is not a Specially Designated
National (SDN) and the Iranian bank does not own, benefit from, or have control over, the pension. All payments from the Iranian bank have been made in UK Pounds from a UK bank account. Her Majesty’s Treasury (HMT) have confirmed that this business activity falls within an acceptable exemption. Consequently, the pension remains active although the relationship is under close ongoing review.
The monthly premium received during 2016 was GBP 796.39. Ten single additional premiums totalling GBP 5,351.39 were received between January and April 2016. At January 23 2017, the account value was GBP 4,3987.13. The related annual net profit arising from this contract, which is difficult to calculate with precision, is estimated to be no greater than GBP 4,398.71.
Syria, which are identified, respectively, with the program tags [FSE-IR] and [FSE-SY]. Aegon Levensverzekering N.V. has one Dutch resident customer for whom two active individual personal pension policies and one individual life investment linked insurance policy are held. This person is on the Foreign Sanctions Evaders List (‘FSE List’) with Regard to Syria and is also listed on the Specially
Designated Nationals and Blocked Persons List. The FSE List includes persons sanctioned pursuant to E.O. 13608 for engaging in conduct relating to the evasion of U.S. economic and financial sanctions with respect to Iran or Syria, which are identified, respectively, with the program tags [FSE-IR] and [FSE-SY].
The annual pensions benefits as of January 1st, 2023 for policy #1 will be EUR 560.64 gross per year and for #2 EUR 34.11 gross per year. The contributions into these policies ended in the 1980’s. The related annual net profit arising from these two contracts is negligible.The individual personal pension policies #1 and #2 are lifelong annuity plans which start at the retirement age of 65
(January 2023) The annual pensions benefits as of January 1st, 2023 for policy #1 will be EUR 560.64 gross per year and for #2
EUR 34.11 gross per year. The contributions into these policies ended in the 1980’s. The related annual net profit arising from these two contracts is negligible.
The policy is managed in line with applicable legislation and regulation in the Netherlands and the individual is not subject to sanctions in the Netherlands or EU. The end date of this policy is February 1, 2023. The related annual net profit arising from this contract, which is difficult to calculate with precision, is estimated to be EUR 500 per year.The individual life investment linked insurance policy has a current value of EUR 59,981 as at January 1st, 2017, and regular monthly contributions of EUR 198.60 are being received into this policy. All contributions have been paid in Euros from a Dutch bank account. The policy is managed in line with applicable legislation and regulation in the Netherlands and the individual is not subject to sanctions in the Netherlands or EU. The end date of this policy is
I - Risks relating to Aegon’s businesses The following covers key risk factors that may affect Aegon’s businesses and operations, as well as other risk factors that are particularly relevant to Aegon in periods of significant economic uncertainty. Additional risks to which Aegon is subject include, but are not limited to, the factors mentioned under ‘Forward-looking statements’, and the risks of Aegon’s businesses described elsewhere in this Annual Report.
Aegon’s results of operations and financial condition may be materially affected from time to time by general economic conditions, such as levels of employment, consumer lending or inflation in the countries in which Aegon operates. Global financial markets have experienced extreme and unprecedented volatility and disruption over the last decade.
Additionally, Aegon is indirectly exposed to credit risk on the investment portfolios underlying separate account liabilities. Changes to credit risk can result in separate account losses, which increase the probability of future loss events. In the United States and the
Reconsideration of assumptions might also affect the DPAC amortization schedule. These factors may have a material adverse effect on Aegon’s results of operations and financial position.
Aegon’s investment portfolio contains, among other investments, Dutch government bonds, US Treasury, agency and state bonds, as well as other government issued securities. Especially in a weak economic environment Aegon may incur significant investment impairments due to defaults and overall declines in the capital markets. Further excessive defaults or other reductions in the value of these securities and loans may have a materially adverse effect on Aegon’s businesses, results of operations, cash flows and financial condition.
Hedging of exposures may change those effects significantly and equity hedges are used extensively to manage the equity market risk of variable annuity investment guarantees. Hedging programs are in place that are designed to manage the risks within the limits as defined as part of the financial risk management policies within Aegon group’s risk strategy. The actual impact of the hedging programs is dependent on the real time market movements of equity markets.
Interest rate risk Interest rate volatility or sustained low interest rate levels may adversely affect Aegon’s profitability and shareholders’ equity.
Aegon is exposed to interest rate risk as both its assets and liabilities are sensitive to movements in the long and short term interest rates as well as to changes in the volatility of interest rates. In periods of rapidly increasing interest rates, policy loans, surrenders and withdrawals may and usually do increase. Premiums in flexible premium policies may decrease as policyholders seek investments with higher perceived returns. This activity may result in cash payments by Aegon requiring the sale of invested assets at a time when the prices of those assets are affected adversely by the increase in market interest rates. This may result in realized investment losses.
Base interest rates set by central banks and government treasuries remain at or near the historically low or even negative levels, despite increases in market rates in the US later in 2016. Depending on economic developments going forward, interest rates at the shorter end of the curve may remain at low or even negative levels for a prolonged period. In such an environment, an anchored expectation of low inflation or deflation could also further push down the longer end of the interest rate curve which could have significant implications for Aegon’s operations and financial results.
The sensitivity of Aegon’s net income and shareholders’ equity to foreign exchange translation risk is provided in the notes to the financial statements, note 4 Financial risks, section ‘Currency exchange risks’.
Liquidity risk Illiquidity of certain investment assets may prevent Aegon from selling investments at fair prices in a timely manner.
Some liabilities can be surrendered, while some assets, such as privately placed loans, mortgage loans, real estate and limited partnership interests, are to some degree illiquid. Aegon continued to maintain its reserves of cash and liquid assets in 2016.
In depressed markets, Aegon may be unable to sell or buy significant volumes of assets at quoted prices.
Many of Aegon’s derivatives transactions require Aegon to pledge collateral against declines in the fair value of these contracts.
Volatile financial markets may significantly increase requirements to pledge collateral and adversely affect our liquidity position.
There is a risk that the pricing of our products turns out to be inadequate if the assumptions used for pricing do not materialize.
The sensitivity of Aegon’s net income and shareholders’ equity to changes in various underwriting risks is provided in the notes to the consolidated financial statements, note 36 Insurance contracts.
Certain products, particularly our variable annuity products, include death benefit guarantees, guarantees of minimum surrender values or income streams for stated periods or for life, which may be in excess of account values. These guarantees are designed, among other things, to protect policyholders against downturns in equity markets and interest rates. As a result, a drop in equity markets, an increase in equity volatility, or lower interest rates could result in an increase in the valuation of Aegon’s liabilities associated with these products. An increase in these liabilities may decrease our net income. Aegon uses a variety of hedging and risk management strategies to mitigate these risks. However, these strategies may not be fully effective and hedging instruments may not fully offset the costs of guarantees or may otherwise be insufficient in relation to our obligations. Estimates and assumptions Aegon makes in connection with hedging activities may fail to fully reflect or correspond to the actual (longer term) exposure in respect of guarantees.
Aegon. Aegon’s inability to manage risks successfully through derivatives, a counterparty’s failure to honor Aegon’s obligations or the systemic risk that failure is transmitted from counterparty to counterparty may each have a material adverse effect on Aegon’s businesses, results of operations and financial condition.
Aegon may be required to increase its statutory reserves and/or hold higher amounts of statutory capital, which may decrease Aegon’s returns on its products.
Commissioners’ (NAIC) in the US or US state regulators may adopt revisions to applicable risk based capital formulas, local regulators in
An important example of increased regulatory requirements for insurers originates from the European Commission’s Solvency II
group solvency calculation, may have a significant impact on the group’s capital position. In that context, the opinion published by
Capital charges with the appropriate risk for invested assets. This may lead to higher risk charges for such assets.
Furthermore, the NAIC Model Regulation entitled ‘Valuation of Life Insurance Policies,’ commonly known as Regulation XXX, requires insurers in the United States to establish additional statutory reserves for term life insurance policies with long-term premium guarantees. In addition, Actuarial Guideline XXXVIII, commonly known as AG38, intended to clarify the regulation on valuation of life insurance policies, 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 United States are affected by
Subsequently, the NAIC adopted regulations to monitor and provide transparency for insurer-affiliated captive reinsurers. Captive reinsurance structures have been used to manage ‘economically redundant’ reserves for term and secondary guarantee universal life policies. It is anticipated that after the enactment of US principle-based reserves, effective January 1, 2017 for new business, new captive reinsurance structures may not be required for these term and secondary guarantee universal life products. The new reserves requirements for US life insurance products are intended by regulators to represent a more economically supported view of the resources required to honor the promises to policyholders. For existing business held in a captive Aegon may continue to be subject to the risks of adverse publicity and changes in regulations related to captive reinsurance.
Absorbing Capacity (HLA), in addition to a Basic Capital Requirement (BCR), which is currently under development at international level by the International Association of Insurance Supervisors (IAIS). Only after the calibration of the BCR and HLA has been completed, it will be certain whether or not these requirements will result in more binding capital constraints than existing requirements, including
Solvency II. In this respect, the development of ComFrame as well as the requirements or standards applicable to G-SIIs could lead to enhanced capital requirements applicable to internationally active insurance groups and/or G-SIIs that may require us to constrain our
ability to pay dividends, repurchase own shares or engage in other transactions that affect capital and/or could adversely affect the ability to compete with other insurers that are not subject to those capital requirements. Furthermore, such requirements may constrain
Aegon’s ability to do business in one or more of the jurisdictions in which Aegon operates and may result in fines and other sanctions, which may have a materially adverse effect on Aegon’s businesses, financial position or results of operations.
Aegon’s regulated businesses, such as insurance, banking and asset management, are subject to comprehensive regulation and supervision, specific to these businesses. The primary purpose of such regulation is to protect clients of these operating companies,
Securities and Exchange Commission and the newly-created Financial Stability Oversight Council) authority to promulgate new financial regulations applicable to bank and non-bank financial institutions. The regulatory changes include or may include capital standards and prudential standards for non-bank companies deemed to be systemically important financial institutions (SIFIs) that are more stringent than the standards applicable to non-SIFIs. Aegon has not been designated a SIFI in the United States. In addition, US State financial services regulators may develop capital, accounting and solvency regulatory standards for internationally active insurance groups
(IAIGs). The current US administration announced plans to review aspects of the Dodd-Frank Act. This review may result in changes in laws and regulations that may impact US or global operations.
In November 2010, the G20 endorsed a policy framework to address the systemic and moral hazard risks associated with SIFIs, and initially in particular global SIFIs (G-SIFIs). On July 18, 2013, the International Association of Insurance Supervisors (IAIS) published a methodology for identifying global systemically important insurers (G-SIIs), and a set of policy measures that will apply to them.
The IAIS has published a revised assessment methodology in June 2016. This revised methodology was employed by the IAIS in the 2016 designation update. The policy measures include recovery and resolution planning requirements, liquidity and systemic risk management planning and enhanced group-wide supervision, including direct powers over holding companies and higher loss absorbency requirements (HLA). The HLA builds on the IAIS Basic Capital Requirements (BCR) and addresses additional capital requirements for G-SIIs reflecting their systemic importance in the international financial system. Additionally, certain aspects of the
HLA relate to requirements applicable to other regulated financial sectors for which capital rules already exist. HLA requirements will need to be met by the highest quality capital. In November 2013, the FSB identified an initial list of 9 G-SIIs to which the policy measures above should apply. The group of G-SIIs is updated annually and published by the FSB each November based on new data.
Aegon was added to this list in November 2015 and reconfirmed in November 2016 and as a consequence has also become subject to the policy measures described above. The HLA requirements will apply to Aegon, assuming it will continue to be a G-SII when HLA
In the United States, the Patient Protection and Affordable Care Act (PPACA) was enacted in 2011 and upheld, with the exception of the Medicaid expansion mandate, by the US Supreme Court in 2012. PPACA significantly changed the regulation of health insurance in the United States, including in certain respects the regulation of supplemental health insurance products. The current US Presidential administration and US Congress are considering reform of the PPACA which will likely result in changes in laws or regulations that may impact US health insurance industry. The extent to which employers or individuals may discontinue their purchase of supplemental health insurance products as a result of these changes may significantly impact Aegon USA’s supplemental health insurance products business. The extent of the expected changes or impact on Aegon USA’s supplemental health insurance business cannot be determined at this time.
The results of the review and the impact to Aegon America’s retirement plan and annuity business will not be known until late in 2017.
The United Kingdom (UK) leaving the European Union (‘Brexit’), potentially followed by more countries, may affect Aegon’s results and financial condition.
More countries could potentially follow the UK in leaving the European Union. This could also result in the mentioned possible abandonment of the euro currency by one or more countries. The topic could be raised in elections and referenda. In 2017 elections will take place in France, Germany and the Netherlands, among others. Any uncertainty, volatility or negative impacts created by these political events could have a material adverse effect on Aegon’s results of operations, cash flows or financial position.
or the Dutch Minister of Finance under the Dutch Intervention Act could have a material adverse effect on the performance by the failing institution, including Aegon, of its obligations (of payment or otherwise) under contracts of any form, including the expropriation, write-off, write-down or conversion of securities such as shares and debt obligations issued by the failing institution. Furthermore, the terms of contracts, including debt obligations may be varied (e.g. the variation of maturity of a debt instrument). The Dutch Intervention
UK Financial Conduct Authority fined Aegon GBP 8.3 million for past sales practices for accident insurance products sold through an affinity marketing unit, which was subsequently placed into runoff.
Insurance companies are routinely the subject of litigation, investigation and regulatory activity by various governmental and enforcement authorities, individual claimants and policyholder advocate groups, involving issues such as employment or distribution relationships; operational controls and processes; environmental matters; competition and antitrust matters; data privacy; information security; intellectual property; and anti-money laundering, anti-bribery and economic sanctions compliance. For example with respect to
In addition, insurance companies are routinely subject to litigation, investigation and governmental review concerning product fees and costs, including transparency and adequacy of disclosure of initial costs, ongoing costs, and costs due on policy surrender as well as changes to costs over time. Disputes and investigations initiated by governmental entities and private parties may lead to orders or settlements including payments or changes to business practices even if Aegon believes the underlying claims are without merit. Aegon and other US insurers have been sued for charging fees on products offered in 401(k) platforms which allegedly were higher than fees charged on other products available in the market. US insurers, including Aegon’s subsidiaries, have also been named in class action litigation relating to increases in monthly deductions made to universal life products. Plaintiffs generally allege that the increases were made to recoup past losses rather than to cover the future costs of providing insurance coverage. These cases are pending in the US
It decided that the financial institution was liable if a broker (‘remisier’) that advised on the sale of the institution’s products, was not properly licensed. In July 2016, consumer interest group Platform Aandelenlease filed a class action claim against Aegon Bank regarding securities leasing product Sprintplan. Allegations include, among other things, a lack of a proper license of the brokers involved. There can be no assurances that this matter will not ultimately result in a material adverse effect on Aegon’s business, results of operations and financial position. In Poland, owners of unit-linked policies filed claims in civil court against Aegon over fees payable upon purchase or surrender of the product. For reasons of commercial necessity as well as at the instigation of regulatory authorities,
Financial Instruments and IFRS 4 – Insurance contracts. On July 24, 2014, the IASB issued the fourth and final version of its new standard on financial instruments accounting – IFRS 9 Financial Instruments. Application of IFRS 9 is required for annual periods beginning on or after January 1, 2018. However, the IASB has issued an amendment related to IFRS 4 Insurance Contracts.
The US Government, as well as state and local governments, also considers from time to time tax law changes that may increase the amount of taxes that Aegon pays. For example, over the past several years members of the tax-writing committees in Congress have discussed and informally proposed significant changes to the computation of tax reserves, capitalized policy acquisition costs and the dividends received deduction available to life insurance companies. Congress has not, however acted on these proposals.
Adverse market and economic conditions can be expected to result in changes in the competitive landscape. Financial distress experienced by financial services industry participants as a result of weak economic conditions and newly imposed regulation may lead to acquisition opportunities. Aegon’s ability or that of Aegon’s competitors to pursue such opportunities may be limited due to lower earnings, reserve increases, capital requirements or a lack of access to debt capital markets and other sources of financing. Such conditions may also lead to changes by Aegon or Aegon’s competitors in product offerings and product pricing that may affect Aegon and Aegon’s relative sales volumes, market shares and profitability. Additionally, the competitive landscape in which Aegon operates may be affected by government-sponsored programs or actions taken in response to, for instance, dislocations in financial markets.
Aegon may experience difficulties in distributing and marketing products through our current and future distribution channels.
Aegon’s ability to attract and retain key personnel, in particular senior officers, experienced portfolio managers, mutual fund managers and sales executives, is very much dependent on the competitiveness of the compensation package for employees in the market in which it competes. As a part of the governmental response in Europe and, to a certain extent, the United States to the financial crisis in 2008, there have been various legislative initiatives that have sought to give guidance or regulate the structure of remuneration for personnel, in particular senior management, with a focus on performance- related remuneration and limiting severance payments.
As part of Aegon’s overall risk and capital 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. In addition, interpretations of terms and conditions may differ over time as contracts extend for decades. Accordingly,
Aegon may be forced to incur additional expenses for reinsurance or may not be able to obtain or enforce sufficient reinsurance on acceptable terms, which may adversely affect Aegon’s ability to write future business and realize planned value for current business.
Aegon’s acquisitions may result in additional indebtedness, costs, contingent liabilities and impairment expenses related to goodwill and other intangible assets. In addition, they may divert management’s attention and other resources. Divestitures of existing operations may result in Aegon assuming or retaining certain contingent liabilities. All of these may adversely affect Aegon’s businesses, results of operations and financial condition. Future acquisitions may also have a dilutive effect on the ownership and
Aegon’s operating results and financial position may be adversely affected by volatile natural and man-made disasters such as hurricanes, windstorms, earthquakes, terrorism, riots, fires and explosions, pandemic disease and other catastrophes. 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 may lead to considerable financial losses to Aegon’s businesses. Furthermore, natural disasters, terrorism and fires may disrupt
A computer system failure or security breach may disrupt Aegon’s business, damage Aegon’s reputation and adversely affect Aegon’s results of operations, financial condition and cash flows.
Changes towards more sophisticated internet technologies, the introduction of new products and services, changing customer needs and evolving applicable standards increase the dependency on internet, secure systems and related technology. Introducing new technologies, computer system failures, cyber-crime attacks or security breaches may disrupt Aegon’s business, damage Aegon’s reputation and adversely affect Aegon’s results of operations, financial condition and cash flows.
A breach of data privacy and security obligations may disrupt Aegon’s business, damage Aegon’s reputation and adversely affect financial conditions and results of operations.
Aegon’s reputation or lead to civil or criminal penalties, which, in turn, could have a material adverse effect on Aegon’s business, financial condition and results of operations. In addition, Aegon analyzes personal information and customer data to better manage its business, subject to applicable laws and regulations and other restrictions. It is possible that additional regulatory or other restrictions regarding the use of such techniques may be imposed. Additional privacy and security obligations may also be imposed. Such limitations could have material impacts or Aegon’s business, financial conditions and/or results of operations.
The price at which Aegon’s common shares trade is influenced by many factors, some of which are specific to Aegon and Aegon’s operations, and some of which are 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; �� Actual or anticipated fluctuations in Aegon’s revenues or operating results; �� Announcements of intended acquisitions, disposals or financings, or speculation about such acquisitions, disposals or financings; �� Changes in Aegon’s dividend policy, which may 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; �� Changes in financial estimates and recommendations by securities research analysts; �� Fluctuations in capital markets, including foreign exchange rates, interest rates and equity markets; �� The performance of other companies in the insurance sector; �� Regulatory developments in the United States, the Netherlands, the United Kingdom, and other countries in which Aegon operates; �� International political and economic conditions, including the effects of terrorist attacks, military operations and other developments stemming from such events, and the uncertainty related to these developments; �� News or analyst reports related to markets or industries in which Aegon operates; and �� General insurance market conditions.
An additional offering of common shares by Aegon, the restructuring of Aegon’s share capital, the 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, may have an adverse effect on the market price of Aegon’s common shares.
As of December 31, 2016, there were 2,047,548,842 common shares and 585,022,160 common shares B issued. Of these, Vereniging
Aegon held 279,236,609 common shares and 567,697,200 common shares B. All of Aegon’s outstanding common shares are freely tradable, and all shareholders, including large shareholders such as Vereniging Aegon, are free to resell their common shares at any time.
Meeting of Shareholders of Aegon N.V. on May 15, 2013. For details on the simplification of the corporate structure, please see the section Major shareholders at pages 329-331.
Vereniging Aegon. As a matter of Dutch corporate law, the shares of both classes offer equal full voting rights, as they have equal nominal values (EUR 0.12). The financial rights attached to a common share B is 1/40th of the financial rights attached to a common share. The amended Voting Rights Agreement ensures that under normal circumstances, i.e. except in the event of a Special Cause,
Vereniging Aegon under normal circumstances amounted to approximately 14.4%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.). In the event of a Special Cause, Vereniging Aegon’s voting rights will increase to 32.6% for up to six months.
Other principal offices owned by Aegon are located in The Hague, the Netherlands and Budapest, Hungary. Aegon owns its headquarters and leases other offices in the Netherlands (Leeuwarden), in the United Kingdom and in Spain under long-term leases.
NL. Aegon, the unions and the Dutch Central Works Council are working closely together in the co-creation steering group to come to new agreements. The current collective agreement has a duration of three years. Aegon has experienced no significant strike, work stoppage or labor dispute in recent years.
Under Dutch law, members of the Central Works Council responsible for Aegon in the Netherlands are elected by Aegon the Netherlands’
A break-down of the number of employees is provided below: Central & Eastern Europe 2,317 2,470 2,495
Property, plant and equipment Property, plant and equipment Property, plant and equipment
Differences between common shares and common shares B �� The common shares are listed; the common shares B are not listed; �� The financial rights attaching to a common share B are one-fortieth (1/40th) of the financial rights attaching to a common share; and �� A repayment on common shares B needs approval of the holders of common shares B.
Generally speaking, a shareholding is considered to qualify as a participation for the participation exemption if it represents an interest of 5% or more of the nominal paid-up share capital; iv. Holders of Aegon common shares holding a substantial interest (aanmerkelijk belang) or deemed substantial interest (fictief aanmerkelijk belang) in Aegon and holders of Aegon common shares of whom a certain related person holds a substantial interest in Aegon. Generally speaking, a substantial interest in Aegon arises if a person, alone or, where such person is an individual, together with his or her partner (statutory defined term), directly or indirectly, holds or is deemed to hold (i) an interest of 5% or more of the total of capital issued by Aegon or 5% or more of the issued capital of a certain class of Aegon shares, (ii) rights to acquire, directly or indirectly, such interest or (iii) certain profit-sharing rights in Aegon; v. Persons to whom the Aegon common shares and the income from the Aegon common shares are attributed based on the separated private assets (afgezonderd particulier vermogen) provisions of the Netherlands Income Tax Act 2001
Withholding Tax Act 1965 (Wet op de dividendbelasting 1965), dividends are defined as the proceeds from shares, which include: i. Direct or indirect distributions of profit, regardless of their name or form; ii. Liquidation proceeds, proceeds on redemption of Aegon common shares and, as a rule, the consideration for the repurchase of its own common shares by Aegon in excess of the average paid-in capital recognised for Netherlands dividend withholding tax purposes, unless a particular statutory exemption applies; iii. The nominal value of new common shares issued to a holder of Aegon common shares or an increase of the nominal value of Aegon common shares, except insofar as the (increase in the) nominal value of Aegon common shares is funded out of its paid-in capital as recognized for Netherlands dividend withholding tax purposes; and iv. Partial repayments of paid-in capital recognised for Netherlands dividend withholding tax purposes, if and to the extent there are qualifying profits (zuivere winst), unless Aegon’s General Meeting of Shareholders has resolved in advance to make such repayment and provided that the nominal value of Aegon common shares concerned has been reduced by an equal amount by way of an amendment of the Articles of Association. The term ‘qualifying profits’ includes anticipated profits that have yet to be realized.
Liechtenstein if (i) this entity is not subject to corporate income tax there and (ii) this entity would not be subject to Netherlands corporate income tax, if this entity would be tax resident in the Netherlands for corporate income tax purposes and (iii) this entity is not comparable to an investment institution (fiscale beleggingsinstelling) or exempt investment institution (vrijgestelde beleggingsinstelling).
Residents of the United States that qualify for, and comply with the procedures for claiming benefits under, the Convention between the Kingdom of the Netherlands and the United States of America for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income 1992 (the US/NL Income Tax Treaty) may, under various specified conditions, be eligible for a reduction of the Netherlands dividend withholding tax rate from 15% to 5% if the resident of the United States is a company which holds directly at least 10% of the voting power in Aegon. The US/NL Income Tax Treaty provides, subject to certain conditions, for a complete exemption from, or refund of, Netherlands dividend withholding tax for dividends received by exempt pension trusts and exempt organizations, as defined therein.
A recipient of proceeds from Aegon common shares will not be entitled to any exemption, reduction, refund or credit of Netherlands dividend withholding tax if such recipient is not considered to be the beneficial owner of such proceeds. The recipient will not be considered the beneficial owner of these proceeds, if, in connection with such proceeds, the recipient has paid a consideration as part of a series of transactions in respect of which it is likely: �� That the proceeds have in whole or in part accumulated, directly or indirectly, to a person or legal entity that would: (i) as opposed to the recipient paying the consideration, not be entitled to an exemption from dividend withholding tax; or (ii) in comparison to the recipient paying the consideration, to a lesser extent be entitled to a reduction or refund of dividend withholding tax; and �� That such person or legal entity has, directly or indirectly, retained or acquired an interest in Aegon common shares or in profit-sharing certificates or loans, comparable to the interest it had in similar instruments prior to the series of transactions being initiated.
Aegon are exempt from Dutch corporate income tax and were subject to a withholding tax of at least 5% upon distribution to Aegon.
If a holder of Aegon common shares is a resident or deemed to be a resident of the Netherlands for Netherlands corporate income tax purposes and is fully subject to Netherlands corporate income tax or is only subject to Netherlands corporate income tax in respect of an enterprise to which Aegon common shares are attributable, income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares are generally taxable in the Netherlands (at up to a maximum rate of 25%) under the
(1 January), insofar as the individual's yield basis exceeds a certain threshold (heffingsvrij vermogen). The individual's yield basis is determined as the fair market value of certain qualifying assets held by the holder of Aegon common shares less the fair market value of certain qualifying liabilities on 1 January. The fair market value of Aegon common shares will be included as an asset in the individual's yield basis. The deemed return percentage to be applied to the yield basis increases progressively depending on the amount of the yield basis. The deemed return on income from savings and investments is taxed at a rate of 30%.
Netherlands and to which enterprise Aegon common shares are attributable. Income and gains derived from Aegon common shares as specified under (1) and (2) by an individual are subject to individual income tax at up to a maximum rate of 52%. Income derived from a share in the profits of an enterprise as specified under (3) that is not already included under (1) or (2) will be taxed on the basis of a deemed return on income from savings and investments (as described above under ‘Residents of the Netherlands’). The fair market value of the share in the profits of the enterprise (which includes Aegon common shares) will be part of the individual's
Aegon common shares by way of a gift by, or on behalf of, or on the death of, a holder of Aegon common shares that is a resident or deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 (Successiewet 1956) at the time of the gift or his or her death. A gift made under a condition precedent is for the purposes of the Netherlands Gift and Inheritance Tax Act 1956 deemed to be made at the time the condition precedent is fulfilled and is subject to gift tax if the donor is, or is deemed to be, a resident of the Netherlands at that time.
Inheritance Tax Act 1956 if he or she has been resident in the Netherlands and dies or makes a gift within ten years after leaving the
No gift or inheritance tax will arise in the Netherlands in respect of the acquisition of Aegon common shares by way of a gift by, or as a result of the death of, a holder that is neither a resident nor deemed to be a resident of the Netherlands for the purposes of the
The European Commission has published a proposal for a Directive for a common financial transactions tax (FTT) in Belgium, Germany,
Member States. Generally, it would apply to certain dealings in Aegon common shares where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, ‘established’ in a participating Member State in a broad range of circumstances, including (1) by transacting with a person established in a participating
In addition, US holders receiving dividends may be subject to a net investment income tax (NIIT). The NIIT is a 3.8% tax on the lesser of net investment income or the amount of modified adjusted gross income (MAGI) that is over a threshold amount based on filing status
(USD 250,000 for married taxpayers filing jointly). Each US holder should consult their tax advisor regarding applicability of the NIIT.
Dividends received by a US holder with respect to common shares will be treated as foreign source income for foreign tax credit limitation purposes. Subject to certain conditions and limitations, any Dutch income tax withheld on dividends may be deducted from taxable income or credited against a US holder’s Federal income tax liability. The limitation on foreign taxes eligible for the US foreign tax credit is calculated separately with respect to ‘passive category income’ and ‘general category income’. Dividends distributed by
In general, upon making a distribution to shareholders, Aegon is required to remit all Dutch dividend withholding taxes to the Dutch tax authorities. The full amount of the taxes so withheld should (subject to certain limitations and conditions) be eligible for the
Non-US holders that provide the required tax certifications of exempt or foreign status will generally be exempt from US information reporting requirements and backup withholding. However, sales proceeds a non-US holder receives on a sale of common shares through a broker may be subject to information reporting and backup withholding if the non-US holder is not eligible for an exemption.
Principal accountant fees and services PricewaterhouseCoopers Accountants N.V. (PwC) has served as Aegon’s independent public accountant for each of the years in the three-year period ended December 31, 2016, for which audited financial statements appear in this Annual Report.
The following table presents the aggregate fees for services rendered by PwC in 2016, 2015 and 2014.
Audit fees consist of fees billed for the annual financial statement audit (including required quarterly reviews), subsidiary audits, equity investment audits and other procedures required to be performed by the independent auditor to be able to form an opinion on Aegon’s consolidated financial statements. These other procedures include information systems and procedural reviews and testing performed in order to understand and place reliance on the systems of internal control, and consultations relating to the audit or quarterly review.
They also include fees billed for other audit services, which are those services that only the external auditor reasonably can provide, and include statutory audits or financial audits for subsidiaries or affiliates of the Company and services associated with SEC
Under the Pre-approval Policy, proposed services either: �� May be pre-approved by the Audit Committee without consideration of specific case-by-case services (general pre-approval); or �� Require the specific pre-approval of the Audit Committee (specific pre-approval). Appendices to the Pre-approval Policy
(that are adopted each year) set out the audit, audit-related, tax and other services that have received general pre-approval of the
For the period 2014 to 2016, all services provided to Aegon by its independent public accountant were pre-approved by the Audit
Total number of shares purchased as part of publicly announced plans or
Maximum number of shares that may yet be purchased under the plans or programs at end of month 2), 3)
1 The shares have been purchased as part of a share purchase program, to neutralize the dilution effect of issued stock dividends and agent-related incentive programs. Excluding Aegon shares purchased by index funds controlled by Aegon. Such purchases are made to the extent necessary to maintain a basket of securities within the relevant fund reflecting the underlying index.
2 On July 4, 2016, a repurchase program to neutralize the dilutive effect of the 2015 final dividend paid in shares was announced. As a consequence approximately 29.3 million shares have been repurchased between July 4 and August 12, 2016. Subsequently, on October 3, 2016, a repurchase program to neutralize the dilutive effect of the 2016 interim dividend paid in shares was announced. As a consequence approximately 30.8 million shares have been repurchased between October 3 and November 11, 2016.
Gross deposits (on and off balance sheet) 30,078 22,953 24,669 22,625 100,325 19,963 18,139 20,756 23,761 82,618
Net deposits (on and off balance sheet) 7,615 1,125 (2,539) (3,492) 2,709 7,266 2,777 3,771 2,564 16,378
Assets held by long-term employee benefit funds are part of plan assets. These are assets (other than non-transferable financial instruments issued by the reporting entity) that: �� Are held by an entity that is legally separate from the reporting entity and exists solely to pay or fund employee benefits; and �� Are available to be used only to pay or fund employee benefits and are not available to the reporting entity's own creditors.
Capital funding includes debt securities that are issued for general corporate purposes and for capitalizing our business units. Capital funding is part of the Company’s total capitalization that is used for financing our subsidiaries and the cash held at the holding company.
Collateralized Debt Obligation (CDO) isa type of asset-backed security which provides investors exposure to the credit risk of a pool of fixed income assets.
Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separate entity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods.
Deposit accounting method includes amounts charged and paid to customers directly into the financial liability and not through the income statement as premium income and claims.
That are contractually based on: �� The performance of a specified pool of contracts or a specified type of contract; �� Realized and/or unrealized investment returns on a specified pool of assets held by the issuer; or �� The profit or loss of the Company, fund or other entity that issues the contract.
Financial asset is any asset that is: �� Cash; �� An equity instrument of another entity; �� A contractual right to receive cash or another financial asset from another entity or to exchange financial instruments with another party under conditions that are potentially favorable; or �� A contract that will or may be settled in the entity's own equity instruments; and is �� A non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments; or �� A derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity's own equity instruments.
Firm commitment is a binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates.
Foreign currency is a currency other than the functional currency of an entity within the Group.
General account investments are investments of which the financial risks are not borne by the policyholder.
Joint control is the contractually agreed sharing of control over an economic activity, which exists when the strategic and operating decisions relating to the activity require the unanimous consent of the parties sharing control.
Minimum capital requirement is the absolute minimum level of capital an insurance company must hold in excess of its Technical
Monetary items are units of currency held and assets and liabilities to be received or paid in a fixed or determinable number of units of currency.
Partial Internal Model is a combination of a Standard Formula and Internal Model, used to calculated the Solvency II capital requirement.
Price risk is a market risk, namely the risk that the value of a financial instrument will fluctuate as a result of changes in market prices.
Spread earnings is the difference between the interest earned on investments and the interest credited to policyholders.
and random variables to predict a range of probable investment performances.
Trade date is the date that an entity commits itself to purchase or sell an asset.
Disclaimer Cautionary note regarding non-IFRS-EU measures This document includes the following non-IFRS-EU financial measures: underlying earnings before tax, income tax and income before tax. These non-IFRS-EU measures are calculated by consolidating on a proportionate basis Aegon’s joint ventures and associated companies. The reconciliation of these measures to the most comparable IFRS-EU measure is provided in note 5
‘Segment information’ of this report. Aegon believes that these non-IFRS-EU measures, together with the IFRS-EU information, provide meaningful supplemental information about the underlying operating results of Aegon’s business including insight into the financial measures that senior management uses in managing the business.
Currency exchange rates This document contains certain information about Aegon’s results, financial condition and revenue generating investments presented in USD for the Americas and Asia, and in GBP for the
Securities Litigation Reform Act of 1995. The following are words that identify such forward-looking statements: aim, believe, estimate, target, intend, may, expect, anticipate, predict, project, counting on, plan, continue, want, forecast, goal, should, would, is confident, will, and similar expressions as they relate to
United States, the Netherlands and the United Kingdom; �� Changes in the performance of financial markets, including emerging markets, such as with regard to: �� The frequency and severity of defaults by issuers in
�� The effects of declining creditworthiness of certain private sector securities and the resulting decline in the value of government exposure that Aegon holds; �� Changes in the performance of Aegon’s investment portfolio and decline in ratings of Aegon’s counterparties; �� Consequences of a potential (partial) break-up of the euro; �� Consequences of the anticipated exit of the United Kingdom from the European Union; �� The frequency and severity of insured loss events; �� Changes affecting longevity, mortality, morbidity, persistence and other factors that may impact the profitability of Aegon’s insurance products; �� Reinsurers to whom Aegon has ceded significant underwriting risks may fail to meet their obligations; �� Changes affecting interest rate levels and continuing low or rapidly changing interest rate levels; �� Changes affecting currency exchange rates, in particular the
Aegon’s operations’ ability to hire and retain key personnel, taxation of Aegon companies, the products Aegon sells, and the attractiveness of certain products to its consumers; �� Regulatory changes relating to the pensions, investment, and insurance industries in the jurisdictions in which
Aegon operates; �� Standard setting initiatives of supranational standard setting bodies such as the Financial Stability Board and the
Aegon’s ability to integrate acquisitions and to obtain the anticipated results and synergies from acquisitions; �� Catastrophic events, either manmade or by nature, could result in material losses and significantly interrupt Aegon’s business; and �� Aegon’s failure to achieve anticipated levels of earnings or operational efficiencies as well as other cost saving and excess capital and leverage ratio management initiatives.