Gains / losses transferred to the income statement on disposal and impairment of available-for-sale investments 148 69 117
Movement in foreign currency translation and net foreign investment hedging reserve (50) 21 3
19 Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the net income attributable to equity holders, after deduction of preferred dividends declared, coupons on perpetual securities and non-cumulative subordinated notes, and coupons and premium on convertible core capital securities by the weighted average number of common shares, excluding common shares purchased by the Company and held as treasury shares (refer to note 32.1 Share capital – par value and 32.3 Treasury shares respectively).
Net income / (loss) attributable to common shareholders 1,027 602 1,417
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 4,900,086 (2013: 8,495,768; 2012: 13,922,977). In 2014, 2013 and 2012, the average share price did not exceed the exercise prices in these option contracts. The exercise price of the share options outstanding at year end 2014 is EUR 8.93. Aegon has no share options on common shares B.
Notes to the consolidated financial statements of Aegon N.V. Note 20
Approximately 55% of holders of common shares elected to receive the cash dividend. The remaining 45% have opted for stock dividend. Aegon repurchased common shares to neutralize the dilutive effect of the 2014 interim dividend paid in shares.
Interim dividend 2013 The interim dividend 2013 on common shares was paid in cash or stock at the election of the shareholder. Stock dividend amounted to one new Aegon common share for every 50 common shares held. The stock dividend and cash dividend were approximately equal in value.
Approximately 55% of holders of common shares elected to receive the cash dividend. The remaining 45% have opted for stock dividend. Aegon repurchased common shares to neutralize the dilutive effect of the 2013 interim dividend paid in shares. Between
The stock dividend and cash dividend were approximately equal in value. Aegon did not have common shares B during 2012.
Notes to the consolidated financial statements of Aegon N.V. Note 21
Amortization and depreciation through income statement is included in Commissions and expenses. None of the intangible assets have titles that are restricted or have been pledged as security for liabilities.
During 2013, the Polish government enacted into legislation its pension reform proposal. The outcome adversely impacted Aegon’s
New Markets - Central & Eastern Europe 41 48 - Other New Markets 31 27
(2013: 5%) and pre-tax risk adjusted discount rate of 17% (2013: 17%).
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 3 years further extrapolated to 20 years where the new business levels for years 4-20 assumed a growth rate based on the business plan of the third year, prudentially decreased by 15%-20% in average. Other key assumptions used for the calculation were pre-tax risk adjusted discount rate of 9.0%-16.2% (2013: 9.2%-15.9%), 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.
VOBA The movement in VOBA over 2014 can be summarized and compared to 2013 as follows: Amortization / depreciation through income statement (123) (103)
Notes to the consolidated financial statements of Aegon N.V. Note 22 22.1 Financial assets, excluding derivatives
Of the debt securities, money market and other short-term investments, mortgage loans and private loans EUR 13,998 million is current (2013: EUR 10,892 million).
Refer to note 47 Fair value for information on fair value measurement.
Other Movement on the loan allowance account during the year were as follows: Addition charged to income statement (68) (67)
Refer to note 49 Transfer of financial assets for a discussion of collateral received and paid.
In 2014, 78% of the value of Aegon’s properties, both for general account and for account of policyholders, were appraised
Aegon the Netherlands has entered into long-term residential property leases that can be terminated subject to a short-term notice.
Rental income of EUR 54 million (2013: EUR 52 million; 2012: EUR 48 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 72 million (2013: EUR 80 million; 2012: EUR 74 million). In 2014, EUR 11 million of direct operating expenses is related to investment properties that did not generate rental income during the period (2013: nil; 2012: EUR 6 million).
There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Total investments for account of policyholders 191,467 165,032 1 Refer to note 47 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss.
Rental income of EUR 70 million (2013: EUR 59 million; 2012: EUR 65 million) is reported as part of investment income in the income statement. Direct operating expenses relating to investments in real estate for account of policyholder amounted to EUR 6 million in 2014 (2013: EUR 8 million, 2012: EUR 7 million). There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Derivatives for general account Derivatives not designated in a hedge 24,958 12,413 23,960 11,092
Derivatives for account of policyholders Derivatives not designated in a hedge 830 238 226 155 1 Refer to note 47 Fair value for a summary of all financial assets and financial liabilities at fair value through profit or loss.
Derivatives not designated in a hedge – general account 2014 2013 2014 2013
Aegon utilizes derivative instruments as a part of its asset liability risk management practices. The derivatives held for risk management purposes are classified as economic hedges to the extent that they do not qualify for hedge accounting, or that Aegon has elected not
to apply hedge accounting. The economic hedges of certain exposures relate to an existing asset, liability or future reinvestment risk.
Aegon has entered into free-standing credit derivative transactions. The positions outstanding at the end of the year were: CDOs and CDSs Notional Fair value Notional Fair value
Certain derivatives are used to add risk by selling protection in the form of single name and index based credit default swaps and tranches of synthetic collateralized debt obligations. Another strategy used is to synthetically replicate corporate and sovereign credit exposures with credit derivatives. This involves the purchase of high quality, low risk assets and the sale of credit derivatives. The table above provides a breakdown to credit quality of these credit derivatives.
For the year ended December 31, 2014, Aegon The Netherlands recognized EUR 558 million (2013: EUR 173 million) 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 559 million (2013: EUR 176 million) fair value changes recognized on hedged items.
In addition, Aegon also makes use of cross currency swaps to convert variable or fixed foreign currency cash flows into fixed cash flows in local currencies. The cash flows from these hedging instruments are expected to occur over the next 13 years. These agreements involve the exchange of the underlying principal amounts.
For the year ended December 31, 2014, Aegon recognized a loss of EUR 2 million of hedge ineffectiveness on cash flow hedges.
In 2013 and 2012, respectively, losses of EUR 1 million and EUR 5 million as a result of hedge ineffectiveness were recorded in the income statement. In 2014, EUR 12 million was reclassified from equity into investment income (2013: EUR 26 million, 2012: EUR 62 million). 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 31 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 2014 Total
Kingdom and Canada are funded in euros. When the debt funding of investments is not in the functional currency of the investment,
Aegon uses derivatives to swap the currency exposure of the debt instrument to the appropriate functional currency. This policy will ensure that total capital will reflect currency movements without distorting debt to shareholders’ equity ratios. Aegon utilizes various financial instruments as designated hedging instruments of its foreign investments. These instruments include long-term and shortterm borrowings, short-term debts to credit institutions, cross currency swap contracts and forward foreign exchange contracts.
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. There are no unrecognized shares of losses in joint ventures. The financial statements of all 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.
Banco Santander Totta’s approximately 600 branches in Portugal. The transaction with Banco Santander Totta was completed in the fourth quarter of 2014 after obtaining regulatory approval. Under the terms of the agreement, Aegon acquired a 51% stake in both a life insurance company as well as a non-life insurance company for a consideration of EUR 42.5 million.
On June 3, 2013, Aegon completed an exclusive 25-year strategic partnership with Banco Santander, Spain’s largest financial group, first announced in December 2012. Under the terms of the agreement, Aegon acquired a 51% stake in both a life insurance company as well as in a non-life insurance company for a cash consideration of EUR 220 million. In addition, there is also a contingent consideration which will be paid depending on future performance of the joint ventures. The joint ventures will distribute life and general insurance products through Banco Santander’s extensive branch network. Aegon Spain will provide the back-office services to the joint venture companies.
The consideration amounted a total of EUR 353 million and the sale resulted in a book gain of EUR 102 million before tax. Additionally a revaluation reserve of EUR 26 million was released, which was recycled from equity through the profit or loss account. Furthermore
Group share of net assets of joint venture, excluding fair value adjustments 789 819
Refer to note 52 Group companies for a listing of the investments in associates and the Group’s percentage holding.
The revaluation reserve of EUR 18 million is recycled from equity through the profit or loss account. The transaction was closed at
March 2, 2015. At December 31, 2014, La Mondiale is classified as held for sale. Related sales expenses amounted to EUR 4 million.
Aegon’s share in underlying earnings before tax of the joint venture totaled EUR 19 million for 2014.
Mediterráneo (CAM) was closed. The consideration amounted to EUR 450 million and resulted in a book gain of EUR 74 million.
The disposal amounting to EUR 327 million included a release of a negative revaluation reserve of EUR 44 million, which was recycled from equity through the profit or loss account. Related sales expenses amounted to EUR 5 million.
Summarized financial information of material associates Aegon considers its investment in La Mondiale Participations S.A. (La Mondiale) a material associate. The summarized financial information presented below are the amounts included in the IFRS financial statements of La Mondiale on a 100% basis, including fair value adjustments made at the time of acquisition. In 2014, La Mondiale is reclassified to held for sale refer to note 29 Assets and liabilities held for sale.
Gross premium and deposits – existing and new business 2,249 63 2,311
Transfer to / (from) insurance contracts for account of policyholders 8 - 8
Gross premium and deposits – existing and new business 2,260 61 2,321
Movements during the year in reinsurance assets relating to non-life insurance: 2014 2013
Gross premium and deposits – existing and new business 126 136
Canada The Canadian operations are included in the Americas segment (note 5 Segment information). For more information related to the sales transaction, refer to note 51 Business combinations.
La Mondiale The operations of La Mondiale are included in the New Markets segment (note 5 Segment information). For more information related to the sales transaction, refer to note 26 Investments in associates.
The table below presents the major types of assets and liabilities included in assets and liabilities classified as held for sale on the consolidated statement of financial position.
Notes to the consolidated financial statements of Aegon N.V. Note 30
Total liabilities at fair value 122 1 34 156 30 Other assets and receivables
26% of the value of the general account real estate held for own use was last revalued in 2014 (2013: 37%), based on market value appraisals by qualified internal and external appraisers. 96% of the appraisals in 2014 were performed by independent external appraisers (2013: 97%).
Notes to the consolidated financial statements of Aegon N.V. Note 31
None of the equipment is held for lease (2013: 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. Equipment is generally depreciated over a period of three to five years.
EUR 1,687 million of accrued income is current (2013: EUR 1,599 million).
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 539 million
For the purposes of the cash flow statement, cash and cash equivalents comprise the following: Cash and cash equivalents 10,610 5,691
EUR 231 million (2013: EUR 79 million; 2012: EUR 29 million).
Net cash flows from financing activities increased by EUR 2,986 million to a EUR 715 million inflow (2013: EUR 2,271 million outflow).
The increase is mainly a result of two transactions executed under the Dutch SAECURE program to sell Class A mortgage backed securities (refer to note 39 Borrowings) and the issuance of new subordinated notes (refer to note 34 Subordinated borrowings), partly offset by the repurchase of perpetual capital securities.
Notes to the consolidated financial statements of Aegon N.V. Note 32 2013 compared to 2012 Net cash flows from operating activities
Net cash flows from financing activities decreased by EUR 5,012 million to a EUR 2,271 million outflow (2012: EUR 2,741 million inflow). The decrease is mainly a result of repayments of borrowings and repayment of share premium of EUR 401 million during 2013.
During 2012, new borrowings and the 8.00% non-cumulative subordinated borrowings of USD 525 million were issued.
In 2014, Aegon issued 14,488,648 common shares with a par value of EUR 0.12 in respect of the final dividend for 2013 which was paid in June 2014. In September 2014, Aegon distributed to its shareholders 16,319,939 common shares as interim dividend 2014 in the form of stock. This last stock dividend distribution was paid from treasury shares (note 32.3 Treasury shares) and no common shares were issued as a result. Following each distribution of stock dividend, Aegon completed a share buyback program to neutralize the dilutive effect of the 2013 final dividend and 2014 interim dividend paid in shares, and repurchased a total of 30,808,587 common shares.
Furthermore, Aegon issued 2,320,280 common shares B with a par value of EUR 0.12 to compensate for the dilution of
In July 2013, Vereniging Aegon exercised its option right to purchase 13 million common shares B for EUR 0.1275 to mitigate the dilution caused by the issuance of shares on May 1, 2013 and May 16, 2013, in connection with the Long Term Incentive Plans for senior management and the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock dividend.
Vereniging Aegon. Following this 2013 amendment, Vereniging Aegon’s call option relates to common shares B. Vereniging Aegon may exercise its call option to keep or restore its total stake at 32.6%, irrespective of the circumstances which cause the total shareholding to be or become lower than 32.6%. In 2012, Aegon issued 33,203,150 and 29,172,394 common shares with a par value of EUR 0.12 in respect of the final dividend for 2011 which was paid in May 2012 and the interim dividend paid in September 2012, respectively.
With regard to granted share appreciation rights and option rights and their valuation refer to note 14 Commissions and expenses.
Transactions in 2014: Purchase: transactions, average price EUR 6.43 14,489 - -
Transactions in 2013: Purchase: transactions, average price EUR 5.62 - 19,047 -
Net (gains) / losses transferred to income statement (702) - (12) (714)
Net (gains) / losses transferred to income statement (435) - (26) (461)
The closing balances of the revaluation reserve for available-for-sale investments relate to the following instruments: Revaluation reserve for available-for-sale investments 6,741 2,287 5,012
Movement in foreign currency translation and net foreign investment hedging reserves (826) 79 - (746)
Notes to the consolidated financial statements of Aegon N.V. Note 32
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.
Shares vested / Share options forfeited - - (34) - (34)
1 Share options and incentive plans include the shares and options granted to personnel which are not yet vested.
USD 500 million floating CMS rate 3) Quarterly, July 15 2015 402 402 402 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%.
The securities have been issued at par. The securities have subordination provisions, rank junior to all other liabilities and senior to shareholder’s equity only. The conditions of the securities contain certain provisions for optional and required coupon payment deferral and mandatory coupon payment events. Although the securities have no stated maturity, Aegon has the right to call the securities for redemption at par for the first time on the coupon date in the years as specified, or on any coupon payment date thereafter.
4 If the bonds are not called on the respective call dates and after consecutive period of ten years, the coupons will be reset at the then prevailing effective yield of ten-year Dutch government securities plus a spread of 85 basis points.
EUR 271 million (2013: EUR 271 million), subordinated borrowings amounted to EUR 54 million (2013: EUR 44 million) and a deferred tax liability amounting to EUR 95 million (2013: EUR 84 million).
These securities are subordinated and rank senior to the junior perpetual capital securities, equally with the fixed floating subordinated notes and non-cumulative subordinated notes, and junior to all other liabilities. The conditions of the securities contain certain provisions for optional and required deferral of interest payments. There have been no defaults or breaches of conditions during the period.
USD 225 million 2) 7.65% Semi-annually, December 1 1996 2026 n.a. 102 85
and morbidity). In general, Aegon is at risk if policy lapses increase as sometimes Aegon is unable to fully recover up front expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. For mortality and morbidity risk, Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance, and sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. Aegon is also at risk if expenses are higher than assumed by management.
(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.
Notes to the consolidated financial statements of Aegon N.V. Note 36 36.2 Insurance contracts for general account
Gross premium and deposits – existing and new business 8,127 7,234
In the Netherlands, decreasing interest rates led to a deficiency in the liability adequacy test of EUR 230 million recorded in the line shadow accounting adjustments in 2014. This deficiency is recognized in the revaluation reserve as shadow loss recognition is applied.
Gross premium and deposits – existing and new business 11,727 11,031
Gross premium and deposits – existing and new business 8,961 2,326 11,287
Transfer to insurance contracts for account of policyholders (75) - (75)
3 Balances are included in the derivatives liabilities on the face of the statement of financial position; refer to note 24 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.
At December 31, 2014, the reinsured account value was EUR 2.6 billion (2013: EUR 2.7 billion) and the guaranteed remaining balance was EUR 1.7 billion (2013: EUR 1.8 billion).
At December 31, 2014, the contract had a value of EUR 59 million (2013: EUR 22 million). Aegon entered into a derivative program to mitigate the overall exposure to equity market and interest rate risks associated with the reinsurance contract. This program involves selling equity futures contracts (S&P 500, Nasdaq, FTSE100 and NKY225 in accordance with Aegon’s exposure) to mitigate the effect of equity market movement on the reinsurance contract and the purchase of over-the-counter interest rate swaps to mitigate the effect of movements in interest rates on the reinsurance contracts.
The GMIB feature provides for minimum payments if the contract holder elects to convert to an immediate payout annuity.
Average attained age of contract holders 68 69 68 68 1 Guaranteed minimum death benefit in the United States.
2 Guaranteed minimum income benefit in the United States. 3 Note that the variable annuity contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive.
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 recent years the guarantee has decreased to 3%.
The traditional group pension contracts offered by Aegon in the Netherlands include large group insurance contracts that have an individually determined asset investment strategy underlying the pension contract. The guarantee given is that the profit sharing is the maximum of 0% and the realized return on an asset portfolio specified in the policy conditions, adjusted for technical interest rates ranging from 3% to 4%. If the adjusted return is negative, the 0% minimum is effective, but the loss in any given year is carried forward
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) 2,971 (1,222)
Net amount at risk 5) 4,871 2,756 1 Guaranteed minimum investment return in the Netherlands.
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.
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 24.3%
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 189 million (2013: loss of
Guarantee reserves increased EUR 4,775 million in 2014 (2013: decrease of EUR 2,341 million).
The presentation of borrowings is changed to align with the current methodology for the Group’s composition of total capitalization and its calculation of gross financial leverage ratio. As a result, commercial paper, bank overdrafts and short-term deposits, which were previously classified within borrowings, are reclassified to Other liabilities. Comparative information has been reclassified accordingly.
EUR 500 million Medium-Term Notes 1) 4.125% December 8 2004 / 14 - 517
USD 500 million Senior Unsecured Notes 4.625% Semi-annually 2009 / 15 413 362
EUR 500 million Unsecured Notes 3% July 18 2012 / 17 499 498
EUR 75 million Medium-Term Notes 1), 2) 4.625% December 9 2004 / 19 88 85
USD 500 million Senior Notes 1), 2) 5.75% Semi-annually 2005 / 20 483 416
(RMBS) amounting to EUR 1,367 million. ‘SAECURE 14 NHG’ consists of 2 tranches: �� EUR 343 million of class A1 notes with an expected weighted average life of 2 years and priced with a coupon of 3 month
On October 10, 2014, Aegon executed a transaction under the Dutch SAECURE program to sell Class A mortgage backed securities
(RMBS) amounting to EUR 1,443 million. ‘SAECURE 15’ consists of 2 tranches: �� EUR 360 million of class A1 notes with an expected weighted average life of 2 years and priced with a coupon of 3 month Euribor plus 0.25%; and �� EUR 1,083 million of class A2 notes with an expected weighted average life of 5.3 years and priced with a coupon of 3 month
GBP 35 million Note issue agreement 1), 3), 4) Floating Quarterly 2010 / 15 - 15
EUR 212 / USD 600 'SAECURE 11' RMBS Note 1), 5) Floating Quarterly 2012 / 15 620 600
EUR 1,500 million ECB LTRO 1) Floating At Maturity 2012 / 15 1,500 1,500
EUR 1,365 million 'SAECURE 12' RMBS Note 1), 8) Floating Quarterly 2012 / 17 1,233 1,297
EUR 750 million 'SAECURE 13' RMBS Note 1), 9) Floating Quarterly 2013 / 18 1,041 738
USD 292 million Senior Secured Note1) Floating Quarterly 2012 / 23 236 207
USD 550 million Floating Rate Guaranteed Note 3), 13) Floating Quarterly 2007 / 37 393 345 1 Issued by a subsidiary of Aegon N.V. 2 The first optional redemption date is August 2015; the legal maturity date is August 2093. Notes are fully collateralized by mortgage loans which are part of
4 Private Value-in-Force (ViF) securitization by Aegon UK to monetize a portion of future profits associated with an existing book of unit-linked business. 5 The first optional redemption date is July 2015; the legal maturity date is July 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
7 The first optional redemption date is March 2016; the legal maturity date is September 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
Aegon’s general account investments. 9 The first optional redemption date is February 2018; the legal maturity date is November 2093. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
10 The first optional redemption date is January 2019; the legal maturity date is January 2092. Notes are fully collateralized by mortgage loans which are part of Aegon’s general account investments.
12 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.
Floating-rate - Expiring within one year 2,404 1,433 - Expiring beyond one year 2,000 2,018
The increase of the provisions is mainly due to a provision of EUR 95 million related to a Dutch Court ruling for a request jointly filed by
EUR 36 million (2013: EUR 57 million), restructuring provisions of EUR 69 million (2013: EUR 39 million), provisions for unearned commission of EUR 31 million (2013: EUR 33 million), litigation provisions of EUR 20 million (2013: EUR 23 million) and other provisions of EUR 34 million (2013: EUR 30 million) consisting of several smaller items.
The contingent consideration relating to joint ventures reflects earn-out payments, which will be payable if specific targets, as set out in the purchase agreements, are met in the future. The expected timing of resulting outflows vary between 2015 and 2017.
Present value of wholly unfunded 1 Assets held by Aegon the Netherlands backing retirement benefits of EUR 2,555 million (2013: EUR 2,194 million) do not meet the definition of plan assets and as such were not deducted in calculating this amount. Instead, these assets are recognized as general account assets. Consequently, the return on these assets does not form part of the calculation of defined benefit expenses.
The fair value of Aegon’s own transferable financial instruments included in plan assets and the fair value of other assets used by Aegon included in plan assets was nil in both 2014 and 2013.
Net interest on the net defined benefit liability (asset) 110 10 121 124 9 134
Net interest on the net defined benefit liability (asset) 141 11 152
Movements during the year of the present value of the defined benefit obligations 2014 2013
Movements during the year in plan assets for retirement benefit plans 2014 2013
Aegon USA, LLC, 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 269 million
Aegon USA provides health care benefits to retired employees, which are unfunded plans. The post-retirement health care plans are administered by Aegon USA, LLC (Aegon USA), which has delegated the claims administration to third-party administrators.
The post-retirement health benefit liability amounted to EUR 226 million (2013: EUR 191 million).
The principal actuarial assumptions that apply for the year ended December 31 are as follows: Actuarial assumptions used to determine defined benefit obligations at year-end 2014 2013
100 basis points increase in health care trend rate 18 15 100 basis points decrease in health care trend rate (16) (13)
Notes to the consolidated financial statements of Aegon N.V. Note 41
Aegon the Netherlands runs, in principle, full actuarial and investment risk regarding the defined benefit plans. A part of this risk can be attributed to plan participants by lowering indexation or by increasing employee contributions.
The contributions to the retirement benefit plan of Aegon the Netherlands are paid by both the employees and the employer, with the employer contribution being variable. The benefits covered are retirement benefits, disability, death and survivor pension and are based on an average salary system. The defined benefit plans were unfunded by EUR 2,774 million at December 31, 2014
(2013: EUR 2,119 million). As the assets held by Aegon the Netherlands for retirement benefits do not meet the definition of plan assets, they were not deducted in calculating this amount. Instead, these assets are recognized as general account assets.
The weighted average duration of the defined benefit obligation is 19.1 years (2013: 15.9 years).
The Dutch government has reduced the limits for tax-free pension accruals with effect from January 1, 2015. For career average pension arrangements the maximum permitted accrual rate is 1.875% which is capped for salaries above EUR 100,000. Aegon adjusted its pension arrangement for Aegon employees in the Netherlands to reflect these governmental changes. Besides this, Aegon adjusted the indexation scheme for both current (active members) and former employees (pensioners and deferred members) as of
Price inflation 1.95% 2.00% 1 Based on prospective mortality table of the Dutch Actuarial Society with minor methodology adjustments.
Financial actuarial assumptions 100 basis points increase in discount rate (526) (331)
The above sensitivity analysis is based on a change in an 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.
The pension scheme Trustees are required to carry out triennial valuations on the scheme’s funding position, with the latest valuation being as at March 31, 2013. As part of this triennial valuation process, a schedule of contributions is agreed between the Trustees and 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
EUR 336 million at December 31, 2014 (2013: EUR 260 million).
Notes to the consolidated financial statements of Aegon N.V. Note 42
100 basis points decrease in discount rate 463 344 100 basis points increase in price inflation 193 132 100 basis points decrease in price inflation (313) (204)
In 2014, the increase of deferred corporate income tax liabilities primarily related to an increase of unrealized profits in respect of financial assets mainly driven by lower interest rates.
Notes to the consolidated financial statements of Aegon N.V. Note 43
Prior year adjustments in 2013 (refer to note 18) led to an increase of deferred corporate income tax liabilities, with the main impact on financial assets, insurance contracts and defined benefit plans.
Deferred corporate income tax assets are recognized for tax losses carried forward to the extent that the realization of the related tax benefit through future taxable profits is probable. For an amount of gross EUR 366 million; tax EUR 71 million (2013: gross
Aegon did not recognize deferred corporate income tax assets in respect of deductible temporary differences relating to Other items for the amount of gross EUR 32 million; tax EUR 6 million (2013: gross EUR 39 million; tax EUR 8 million).
Notes to the consolidated financial statements of Aegon N.V. Note 46
The following table shows the composition of the total capitalization and the calculation of the gross financial leverage ratio: Total shareholders’ equity 32 24,293 17,601
and the United States are of main importance. Aegon’s Insurance Group Directive ratio (IGD ratio) was 208% at the end of 2014
(2013: 212%). The calculation of the IGD ratio is based on Solvency I capital requirements for entities within the EU (Pillar 1 for Aegon
Insurance Commissioners in the United States. The calculation of the IGD ratio excludes the available and required capital of the UK
In the United States, regulation of the insurance business is principally at the state level. State insurance regulators and the National
Association of Insurance Commissioners have adopted risk-based capital (RBC) requirements for insurance companies. RBC calculations measure the ratio of a company’s statutory capital, which is measured on a prudent regulatory accounting basis, to a minimum capital amount determined by the risk-based capital formula. The RBC formula measures exposures to investment risk, insurance risk, market risk, and general business risk. The formula applies a covariance calculation to determine the appropriate risk-based capital. Life reinsurance is treated as life insurance. The most pertinent RBC measure is the Company Action Level (CAL) risk-based capital. This is the highest regulatory intervention level and is the level at which a company has to submit a plan to its state regulators. The CAL is 200% of the authorized control level (ACL), the level at which regulators are permitted to seize control of the Company. At the end of 2014, the combined risk-based capital ratio of Aegon’s life insurance subsidiaries in the United States was approximately 540% of the CAL risk-based capital.
For the insurance and reinsurance undertakings of Aegon in the EU, the European Solvency I directives are applicable, as implemented in the relevant member states. Solvency I allows member states to require solvency standards, exceeding the minimum requirements set by the Solvency I directives. For life insurance companies the Solvency I capital requirement is by and large the sum of 4% of insurance and investment liabilities for general account and 1% of insurance and investment liabilities for account policyholders if no guaranteed investment returns are given. At the end of 2014, Aegon the Netherlands consolidated solvency capital ratio based on IFRS
The ability of the holding company to meet its cash obligations depends on the amount of liquid assets on its balance sheet and on the ability of the subsidiaries to pay dividends to the holding company. In order to ensure the holding company’s ability to fulfill its cash obligations, it is the Company’s policy that, the holding company holds liquid assets in reserve to fund at least 1.5 years of holding company operating and funding expenses, without having to rely on the receipt of dividends from its subsidiaries.
Notes to the consolidated financial statements of Aegon N.V. Note 47
Liabilities carried at fair value Investment contracts for account of policyholders 2) 15,371 22,683 165 38,220
Total liabilities at fair value 15,403 46,261 3,175 64,839 1 The investments for account of policyholders included in the table above only include investments carried at fair value through profit or loss. 2 The investment contracts for account of policyholders included in the table above represents only those investment contracts carried at fair value. 3 Total borrowings on the statement of financial position contain borrowings carried at amortized cost that are not included in the above schedule.
Revalued amounts Real estate held for own use - - 288 288
Total liabilities at fair value 13,413 30,524 1,545 45,482 1 The investments for account of policyholders included in the table above only include investments carried at fair value through profit or loss. 2 The investment contracts for account of policyholders included in the table above represents only those investment contracts carried at fair value. 3 Total borrowings on the statement of financial position contain borrowings carried at amortized cost that are not included in the above schedule.
The table below shows transfers between Level I and Level II for financial assets and financial liabilities recorded at fair value on a recurring basis during 2014.
Fair value through profit or loss Investments for account of policyholders 163 1 - 263
Total unrealized gains and losses for the period recorded in the P&L for instruments held at December 31,
Other investments at fair value 826 (116) 2 155 (52) (9) 112 - 17 - (1) 934 -
Investments for account of policyholders 1,989 92 - 534 (640) - 38 - 90 (148) - 1,956 85
Investments in real estate for policyholders 996 53 - 66 (86) - 73 - - - - 1,101 55
Total unrealized gains and losses for the period recorded in the P&L for instruments held at December
Other investments at fair value 1,416 145 - 53 (360) - (56) 106 (86) 1,217 146
Investments for account of policyholders 1,715 197 - 338 (407) - (15) 210 (50) 1,989 153
Revalued amounts Real estate held for own use 305 (2) (5) (2) (1) - (7) - - 287 (2)
Total assets at fair value 10,287 181 180 2,196 (1,410) (547) (267) 815 (758) 10,676 225
Liabilities carried at fair value Investment contracts for account of 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.
Transfers from Level III amounted to EUR 712 million (2013: EUR 756 million).
Significant unobservable assumptions The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain
Debt securities Broker quote n.a. 3,201 n.a. 2,605 n.a. Discounted cash flow Discount rate 199 3% - 8% (7.88%) 202 3% - 8% (6.62%) Discounted cash flow Credit spread 223 0.8% - 3.3% (2.67%) 212 0.4% - 2.6% (2.33%)
Other investments at fair value Tax credit investments Discounted cash flow Discount rate 759 8.5% 696 8.2% Investment funds Net asset value n.a. 104 n.a. 126 n.a. Other Other n.a. 72 n.a. 4 n.a.
Other investments at fair value Investment funds Net asset value n.a. 1,231 n.a. 1,217 n.a. Other Other n.a. 6 n.a. - n.a.
Total liabilities at fair value 3,010 1,431 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 and used. 3 Investments for account of policyholders are excluded from the table above and from the disclosure regarding reasonably possible alternative assumptions.
Policyholder assets, and their returns, belong to policyholders and do not impact Aegon’s net income or equity. The effect on total assets is offset by the effect on total liabilities. Derivatives exclude derivatives for account of policyholders amounting to EUR 129 million.
The description of Aegon’s methods of determining fair value is included in the consolidated financial statements for 2014.
The table above presents the impact on a fair value measurement of a change in an unobservable input for financial instruments.
Increasing or decreasing the liquidity premium respectively decreases or increases the value of the investment. Aegon adjusted the discount rate with 100 basis points up or down for this input; b. For corporate bonds the most significant unobservable input for the valuation of these securities is the credit spread. An increase in credit spread results in a lower valuation, while a decrease in credit spread results in a higher valuation. Aegon adjusted the discount rate by 50 basis points up or down for this input; c. Tax credit investments are measured at fair value using an internal model. The most significant unobservable input for valuation of these tax credits is the discount rate. Increasing or decreasing the discount rate would result in respectively a lower or higher valuation. Aegon adjusted the discount rate by 50 basis points up or down for this input; d. The derivative included is a longevity index derivative. Most significant unobservable input is expected mortality. Changing the expected mortality changes the cash flow expectations from this derivative. Increasing (decreasing) the mortality rates decreases (increases) the value of the investment. Aegon adjusted longevity with 2% up or down for this input, compared to the expected mortality in determining the value of this derivative; and e. To determine the fair value of the bifurcated embedded derivatives related to guarantees, a discount rate is used including credit spread. An increase in the credit spread results in lower valuation, while a decrease results in a higher valuation of the embedded derivatives. Aegon increased or decreased the credit spread by 20 basis points.
Private loans - held at amortized cost 1,783 - 96 1,792 1,888
Other loans - held at amortized cost 2,381 - 2,034 348 2,381
Subordinated borrowings - held at amortized cost 44 - 73 - 73
Borrowings – held at amortized cost 10,813 1,916 1,527 7,659 11,101
Investment contracts - held at amortized cost 14,079 - 4,299 10,088 14,387
Fair value measurement The description of Aegon’s methods of determining fair value and the valuation techniques are described on the following pages.
that are measured at par, which are reported as part of Other. A FHLB has implicit financial support from the United States government.
The redemption value of the shares is fixed at par and they can only be redeemed by the FHLB.
Aegon’s valuation policy utilizes a pricing hierarchy which dictates that publicly available prices are initially sought from indices and third-party pricing services. In the event that pricing is not available from these sources, those securities are submitted to brokers to obtain quotes. The majority of brokers’ quotes are non-binding. As part of the pricing process, Aegon assesses the appropriateness of each quote (i.e. as to whether the quote is based on observable market transactions or not) to determine the most appropriate estimate of fair value. Lastly, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use the following inputs: reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows.
Third-party pricing services will often determine prices using recently reported trades for identical or similar securities. The third-party pricing service makes adjustments for the elapsed time from the trade date to the balance sheet date to take into account available market information. Lacking recently reported trades, third-party pricing services and brokers will use modeling techniques to determine a security price where expected future cash flows are developed based on the performance of the underlying collateral and discounted using an estimated market rate.
Valuations of corporate bonds are monitored and reviewed on a monthly basis. The pricing hierarchy is dependent on the possibility of corroboration of market prices when available. If no market prices are available, valuations are determined by a discounted cash flow methodology using an internally calculated yield. The yield is comprised of a credit spread over a given benchmark. In all cases the benchmark is an observable input. The credit spread contains both observable and unobservable inputs. Aegon starts by taking an observable credit spread from a similar bond of the given issuer, and then adjust this spread based on unobservable inputs.
Embedded derivatives in insurance contracts including guarantees All bifurcated guarantees for minimum benefits in insurance and investment contracts are carried at fair value. These guarantees include Guaranteed minimum withdrawal benefits (GMWB) in the United States, United Kingdom and Japan which are offered on some variable annuity products and are also assumed from a ceding company; minimum interest rate guarantees on insurance products offered in the Netherlands, including group pension and traditional products; variable annuities sold in Europe and Japan.
Since the price of these guarantees is not quoted in any market, the fair values of these guarantees are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees.
In 2013, Aegon updated the way it extrapolates yield curves beyond market observable maturities. The discount rates converge linearly in 10 years to an Ultimate Forward Rate of 4.25% from the last liquid point. The uniform last liquid point for all Aegon’s major currencies
Property Databank. Valuations are mostly based on active market prices, adjusted for any difference in the nature, location or condition of the specific property. If such information is not available, other valuation methods are applied, considering the value that the property’s net earning power will support, the value indicated by recent sales of comparable properties and the current cost of reproducing or replacing the property. Discount rates used in the valuation of real estate reflect the risk embedded in the projected cash flows for the asset being valued. Capitalization rates represent the income rate for a real estate property that reflects the relationship between a single year’s net operating income expectancy and the total property price or value. For property held for own use, appraisers consider the present value of the future rental income cash flows that could be achieved had the real estate been rented to a third party.
Trust pass-through securities and subordinated borrowings Trust pass-through securities and subordinated borrowings are either carried at fair value (if they are designated as financial liabilities at fair value through profit or loss) or amortized cost (with fair value being disclosed in the notes to the consolidated financial statements). For the determination of the fair value of these instruments, the level hierarchy as described by IFRS is used. The preferred method of obtaining the fair value of the fair value option bonds is the quoted price (Level I). In case markets are less liquid or the quoted prices are not available, an internal model is used, based on parameters which are market observable (Level II). Aegon uses a discounted cash flow method including yield curves such as deposit rates, floating rates and 3-month swap rates. In addition, Aegon includes own credit spread based on Aegon’s credit default swap curve.
Summary of total financial assets and financial liabilities at fair value through profit or loss The table that follows summarizes the carrying amounts of financial assets and financial liabilities that are classified as at fair value through profit or loss, with appropriate distinction between those financial assets and financial liabilities held for trading and those that, upon initial recognition, were designated as at fair value through profit or loss.
Total financial assets at fair value through profit or loss 25,940 195,112 12,771 168,749
Aegon N.V. has guaranteed and is severally liable for the following: �� Due and punctual payment of payables due under letter of credit agreements applied for by Aegon N.V. as co-applicant with its captive insurance companies that are subsidiaries of Transamerica Corporation, Aegon USA, LLC, and Commonwealth General
Corporation. At December 31, 2014, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 2,403 million (2013: EUR 2,392 million); as of that date no amounts had been drawn, or were due under these facilities. Other letter of credit arrangements for subsidiaries amounted to EUR 114 million (2013: EUR 158 million); as of that date no amounts had been drawn, or were due under these facilities; �� Due and punctual payment of payables due under letter of credit agreements or guarantees provided for subsidiaries of
Transamerica Corporation at December 31, 2014 amounted to EUR 3,099 million (2013: EUR 2,633 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
EUR 1,275 million (2013: EUR 1,089 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
Certain of the products we sell are complex and involve significant investment risks that may be assumed by Aegon’s customers.
Aegon decided to reduce future policy costs for the large majority of its unit-linked portfolio. At the time of that acceleration, that decision was expected to decrease income before tax over the remaining duration of the policies by approximately EUR 125 million in aggregate, based on the present value at the time of the decision. While parties such as the Ombudsman Financiële Dienstverlening
Markten or ‘AFM’) issued a request to the insurance industry to contact certain customers to determine whether unit-linked products sold in the past, actually perform as originally contemplated. Aegon has actively responded to that request by contacting customers to assess the performance of these products in the context of the then current objectives of that customer and to solicit an informed decision by those customers whether or not to continue with, make changes to or terminate these products (‘activeren van klanten’).
This process is actively monitored by the AFM, including the percentage of customers contacted. Sanctions may be imposed if the AFM
determines that an insurer did not conduct this process adequately as well as timely. The perceived adequacy of this process is being monitored by the Dutch Parliament and may impact the likelihood of future legislation. Any changes in legislation, regulatory requirements or perceptions of commercial necessity may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
EUR 25 million in 2013 in connection therewith. In 2014, Aegon announced that it would voluntarily compensate holders of KoersPlan products that were not plaintiffs in the litigation. The compensation amounts to the difference, if any, between the amount of premium charged by Aegon for a comparable risk in a product providing only death benefit coverage over the same period, and the premium
(if higher) actually charged by Aegon in connection with the KoersPlan product. This voluntary product improvement was supported by the consumer interest group that initiated the court action over the KoersPlan product, Stichting Koersplandewegkwijt. However, another interest group, Stichting Woekerpolisproces, announced in 2014 that it expected in the future to file a claim in court against
On January 13, 2015, the Dutch court approved a request filed by Optas Pensioenen N.V., a wholly owned subsidiary of Aegon, to remove restrictions on the capital of the harbor workers’ former pension fund Optas. Restrictions may be removed three months from the date of the court ruling, after the appeal period expires. Once the restrictions have been removed, pursuant to their agreement entered into in April 2014, Aegon will make a payment to Stichting Belangenbehartiging Pensioengerechtigden van de Vervoer- en
�� Repurchase activities; whereby Aegon receives cash for the transferred assets. The financial assets are legally (but not economically) transferred, but are not derecognized. The obligation to repay the cash received is recognized as a liability. �� Transferred financial assets that are derecognized in their entirety and Aegon does not have a continuing involvement (normal sale); �� Transferred financial assets that are derecognized in their entirety, but where Aegon has a continuing involvement: �� Securitizations whereby mortgage loans are transferred to a securitization vehicle which is not part of the Group and where
Aegon has a continuing involvement in the transferred assets; �� Collateral accepted in the case of securities lending, reverse repurchase agreement and derivative transactions; and �� Collateral pledged in the case of (contingent) liabilities, repurchase agreements, securities borrowing and derivative transactions.
Investments for account of policyholders Carrying amount of transferred assets 250 7,840 24 645
Non-cash collateral that can be sold or repledged in the absence of default 1,689 1,517
49.4 Assets pledged Aegon pledges assets that are on its statement of financial position in securities borrowing transactions, in repurchase transactions, in derivative transactions and against long-term borrowings. In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral.
As part of Aegon’s mortgage loan funding program in the Netherlands, EUR 8.2 billion (2013: EUR 5.4 billion) have been pledged as security for notes issued (note 39 Borrowings). In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral. The amount of collateral pledged for derivative transactions was EUR 1,419 million (2013: EUR 1,852 million).
Financial Services. The loss on the sale amounted to EUR 22 million. The sale was completed in the third quarter of 2013.
Americas �� Aegon USA, LLC, Cedar Rapids, Iowa (United States); �� Transamerica Advisors Life Insurance Company, Little Rock, Arkansas (United States); �� Transamerica Casualty Insurance Company, Columbus, Ohio (United States); �� Stonebridge Life Insurance Company, Rutland, Vermont (United States); �� Transamerica Financial Life Insurance Company, Inc., Albany, New York (United States); �� Transamerica Life Insurance Company, Cedar Rapids, Iowa (United States); �� Transamerica Life Canada, Toronto, Ontario (Canada) - Held for sale since fourth quarter of 2014; and �� Transamerica Premier Life Insurance Company, Cedar Rapids, Iowa (United States).
New Markets �� Aegon-CNOOC Life Insurance Company Ltd, Shanghai (China), life insurance company (50%); �� Aegon Sony Life Insurance Cy, Tokyo (Japan), life insurance company (50%); �� Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A., Oviedo (Spain), life insurance and pension company (50%); �� Aegon Santander Generales Seguros y Reaseguros, S.A., Madrid (Spain), non-life insurance company (51%); �� Aegon Santander Vida Seguros y Reaseguros, S.A., Madrid (Spain), life insurance company (51%); �� Aegon Santander Portugal Vida – Companhia de Seguros de Vida S.A., Lisbon (Portugal), life insurance company (51%); �� Aegon Santander Portugal Não Vida – Companhia de Seguros S.A., Lisbon (Portugal), non-life insurance company (51%); and �� Aegon Industrial Fund Management Co., Ltd, Shanghai (China), investment management company (49%).
Americas �� Mongeral Aegon, Seguros e Previdencia S.A., Rio de Janeiro (Brazil), life insurance company (50%).
United Kingdom �� Tenet Group Limited, Leeds, independent financial advisers (22%); and �� 7IM, London, investment management company (25.1%).
Refer to note 26 Investments in associates for further details on these investments.
On May 22, 2014, and with effect of May 21, 2014, Vereniging Aegon exercised its options rights to purchase in aggregate 2,320,280 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 May 21, 2014, in connection with the Long Term Incentive Plans for senior management.
On July 5, 2013, and with effect of June 14, 2013, Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 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 June 14, 2013, being the final dividend 2012 in the form of stock dividend.
On May 29, 2013, Aegon N.V. and Vereniging Aegon entered into an amendment of the 1983 Amended Merger Agreement between
B. Vereniging Aegon may exercise its call option on common shares B to keep or restore its total stake at 32.6% irrespective of the circumstances that caused the total shareholding to be or become lower than 32.6% (see also the section ‘Major Shareholders’).
On October 15, 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 3,907,000 class B preferred shares at par value to mitigate dilution caused by Aegon’s issuance of shares on September 15, 2012, being the interim dividend 2012 in the form of stock dividend.
In 2013 and 2012 a special tax levy (‘crisis tax’), as introduced by the Dutch government, was accrued for members of the Management
Remuneration of members of the Executive Board The information below reflects the compensation and various related expenses for members of the Executive Board. Under the current remuneration structure, rewards are paid out over a number of years, or in the case of shares, vest over a number of years. This remuneration structure has made it more relevant to present rewards earned during a certain performance year instead of what was received in a certain year.
Notes to the consolidated financial statements of Aegon N.V. Note 53
Expenses recognized under IFRS accounting treatment in the income statement for conditionally awarded cash and shares differ from the awards. For the performance year 2014 and previous performance years, expenses under IFRS for Mr. Wynaendts amounted to
For Mr. Button, the expenses under IFRS with regard to conditionally awarded cash and shares recognized in the income statement during the performance year 2014 for his role as CFO and member of Aegon’s Executive Board amounted to EUR 466 (2013: EUR 288).
CFO of Americas and Head of Corporate Financial Center. The related expenses under IFRS for those awards recognized in 2014 for the period that Mr. Button has been part of the Executive Board amount to EUR 372 (2013; EUR 500).
IFRS in 2013 for Mr. Nooitgedagt relate to the conditional variable compensation awards for the performance year 2013 as well as for previous performance years. The vesting conditions and applicable holding periods for the awards of Mr. Nooitgedagt remain nevertheless unchanged. Mr. Nooitgedagt retired on August 1, 2013 and he has been awarded no variable compensation in 2014.
Over the performance year 2014, Mr. Wynaendts was awarded EUR 913 in total conditional variable compensation. Mr. Button was awarded EUR 600.
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% is payable in 2015. Accordingly, Mr. Wynaendts and Mr. Button will receive a cash payment of EUR 183 and EUR 120 respectively. The number of shares to be made available in 2015 relating to performance year 2014 is 27,105 and 17,302 for Mr. Wynaendts and Mr. Button respectively. To the vested shares, with the exception of shares sold to meet income tax obligations, a retention (holding) period is applicable for a future three years, before they are at the disposal of the Executive Board members.
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, with the exception of shares sold to meet income tax obligations, 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 2013 (60%), for Mr. Wynaendts EUR 309 and 62,943 shares and for Mr. Button EUR 140 and 28,716 shares, is to be paid out in equal portions in 2015, 2016 and 2017, 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 cash payment and an allocation of shares vesting. To the vested shares, with the exception of shares sold to meet income tax obligations, a retention (holding) period is applicable for a further three years, before they are at the disposal of the Executive Board members.
Mr. Nooitgedagt was awarded EUR 434 variable compensation for the period he served as a member of the Executive Board in 2013. Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2013, 40% is payable in 2014. Accordingly, Mr. Nooitgedagt will receive a cash payment of EUR 87. The number of shares to be made available in 2014 related to performance year 2013 is 17,650 . Of the remaining 60%, EUR 130 and 26,478 shares is to be paid out in future years, is subject to ex-post assessments, which may result in downward adjustments. In each of the years 2015, 2016 and 2017, equal portions of the deferred variable compensation over 2013 may be made available. Any payout will be split 50/50 in cash payment and an allocation of shares vesting. The vested shares (with the exception of shares sold to meet income tax obligations) are subject to a three year retention (holding) period before they are at the disposal of Mr. Nooitgedagt.
Over the performance year 2012 Mr. Wynaendts was awarded EUR 1,018 in total conditional variable compensation. Mr. Nooitgedagt was awarded EUR 699.
EUR 204 and EUR 140 respectively. The number of shares that was made available in 2013 related to performance year 2012 was 65,111 and 44,741 for Mr. Wynaendts and Mr. Nooitgedagt respectively. To the vested shares, with the exception of shares sold to meet income tax obligations, a retention (holding) period is applicable for a future three years, before they are at the disposal of the Executive Board members.
The remaining part of variable compensation for the performance year 2012 (60%), for Mr. Wynaendts EUR 305 and 97,665 shares and for Mr. Nooitgedagt EUR 210 and 67,110 shares, is to be paid out in future years, subject to ex-post assessments, that may result in downward adjustments and may be subject to additional conditions being met. In each of the years 2014, 2015 and 2016, 20% of the total variable compensation over 2012 may be made available. Any payout will be split 50/50 in a cash payment and an allocation of shares vesting. To the vested shares, with the exception of shares sold to meet income tax obligations, are subject to a three year retention (holding) period, before they are at the disposal of the Executive Board members.
6 These shares vested in 2012 and are subject to an additional two year holding period. 7 These shares vested in 2013 on basis of actual realized performance and are subject to an additional two year holding period. 8 The performance related cash remuneration granted over 2011, payable in 2012, of EUR 163,591 was waived by Mr. Wynaendts. 9 The performance related cash remuneration granted over 2011, payable in 2012, of EUR 106,359 was waived by Mr. Nooitgedagt.
Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Group. For Mr. Button, these benefits also include expenses related to his expatriation from the United States to the
Interests in Aegon N.V. held by active members of the Executive Board Shares held in Aegon at December 31, 2014 by Mr. Wynaendts and Mr. Button amount to 295,734 and 82,340 (2013: 248,332 and 72,872) respectively. For each of the members of the Executive Board, the shares held in Aegon mentioned above do not exceed 1% of total outstanding share capital at the balance sheet date.
At the balance sheet date, Mr. Wynaendts had mortgage loans with Aegon totaling EUR 735,292 (2013: EUR 735,292) with interest
Corien M. Wortmann-Kool (as of May 21, 2014) 55,250 - -
Karla M.H. Peijs (up to September 30, 2013) - 71,500 78,250
Kornelis J. Storm (up to May 21, 2014) 33,750 91,000 83,000
La Banque Postale. Under the terms of the agreement, Aegon will acquire a 25% stake in La Banque Postale Asset Management for a consideration of EUR 112.5 million. The transaction is expected to close in mid-2015 subject to regulatory approval.
Remeasurement of defined benefit plans of group companies 9 (1,611) (706)
Aegon N.V. (or ‘the Company’) and its subsidiaries (‘Aegon’ or ‘the Group’) have life insurance and pensions operations in over 25 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.
2.5 Derivatives All derivatives are recognized on the statement of financial position at fair value. 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 foreign investment. Derivatives with positive fair values are reported as other assets and derivatives with negative values are reported as other liabilities.
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 repayment of the principal is however not at the discretion of Aegon and therefore Aegon has a contractual
Notes to the financial statements of Aegon N.V. Note 2 obligation to settle the repayment in cash or another financial asset or through the exchange of financial assets and liabilities at potentially unfavorable conditions for Aegon. Compound instruments are separated into liability components and equity components.
The liability component for the non-cumulative subordinated notes is equal to the present value of the redemption amount and subsequently carried at amortized cost using the effective interest rate method. The unwinding of the discount of this component is recognized in the income statement. The liability component is derecognized when the Group’s obligation under the contract expires, is discharged or is cancelled. The equity component is assigned the residual amount after deducting the liability component from the fair value of the instrument as a whole. The equity component in US dollars is translated into euro using historical exchange rates.
Borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through the profit and loss as part of a fair value hedge relationship. The liability is derecognized when the Company’s obligation under the contract expires or is discharged or cancelled.
2.11 Contingent assets and liabilities Contingent assets are disclosed in the notes if the inflow of economic benefits is probable, but not virtually certain. When the inflow of economic benefits becomes virtually certain, the asset is no longer contingent and its recognition is appropriate.
The other changes in 2014 in Loans to group companies - long-term mainly relate to currency exchange rate fluctuations.
7 Other assets Other assets include derivatives with positive fair values of EUR 377 million (2013: EUR 306 million).
Vereniging Aegon, based in The Hague, the Netherlands, holds all of the issued common shares B.
In 2014, Vereniging Aegon exercised its option rights to purchase in aggregate 2,320,280 common shares B at market value. It did this to correct dilution caused by Aegon’s issuance of shares on May 21, 2014, in connection with the Long Term Incentive Plans for senior management.
In 2013, Vereniging Aegon exercised its option rights to purchase in aggregate 12,691,745 common shares B at market value.
The following table shows the movement during the year in the number of common shares: Number of common shares 2014 2013
The following table shows the movement during the year in the number of common shares B: Number of common shares B 2014 2013
The weighted average number of EUR 0.12 common shares for 2014 was 2,094,417,832 (2013: 2,035,239,751).
Board remuneration Detailed information on remuneration of active and retired members of the Executive Board including their share and share option rights, remuneration of active and retired members of the Supervisory Board along with information about shares held in Aegon by the members of the Boards is included in note 53 Related party transactions to the consolidated financial statements of the Group.
Notes to the financial statements of Aegon N.V. Note 9 9 Shareholders’ equity
Foreign currency translation differences and movement in foreign investment hedging reserves - - - (84) 1,701 - - - - 1,617
Remeasurement of defined benefit plans of group companies - - - (821) - - - - - (821)
Repurchased and sold own shares - - - - - - - - - -
Repurchased and sold own shares - (400) - - - - (1) - - (401)
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 11,294 million (2013: EUR 6,553 million) of items with positive revaluation and for EUR 523 million of items with negative revaluation (2013: EUR 978 million negative revaluation).
Optas N.V., an indirect subsidiary of Aegon N.V., held statutory reserves of EUR 1,050 million (2013: EUR 997 million) which are restricted. Aegon announced in April 2014 that it had reached agreement with BPVH - a foundation representing Dutch harbor workers and employers - on removing restrictions on the capital of the harbor’s former pension fund Optas pensioenen N.V., thereby ending a long-lasting dispute. To remove the restrictions required prior approval by the court, which was granted in January 2015.
Restrictions may be removed three months from the date of the court ruling in Januari 2015, after the appeal period expires. Included in Aegon N.V.’s legal reserves is an amount of EUR 510 million related to Optas N.V. which represents the increase in statutory reserves since the acquisition of Optas N.V. by Aegon (2013: EUR 458 million). The statutory reserves of Optas N.V. are linked to the acquired negative goodwill related to Optas N.V. at acquisition date.
On the balance sheet date, Aegon N.V., and its subsidiaries held 51,317,190 of its own common shares (2013: 41,307,910) with a face 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. Movements in the number of repurchased own shares held by Aegon N.V.
Transactions in 2013 Sale: 1 transaction, price EUR 5.02 - (5,408,521)
Shares granted / Share options cost incurred - - 29 - 29
Shares granted / Share options cost incurred - - 54 - 54
Junior perpetual capital securities Coupon rate Coupon date, as of Year of next call 2014 2013
EUR 950 million floating DSL rate 2) Quarterly, July 15 2015 950 950
Perpetual subordinated bonds Coupon rate Coupon date, as of Year of next call 2014 2013 1 The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until 2015. 2 The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until
Non-cumulative subordinated notes Coupon rate Coupon date, as of Year of next call 2014 2013
On February 7, 2012, Aegon issued USD 525 million in aggregate principal amount of 8.00% non-cumulative subordinated notes, due 2042, in an underwritten public offering in the United States registered with the US Securities and Exchange Commission.
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, 2014, the equity component amounted to
The repayment periods of borrowings vary from within one year up to a maximum of 25 years. The interest rates vary from 3.000% to 6.625% per annum. The market value of the long-term borrowings amounted to EUR 2,297 million (2013: EUR 2,518 million).
13 Other liabilities Loans from and payables to group companies have a maturity of less than one year. Other includes derivatives with negative fair values of EUR 406 million (2013: EUR 272 million).
(2013: EUR 1,089 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
Notes to the financial statements of Aegon N.V. Note 14 14 Number of employees Other than Mr. Wynaendts there were no employees employed by Aegon N.V. in 2014. During 2013 the Company employed
Accountants N.V. (NL) Of which Ernst & Young Accountants LLP (NL)
(‘the Group’) as at December 31, 2014 and of its result and cash flows for the year then ended in accordance with International
What we have audited We have audited the accompanying 2014 financial statements of Aegon N.V. (‘the Company’) based in The Hague. The financial statements include the consolidated financial statements and the stand-alone financial statements of the Company.
The financial reporting framework that has been applied in the preparation of the financial statements is EU-IFRS and the relevant provisions of Part 9 of Book 2 of the Dutch Civil Code for the consolidated financial statements and Part 9 of Book 2 of the Dutch Civil
We are independent of the Company in accordance with the ‘Verordening inzake de onafhankelijkheid van accountants bij assurance-opdrachten’ (ViO) and other relevant independence regulations in the Netherlands. Furthermore we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA) and other relevant regulations.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our audit approach Overview We designed our audit by determining materiality and assessing the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of bias by the directors that may represent a risk of material misstatement due to fraud. Furthermore, we addressed information technology general controls (‘ITGCs’)
that are the policies and procedures used by the Company to ensure information technology (‘IT’) operates as intended and provides reliable data for financial reporting purposes.
Audit scope � We conducted audit work in all significant locations. � To take responsibility for the entire Group, the Group engagement team performed oversight procedures on the work of component teams for all the significant locations including the Netherlands, the Americas, the United Kingdom, Central and Eastern Europe and Spain.
Materiality The scope of our audit is influenced by our application of materiality. We established certain quantitative thresholds for materiality.
Misstatements may arise due to fraud or error. They are considered to be material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.
We evaluated the income before tax amounts for 2014 and prior years noting significant fluctuations from year to year. As a result, we used the average of 2014, 2013 and 2012 income before tax. 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 operations rather than exceptional or volatile circumstances.
We also take misstatements and or possible misstatements into account that, in our judgement, are material for qualitative reasons.
We agreed with the Audit Committee of the Supervisory Board that we would report to them misstatements identified during our audit above EUR 4 million as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
The scope of our Group audit Our engagement consists of review procedures on the Q1 2014, Q2 2014 and Q3 2014 condensed consolidated interim financial statements and the year-end audit as discussed herein. Aegon N.V. is the parent of a group of entities. The Group is structured predominately along geographical lines referred to as regional units. The financial information of the Group is included in the consolidated financial statements of the Company.
In our view, due to their significance and/or risk characteristics, the regional units of the Americas, the United Kingdom and the
Netherlands required a full-scope audit of their financial information. Specific audit procedures on certain account balances and classes of transactions were also performed in relation to amongst others Central and Eastern Europe, Spain and Asset Management to ensure we obtained appropriate coverage across all account balances.
Group’s total liabilities. This is an area that involves significant judgement over uncertain future outcomes, including primarily the timing and ultimate full settlement of long term policyholder liabilities. Consistent with the insurance industry, the Company uses valuation models to support the calculations of the insurance contract liabilities. The complexity of the models may give rise to errors as a result of inadequate/incomplete data or the design or application of the models. Economic assumptions such as investment return and interest rates and actuarial assumptions such as mortality, morbidity and customer behavior are key inputs used to estimate these long-term liabilities. Significant judgement is applied in setting these assumptions. During 2014, the Company continued a multi-year review of their actuarial models focusing first on those considered high risk. This model update in combination with the Company’s actuarial and economic assumptions update resulted in certain charges being recorded for the year as explained in note 3 Critical accounting estimates and judgment in applying accounting policies.
We assessed the design and tested the operating effectiveness of internal controls over the actuarial process including management’s determination and approval process for setting of economic and actuarial assumptions. We assessed the
We assessed the experience analyses performed by the Company in their assumption setting processes. Our assessments 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 considered the appropriateness of actuarial judgements used in the models, which may vary depending on the product and/or the specifications of the product, and also the compliance of the models with the applicable accounting standards.
Furthermore we performed audit procedures to determine the models and systems were calculating the insurance contracts liabilities accurately and completely.
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.
We also assessed the adequacy of the disclosures regarding these liabilities in the consolidated financial statements to determine they were in accordance with EU-IFRS.
Deferred policy acquisition costs (DPAC) and value of business acquired (VOBA) Refer to note 2.6 Summary of significant accounting policies –
We used our own actuarial specialists to assist us in performing our audit procedures.
Where applicable, we assessed the amortization calculations performed including the appropriateness of the assumptions used in determining the estimated gross profits and the extent of the associated adjustment necessary to the DPAC
and VOBA assets. Our work in this area included assessing the reasonableness of assumptions such as the projected investment return by comparing against the investment portfolio mix and market data.
We also considered the adequacy of the Group’s disclosures about the degree of estimation involved in the valuation of DPAC
– Investments and note 47 Fair value. The Group’s investment portfolio including net derivative assets totaling EUR 156 billion represents 37% of the Group’s total assets. Quoted prices from liquid market sources can be obtained for a majority of the portfolio.The areas that involved significant audit effort and judgement were the valuation of illiquid instruments which are valued based on models and assumptions that are not observable by third parties which are generally considered model based level II and level III investments as included in note 47 Fair value. Our focus considered both the positions that are presented at fair value on the balance sheet and those positions carried at amortized cost on the balance sheet but for which fair value is required to be disclosed. The risk was not uniform for all investment types and was considered greatest for derivatives, direct and indirect investments in real estate, mortgage loans, asset backed securities; hedge funds, private equity funds and other alternative investments; and unlisted equity and debt securities.
We used our internal valuation specialists to assist us in performing our audit procedures.
We assessed the design and tested the operating effectiveness of internal controls over the investments’ process including management’s determination and approval of assumptions and methodologies used in model-based calculations, controls over data integrity and change management for internally operated valuation models and management’s review of valuations provided by external experts or data vendors.
We compared assumptions used against appropriate benchmarks and pricing sources, investigated significant differences and performed our own independent valuations where applicable.
Uncertainties in policyholder claims and litigation Refer to note 48 Commitments and contingencies.The insurance industry is seeing increasing consumer activism and regulatory scrutiny over product design and selling practices. The Company has encountered claims and litigations in this respect. Depending on the actual legal position and expectations from management, claims, including litigation related, are either provided for as a liability or reflected as contingent liabilities in the notes to the financial statements. The Company uses external legal experts where applicable to evaluate its legal positions.
We gained an understanding of the policyholders’ claims and litigations though discussions with management including general legal counsel.
We also assessed the completeness and adequacy of the related disclosures to determine they were in accordance with EU-IFRS.
We assessed the accounting treatment for this transaction including the held-for-sale presentation and timing of recording the associated loss. Held for sale accounting guidance under
Transition as auditors including audit of opening balances Initial audit engagements involve a number of considerations not associated with recurring audits. Additional planning activities and considerations necessary to establish an appropriate audit strategy and audit plan include: �� Gaining an initial understanding of the Company and its business including its control environment and information systems, sufficient to make audit risk assessments and develop the audit strategy and plan; �� Obtaining sufficient appropriate audit evidence regarding the opening balances including the selection and application of accounting principles; and �� Communicating with the previous auditors.
Our transition plan included amongst others: �� Close interaction with the previous auditor, including a process of file reviews and formal hand over procedures as prescribed by our professional standards; �� Active knowledge sharing with the Finance, Risk and Internal
Audit functions to understand their perspectives on the business, (emerging) risks and key findings from their work.
Attendance of formal clearance meetings with senior management and the Audit Committee during the
Q3 2013 and Q4 2013 quarterly and year-end financial closing and reporting process; �� Evaluation of key accounting positions and audit matters from prior years. Review of management’s control documentation to assist in obtaining an understanding of the
Company’s financial reporting and business processes; and �� Introduction meetings with the Dutch Central Bank as the key regulator of the Company’s insurance and banking operations.
Audit Committee in May 2014 and we reported status, progress and key findings from our audit process on a quarterly basis.
Responsibilities of the management and the Supervisory Board Management is responsible for: �� the preparation and fair presentation of the financial statements in accordance with EU-IFRS and with Part 9 of Book 2 of the
Dutch Civil Code; �� the preparation of the directors’ report in accordance with Part 9 of Book 2 of the Dutch Civil Code, �� such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
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.
Report on other legal and regulatory requirements Our report on the director’s report and the other information Pursuant to the legal requirements of Part 9 of Book 2 of the Dutch Civil Code (concerning our obligation to report about the directors’
report and other information): �� We have no deficiencies to report as a result of our examination whether the directors’ report, to the extent we can assess, has been prepared in accordance with Part 9 of Book 2 of this Code, and whether the information as required by Part 9 of Book 2 of the
Dutch Civil Code has been annexed. �� We report that the directors’ report, to the extent we can assess, is consistent with the financial statements.
From the matters communicated with the Audit Committee of the Supervisory Board, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of doing so. A precondition is that the Company has not publicly disclosed information about the matter.
Other information Proposal for profit appropriation Appropriation of profit will be determined in accordance with the articles 31 and 32 of the Articles of Association of Aegon N.V.
The relevant provisions read as follows: 1. The General Meeting of Shareholders shall adopt the Annual Accounts; 2. If the adopted profit and loss account shows a profit, the Supervisory Board may decide, upon the proposal of the Executive Board, to set aside part of the profit to augment and/or form reserves.
If the proposed dividend is approved by shareholders, Aegon shares will be quoted ex-dividend on May 21, 2015, for the shares listed on the New York Stock Exchange and on May 22, 2015, for shares listed on Euronext. The record date for the dividend on the shares listed on Euronext will be May 25, 2015, and the record date for dividend on shares listed on the New York Stock Exchange will be
Net income attributable to equity holders of Aegon N.V. 1,186 854
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 2,145,947,511 common shares and 581,325,720 common shares B issued. Of the issued common shares, 49,536,806 common shares were held by Aegon as treasury shares and 1,780,384 treasury shares were held by its subsidiaries.
The objective of Vereniging Aegon is the balanced representation of the interests of Aegon N.V. and all of its stakeholders, including shareholders, Aegon Group companies, insured parties, employees and other relations of the companies.
In accordance with the 1983 Amended Merger Agreement, Vereniging Aegon had certain option rights on preferred shares to prevent dilution of voting power as a result of share issuances by Aegon N.V. This enabled Vereniging Aegon to maintain voting control at the
Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months.
In the years 2003 through 2011, 110,072,000 class B preferred shares were issued under these option rights. In August 2012 and
October 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 8,021,000 class B preferred shares at par value.
Incentive Plans for senior management, the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock dividend. On May 22, 2014, and with effect of May 21, 2014, Vereniging Aegon exercised its options rights to purchase in aggregate 2,320,280 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 May 21, 2014, in connection with the Long Term Incentive Plans for senior management.
Accordingly, at December 31, 2014, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.55%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.).
At December 31, 2014, the General Meeting of Members of Vereniging Aegon consisted of 17 members. The majority of the voting rights is with the 15 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 two other members are elected by the General Meeting of Members of Vereniging Aegon from the Executive Board of Aegon N.V.
Vereniging Aegon has an Executive Committee consisting of seven members, five of whom are not, nor have ever been, related to
Aegon, including the Chairman and the Vice-Chairman. The other two members are also members of the Executive Board of Aegon N.V.
Aegon N.V., as set out in the Articles of Association of Vereniging Aegon.
Other major shareholders To Aegon’s knowledge, there are two other parties which hold a capital and voting interest in Aegon N.V. in the excess of 3%.
Dutch Autoriteit Financiële Markten on July 1, 2013 the Dodge & Cox International Stock Fund stated to hold 83,320,454 common shares and voting rights which represents 3.1% of the capital issued as at December 31, 2014. On February 13, 2015, Dodge & Cox’s filing with the United States Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 242,671,430 common shares, representing 9.1% of the issued capital, and has voting rights for 236,832,861 shares, representing 8.8% of the votes. The SEC filing also shows that of this number of shares Dodge & Cox International Stock Fund holds 125,227,471 common shares, which represents 4.6% of the issued capital as at December 31, 2014. The remainder of the common shares registered in name of Dodge & Cox with the
Based on its last filing with the Dutch Autoriteit Financiële Markten on August 27, 2014 FMR stated to hold 113,707,413 common shares, representing 4.2% of the issued capital, and stated to hold 107,092,451 voting shares, representing 3.9% of the votes.
As at December 31, 2014 Amounts in million EUR Cost1) Fair value Book value
Additional information �� Regulation and supervision 323 �� Risk factors 325 �� Property, plants and equipment 341 �� Employees and labor relations 342 �� Dividend policy 342 �� The offer and listing 343 �� Memorandum and Articles of Association 344 �� Material contracts 346 �� Exchange controls 346 �� Taxation 346 �� Principal accountant fees and services 353 �� Purchases of equity securities by the issuer and affiliated purchasers 354 �� Quarterly results – unaudited 355 �� Glossary 356 �� Disclaimer 361 �� Contact 363
Regulation and supervision Individual companies in the Aegon Group are each subject to prudential supervision in their respective home countries. Insurance and banking companies, as well as some of the investment undertakings in the Aegon Group are required to maintain a minimum solvency margin based on local requirements. In addition, some parts of the Aegon group are subject to prudential requirements on a consolidated basis, including capital and reporting requirements. Such additional requirements lead, in some circumstances, to duplicative requirements, such as the simultaneous application of CRD IV/CRR consolidated requirements and Solvency II group solvency requirements. Eligible capital to cover solvency requirements typically includes shareholders’ equity, convertible core capital securities, perpetual capital securities, and dated subordinated debt and senior debt.
Based on European Union legislation (EU Directive 98/79/EC, the Insurance Group Directive) adopted in 1998, EU supervisors, such as
Conglomerate Directive includes supplementary capital adequacy requirements for financial conglomerates and supplementary supervision on risk concentrations and intra-group transactions in the financial conglomerate.
The Solvency II framework will impose prudential requirements on the individual EU insurance and reinsurance companies in the Aegon group, as well as at Aegon group level. Insurance supervision will be exercised by local supervisors on the individual insurance and reinsurance companies in the Aegon group, as well as at group level. It is expected that DNB will become Aegon’s group supervisor under Solvency II. Solvency II will introduce economic, risk-based capital requirements for insurance and reinsurance companies in all
(Individual Personal Pension #2) had a value of GBP 2,289.37 as of 31 December 2014. Regular monthly contributions of GBP 18.61 are received into this policy. The third plan (Individual Personal Pension #3) had a value of GBP 125,311.66 as of December 31, 2014.
Regular monthly contributions of GBP 527.91 are received into this policy. The fourth plan (Individual Personal Pension #4) had a value of GBP 5,916.68 as of December 31, 2014 and no further contributions are being received into this policy. The related annual net profit arising from these four policies is estimated to be GBP 13,788.10.
Aegon’s businesses, results of operations, cash flows and financial condition, and Aegon cannot predict definitively whether or when such actions may occur.
For general account products, Aegon typically bears the risk for investment performance equaling the return of principal and interest.
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.
Aegon’s investment portfolio contains, among other investments, Dutch government bonds, US Treasury, agency and state bonds, as well as other government issued securities. Due to the weak economic environment, especially in Europe, 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. The fixed income market conditions experienced through 2014 led to recognized impairment gains on debt securities held in general account of EUR 20 million (2013: EUR 71 million loss, 2012: EUR 99 million loss).
accounts for insurance and investment contracts (such as variable annuities, unit-linked products and mutual funds) where funds are invested in equities. Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee that Aegon earns on the asset balance in these products and prolonged investment under-performance may cause existing customers to withdraw funds and potential customers not to grant investment mandates.
Some of Aegon’s insurance and investment contract businesses have minimum return or accumulation guarantees, which requires
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. These cash payments to policyholders also result in a decrease in total invested assets and net income. Early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income.
Base interest rates set by central banks and government treasuries remain at or near the historically low levels initiated in response to the worldwide recession and attempts to stimulate growth.
The value of the related general account fixed-income investment portfolio at the end of the years 2014, 2013 and 2012 was
The sensitivity of Aegon’s net income and shareholders’ equity to a change in interest rates is provided in note 4 Financial risks to the consolidated financial statements, section ‘Interest rate risk’.
As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure also exists when policies are denominated in currencies other than Aegon’s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities are managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders’ equity is required to satisfy regulatory and Aegon’s self-imposed capital requirements. Therefore, currency exchange rate fluctuations may affect the level of Aegon’s consolidated shareholders’ equity as a result of translation of the equity of Aegon’s subsidiaries into euro, Aegon’s reporting currency. Aegon holds the remainder of its capital base (capital securities, subordinated and senior debt) in various currencies in amounts that are targeted to correspond to the book value of Aegon’s business units. This balancing is intended to mitigate currency translation impacts on equity and leverage ratios. Aegon may also hedge the expected dividends from its principal business units that maintain their equity in currencies other than the euro.
equity may fluctuate. 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 dollar and the euro and between the UK pound and the euro. Aegon may experience significant changes in net income and shareholders’ equity because of these fluctuations.
The exchange rates between Aegon’s primary operating currencies (US dollar, euro and UK pound) continued to fluctuate during 2014.
In 2014, the US dollar ranged by 13% against the euro, finishing around 12% up from 2013. The UK pound fluctuated by around 8%
against the euro ending the year with a 6% increase from 2013.
For the Americas, which primarily conducts its business in US dollars, total revenues and net income in 2014 amounted to
EUR 13.0 billion and EUR 590 million, respectively. For the UK, which primarily conducts its business in UK pounds, total revenues and net income in 2014 amounted to EUR 7.0 billion and EUR 178 million, respectively. On a consolidated basis, these represented 66%
of the total revenues and 65% of the net income for the year 2014. Additionally, Aegon borrows in various currencies to hedge the currency exposure arising from its operations. As of December 31, 2014, Aegon has borrowed or swapped amounts in proportion to the currency mix of capital in units, which was denominated approximately 53% in US dollars, 29% in euro, 13% in UK pounds and 5% in
It is possible that the euro may be abandoned as a currency in the future by countries that have already adopted its use. This may lead to the re-introduction of individual currencies in one or more European Monetary Union member states, or in more extreme circumstances, the dissolution of the European Monetary Union. It is not possible to predict with certainty the effect on the European
and global economies of a potential dissolution of the European Monetary Union or the exit of one or more European Union member states from the European Monetary Union. Any such event may have a materially adverse effect on Aegon’s future financial condition and results of operations.
Liquidity risk is inherent in much of Aegon’s businesses. Each asset purchased and liability sold has unique liquidity characteristics.
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 2014. In depressed markets, Aegon may be unable to sell or buy significant volumes of assets at quoted prices.
In 2014, approximately 40% of Aegon’s general account investments were not highly liquid.
Aegon’s earnings depend significantly upon the extent to which actual claims experience is consistent with the assumptions used in setting the prices for Aegon’s products and establishing the technical liabilities for expected claims. If actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, Aegon’s income would be reduced. Furthermore, if less favorable claims experience became sustained, Aegon may be required to increase liabilities for other related products, which may reduce Aegon’s 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 balance sheet 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 may be accelerated and may require write-offs due to an expectation of unrecoverability. This may have a materially adverse effect on Aegon’s results of operations and financial condition.
Sources of underwriting risk include the exercise of policyholder options such as lapses, policy claims (such as mortality and morbidity)
If the trend toward increased longevity persists, Aegon’s annuity products may continue to experience adverse effects because the period of time over which benefit payments are made becomes longer as life expectancies increase. Aegon is also at risk if expenses are higher than assumed.
The valuation of many of Aegon’s financial instruments is based on methodologies, estimations and assumptions that are subject to different interpretations and may result in changes to investment valuations that may have a materially adverse effect on Aegon’s results of operations and financial condition. In addition, the determination of the amount of allowances and impairments taken on
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 valuation of life insurance policies regulation, 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
Aegon utilizes affiliated captive insurance companies to manage risks of various insurance policies, including universal life with secondary guarantees, level term life insurance and variable annuity policies. Through these structures, Aegon finances certain required regulatory reserves at a lower cost. To the extent that state insurance departments restrict Aegon’s use of captives and regulatory reserve requirements remain unchanged this could increase its cost, limit its ability to write these products in the future or lead to increased prices to consumers on those products. The NAIC continues to consider changes to corporate governance and insurers’ use of captives. Due to the uncertainty of the proposals it is not possible to provide an estimate of the effects at this time.
Aegon has experienced downgrades and negative changes to its outlook in the past, and may experience downgrades and negative changes in the future. For example, during 2012, Fitch put a negative outlook on its long-term issuer default rating for Aegon N.V. and its insurer financial strength ratings for Aegon USA. Since 2012, Standard and Poor’s put a negative outlook on its insurer financial strength rating for Scottish Equitable (Aegon UK). A downgrade or potential downgrade, including changes in outlook, may result in higher funding costs and/or affect the availability of funding in the capital markets. In addition, a downgrade may adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of Aegon’s products and services, which may negatively impact new sales and adversely affect Aegon’s ability to compete. This would have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
Aegon’s regulated businesses, such as insurance, banking and asset management, are subject to comprehensive regulation and supervision. The primary purpose of such regulation is to protect clients (i.e. policyholders), not holders of Aegon securities. Changes in existing laws and regulations may affect the way in which Aegon conduct its businesses and the products offered. Additionally, the laws or regulations adopted or amended from time to time may be more restrictive or may result in higher costs than current requirements. The financial crisis of 2008 has resulted in, and may continue to result in further changes to existing laws, regulations and regulatory frameworks applicable to Aegon’s businesses in the countries in which it operates.
Board, Commodity Futures Trading Commission and Securities and Exchange Commission) authority to promulgate new financial regulations applicable to systemically important non-bank financial institutions. The regulatory changes include or may include differing standards of capital for companies deemed systemically important financial institutions (SIFIs) and other companies, as well as initiatives of US State and international financial services regulators to develop international capital, accounting and solvency regulatory standards for internationally active insurance groups (IAIGs). 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
Solvency II will be effective in EU member states as per January 1, 2016 and Aegon is still facing a number of uncertainties on a range of important topics where specific details need to be addressed. For Aegon there are a number of important topics, including internal model approval and the supervisory assessment and confirmation of equivalence and regimes that are determined to be equivalent or temporarily or transitionally equivalent. For entities where Solvency II quantitative requirements apply to ensure adequate capitalization, outstanding items include the specific calibration of the discount curve for insurance liabilities. These calibrations may include Volatility or Matching Adjustments which are countercyclical measures that ensure that the long term and illiquid nature of insurance or reinsurance obligations is reflected appropriately in the valuation. The full details around the calibration and application of these adjustments are not yet available, which makes it difficult to assess the impact on Aegon’s solvency ratio. Furthermore, the templates that need to be used for both public and supervisory reporting are still in development by the European Insurance and
Changes in pension and employee benefit regulation, social security regulation, financial services regulation, taxation and the regulation of securities products and transactions may adversely affect Aegon’s ability to sell new policies or claims exposure on existing policies.
In addition, many of Aegon’s products offer returns that are determined or that are affected by, among other things, fluctuations in equity markets as well as interest rate movements. These returns may prove to be volatile and occasionally disappointing. Disputes may also arise about the adequacy of internal controls, the level of appropriateness, disclosure, use and operation of modelling (quantitative or otherwise), investment allocations or other product features. From time to time this results in complaints to Aegon or to regulatory bodies, in regulatory inquiries and investigations as well as in disputes that lead to litigation. Inquiries and investigations, regardless of their merit, may result in orders and settlements involving monetary payments and changes to the way Aegon does business.
Legal proceedings may take years to conclude. Parties are generally allowed to institute appeal from a decision in first instance. A decision in appeal may qualify for appeal to a supreme court. Also, Dutch law, for example, at present does not provide for a statutory basis for a plaintiff to claim damages on behalf of a class. Only once a plaintiff, in its capacity as member of a class, has obtained a ruling on the merits of a case, it can claim damages on an individual basis. Alternatively, negotiations between the defendant and customer interest groups may lead to a form of collective monetary settlement. This settlement can then be declared binding by the court and applied to the entire class. However, the Dutch Minister of Justice issued a draft legislative proposal in 2014 to provide for a statutory basis for plaintiffs to claim damages on behalf of a class, which proposal is currently being considered by the various interested parties.
Ministry of Finance for certain existing unit-linked products. These principles were the result of an industry-wide review by the Ministry of the various agreements reached between individual insurance companies and customer interest groups in relation to unit-linked insurance policies. The Ministry made a strong appeal to all industry participants to apply these principles. As a result of this acceleration, Aegon took a one-off charge of EUR 265 million before tax in 2012. In addition, Aegon decided to reduce future policy costs for the large majority of its unit-linked portfolio. At the time of that acceleration, that decision was expected to decrease income before tax over the remaining duration of the policies by approximately EUR 125 million in aggregate, based on the present value at the time of the decision. While parties such as the Ombudsman Financiële Dienstverlening (the Netherlands financial services industry ombudsman) supported the arrangements reached with customer interest groups, the public debate over the adequacy generally of these and other arrangements, as well as discussions in the
Dutch Parliament, continue and may lead to re-examination and adjustment of the settlements made. It is not yet possible to determine the direction or outcome of these matters, including what actions, if any, Aegon may take in response thereto, due to commercial necessity or future rulings or, for example, at the instigation of regulatory authorities, or the impact that any such actions may have on Aegon’s business, results of operations and financial position. For example, the Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten or ‘AFM’) issued a request to the insurance industry to contact certain customers to determine whether unit-linked products sold in the past, actually perform as originally contemplated. Aegon has actively responded to that request by contacting customers to assess the performance of these products in the context of the then current objectives of that customer and to solicit an informed decision by those customers whether or not to continue with, make changes to or terminate these products (‘activeren van klanten’). This process is actively monitored by the AFM, including the percentage of customers contacted. Sanctions may be imposed if the AFM determines that an insurer did not conduct this process adequately as well as timely. The perceived adequacy of this process is being monitored by the Dutch Parliament and may impact the likelihood of future legislation. Any changes in legislation, regulatory requirements or perceptions of commercial necessity may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
Aegon of such adverse decisions would not have a material adverse effect on Aegon’s results of operations or financial position if the principles underlying any such decision were to be applied also to Aegon products.
A group of holders of unit-linked policies filed a claim in civil court against Aegon in Poland over the fees payable by a customer in case of early surrender of the policy contract. Polish law allows a group of individuals to file a claim jointly. Individuals need to specifically opt-in and damages may be claimed for that particular class. Policyholders also filed individual claims. While all fees were explicitly disclosed to policyholders at the time of investment in policy documentation, the plaintiffs allege they are too high.
In October 2014, the Polish Office of Competition and Consumer Protection fined Aegon for an amount of EUR 5.6 million in relation to its communication around this matter. While this fine was not directly related to the civil claim, for reasons of commercial necessity as well as at the instigation of the regulatory authorities, Aegon decided to modify the fee structure of its unit-linked policies. Aegon recorded a charge of EUR 23 million in the fourth quarter of 2014 in connection therewith. There can be no assurances that ultimately the exposure to Aegon in connection with allegations such as those underlying the claims in Poland, would not have a material adverse effect on Aegon’s results of operations or financial position.
European Commission on October 20, 2011, adopted in 2014, requires Aegon to mandatorily trade certain types of OTC derivative transactions on regulated trading venues and clear certain types of transactions currently traded in the OTC derivative markets through
Since 2005, Aegon’s financial statements have been prepared and presented in accordance with IFRS. Any future changes in these accounting standards may have a significant impact on Aegon’s reported results, financial condition and shareholders’ equity.
This includes the level and volatility of reported results and shareholders’ equity. New accounting standards that are likely to have a significant impact on Aegon’s reported results, financial condition and shareholders’ equity include but are not limited to IFRS
Exposure Draft that was published by the IASB in June 2013. The proposed changes in the accounting for insurance contracts is likely to have a significant impact on Aegon. However, it is not yet clear when the final standard will be issued. A final standard may be published by the IASB before the end of 2015.
Further, most insurance products enjoy certain tax advantages, particularly in the United States and the Netherlands, which permit the tax deferred accumulation of earnings on the premiums paid by the holders of annuities and life insurance products under certain conditions and within certain limits. Taxes on this inside build-up of earnings may not be payable at all and, if payable, generally are due only when the earnings are actually paid.
The default of a major market participant may disrupt the markets.
Such a failure may lead to a chain of defaults that may adversely affect Aegon and Aegon’s contract counterparties. In addition, such a failure may impact future product sales as a potential result of reduced confidence in the insurance industry.
Aegon acts as a reinsurer for others) life insurance in force was ceded to other insurers. The major reinsurance counterparties for
Aegon USA and Aegon Canada are affiliates of SCOR SE (SCOR), Munich Re, RGA and Swiss Re. The major reinsurers of Aegon UK are
Swiss Re, Munich Re, Pacific Re and XL Re. The non-life reinsurance for Aegon the Netherlands is diversified across several providers including Lloyds market syndicates. The major reinsurers of Aegon Hungary for non-life are Swiss Re, Munich Re and Hannover Re and for life insurance Munich Re and RGA. Aegon Spain’s major reinsurers are General Re, RGA, National Re and SCOR. Aegon China’s major reinsurers are Hannover Re, Munich Re and China Re, and Aegon India’s major reinsurer is RGA.
Catastrophic events, which are often unpredictable by nature, may result in material losses and abruptly and significantly interrupt Aegon’s business activities.
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
Aegon may face claims from customers, both individual claimants as well as policyholder advocate groups, and negative publicity if
Aegon’s products result in losses or fail to result in expected gains, regardless of the suitability of products for customers or the adequacy of the disclosure provided to customers by Aegon and by the intermediaries who distribute Aegon’s products. New products that are less well understood and that have less of a historical performance track record may be more likely to be the subject of such claims. Any such claims may have a materially adverse effect on Aegon’s results of operations, corporate reputation and financial condition.
Aegon relies on a combination of contractual rights with third parties and copyright, trademark, patent and trade secret laws to establish and protect Aegon’s intellectual property. Third parties may infringe on or misappropriate Aegon’s intellectual property, and it is possible that third parties may claim that Aegon has infringed on or misappropriated their intellectual property rights. Any resulting proceedings in which Aegon would have to enforce and protect its intellectual property, or defend itself against a claim of infringement of a third-party’s intellectual property, may require significant effort and resources and may not prove successful. As a result of any proceeding in which Aegon would have to enforce and protect its intellectual property, Aegon may lose intellectual property protection, which may have a materially adverse effect on Aegon’s businesses, results of operation, financial condition and Aegon’s ability to compete. As a result of any proceeding in which Aegon would have to defend itself against a claim of infringement of a third-party’s intellectual property, Aegon may be required to pay damages and provide injunctive relief, which may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
Operational risk is inherent in Aegon’s businesses and may manifest itself in many ways, including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, processing errors, modeling errors, and/or internal and external fraud. These events may result in financial loss, harm Aegon’s reputation, or hinder Aegon’s operational effectiveness.
failures or breaches in security of these processes and systems will not occur, or if they do occur, that they can be adequately addressed. The occurrence of any of these events may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
Aegon retains confidential information on its computer systems, including customer information and proprietary business information.
Any compromise to the security of Aegon’s computer systems that results in the disclosure of personally identifiable customer information may damage Aegon’s reputation, expose Aegon to litigation, increase regulatory scrutiny, and require Aegon to incur significant technical, legal and other expenses.
Judgments of US courts are not enforceable against Aegon in Dutch courts.
Aegon’s common shares in the possession of Vereniging Aegon are pledged to the consortium of banks. If Vereniging Aegon were to default under the facilities agreement in force at that time, the lenders may dispose of Aegon’s common shares held by them as collateral in order to satisfy amounts outstanding.
As of December 31, 2014, there were 2,145,947,511 common shares and 581,325,720 common shares B issued. Of these,
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 amended Voting Rights Agreement ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares. A Special Cause includes 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 or persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. Accordingly, at December 31, 2014, the voting power of Vereniging Aegon under normal circumstances amounted to approximately 14.55%, 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,
Consequently, Vereniging Aegon may have substantial influence on the outcome of corporate actions requiring shareholder approval, including: �� Adopting amendments to the Articles of Association; �� Adopting the Annual Accounts; �� Approving a consolidation or liquidation; �� Approving a tender offer, merger, sale of all or substantially all of the assets, or other business combination; and �� In particular, during the periods when Vereniging Aegon is entitled to exercise its increased voting rights, it will generally have sufficient voting power to veto certain decisions presented to the General Meeting of Shareholders, including any proposal relating to the following matters: �� Rejecting binding Supervisory Board nominations for membership to the Supervisory Board and Executive Board; �� Appointing an Executive Board or Supervisory Board member other than pursuant to Supervisory Board nomination; and
Property, plants and equipment In the United States, Aegon owns many of the buildings that the Company uses in the normal course of its business, primarily as offices. Aegon owns 14 offices located throughout the United States with a total square footage of 2 million. Aegon also leases space for various offices located throughout the United States under long-term leases with a total square footage of 0.9 million. Aegon’s principal offices are located in Little Rock, AR; Los Angeles, CA; Denver, CO; Cedar Rapids, IA; St. Petersburg, FL; Atlanta, GA; Louisville,
The number of employees per geographical area: Of which agent 5,713 4,753 4,402
See note 14 Commissions and expenses of the Notes to the consolidated financial statements of this Annual Report for a description of share-based payments to employees.
The offer and listing The principal market for Aegon’s common shares is Euronext Amsterdam. Aegon’s common shares are also listed on NYSE New York.
The table below sets forth, for the calendar periods indicated, the high and low sales prices of Aegon’s common shares on Euronext
Provisions related to directors For information with respect to provisions in the Articles of Association relating to members of the Supervisory Board and Executive
Common characteristics of the common shares and common shares B �� All shares are in registered form; �� All shares have dividend rights except for those shares (if any) held by Aegon as treasury stock. Dividends which have not been claimed within five years lapse to Aegon; �� Each currently outstanding share is entitled to one vote except for shares held by Aegon as treasury stock. There are no upward restrictions; �� However, under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be able to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in the absence of a Special Cause,
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 Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred, Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months; �� All shares have the right to participate in Aegon’s net profits. Net profits is the amount of profits after contributions, if any, to a reserve account; �� In the event of liquidation, all shares have the right to participate in any remaining balance after settlement of all debts; �� The General Meeting of Shareholders may, at the proposal of the Executive Board, as approved by the Supervisory Board, resolve to reduce the outstanding capital either by (i) repurchasing shares and subsequently canceling them, or (ii) by reducing their nominal share value; �� There are no sinking fund provisions; �� All issued shares are fully paid-up; so there is no liability for further capital calls; and �� There are no provisions discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of shares.
Material differences between Dutch law and US law with respect to the items above Reference is made to the paragraph ‘Differences in company law practices for domestic companies’ included in the Corporate
Special conditions governing changes in the capital There are no conditions more stringent than what is required by law.
(ii) these entities would not be subject to Netherlands corporate income tax, if these entities would be tax resident in the Netherlands for corporate income tax purposes and (iii) these entities are not comparable to investment institutions (fiscale beleggingsinstellingen)
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 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% 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.
The reduction is applied to the Netherlands dividend tax that Aegon must pay to the Netherlands tax authorities and not to the amount of the Netherlands dividend tax that Aegon must withhold. The reduction is equal to the lesser of: i. 3% of the amount of the dividends distributed by Aegon that are subject to withholding tax; and ii. 3% of the gross amount of the dividends received during a certain period from the qualifying non-Netherlands subsidiaries.
If a person is neither a resident nor is deemed to be a resident of the Netherlands for Netherlands corporate or individual income tax purposes, such person is not subject to Netherlands income tax in respect of income derived from Aegon common shares and gains realized upon the redemption or disposal of Aegon common shares, except if: i. The person is not an individual and (1) has an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or a permanent representative Aegon common shares are attributable, or (2) is (other than by way of securities) entitled to a share in the profits of an enterprise or a coentitlement to the net worth of an enterprise, which is effectively managed in the Netherlands and to which enterprise Aegon common shares are attributable. This income and these gains are subject to Netherlands corporate income tax at up to a maximum rate of 25; ii. The person is an individual that (1) has an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or permanent representative Aegon common shares are attributable, or (2) realises income or gains with respect to Aegon common shares that qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden) in the Netherlands which includes activities with respect to Aegon common shares that exceed regular, active portfolio management (normaal, actief vermogensbeheer), or (3) is
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 Netherlands
Netherlands Gift and Inheritance Tax Act 1956, but such holder dies within 180 days after the date of the gift, and at the time of his or her death is a resident or deemed to be a resident of the Netherlands for the purposes of the Netherlands Gift and Inheritance Tax Act 1956. A gift made under a condition precedent is deemed to be made at the time the condition precedent is fulfilled.
The proposed FTT has a very broad scope and could, if introduced in its current form, apply to certain dealings in Aegon common shares
Member State or (2) where the financial instrument which is subject to the dealings is issued in a participating Member State.
The FTT proposal remains subject to negotiation between the participating Member States and is subject to legal challenge. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of Aegon common shares are advised to seek their own professional advice in relation to the FTT.
ii Taxation in the United States This section describes certain US Federal income tax consequences to beneficial holders of common shares that are held as capital assets. This section does not address all US Federal income tax matters that may be relevant to a particular holder. Each investor should consult their tax advisor with respect to the tax consequences of an investment in the common shares. This section does not address tax considerations for holders of common shares subject to special tax rules including, without limitation, the following: �� Financial institutions; �� Insurance companies; �� Dealers or traders in securities or currencies; �� Tax-exempt entities; and �� Regulated investment companies; �� Persons that will hold the common shares as part of a ‘hedging’ or ‘conversion’ transaction or as a position in a ‘straddle’ or as part of a ‘synthetic security’ or other integrated transaction for US Federal income tax purposes; �� Holders that own (or are deemed to own for US Federal income tax purposes) 10% or more of the voting shares of Aegon; �� Partnerships or pass-through entities or persons who hold common shares through partnerships or other pass-through entities; and �� Holders that have a ‘functional currency’ other than the US dollar.
Only dividends received from US corporations or from a ‘qualified foreign corporation’ and on shares held by an individual US holder for a minimum holding period (generally, 61 days during the 121-day period beginning 60 days before the ex-dividend date) can qualify for this reduced rate. Aegon is eligible for benefits under the comprehensive income tax treaty between the Netherlands and the
US; therefore, Aegon should be considered a ‘qualified foreign corporation’ for this purpose. Accordingly, dividends paid by Aegon to individual US holders on shares held for the minimum holding period may qualify for a reduced income tax rate. Each US holder should consult their tax advisor regarding the applicable tax rate.
(USAd 250,000 for married taxpayers filing jointly). Each US holder should consult their tax advisor regarding applicability of the NIIT.
If the foreign currency is converted into US dollars on the date of receipt, a US holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend. If the foreign currency received in the distribution is not converted into US dollars on the date of receipt, a US holder will have a basis in the foreign currency equal to its US dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the foreign currency will be treated as ordinary income or loss.
If a US holder receives foreign currency upon a sale or exchange of common shares, gain or loss, if any, recognized on the subsequent sale, conversion or disposition of such foreign currency will be ordinary income or loss, and will generally be income or loss from sources within the United States for foreign tax credit limitation purposes. However, if such foreign currency is converted into US
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.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a US holder or a non-US holder generally may be claimed as a credit against such holder’s US Federal income tax liability provided that the required information is furnished to the US Internal Revenue Service (IRS). Investors should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption. Non-US holders should consult their tax advisors concerning the applicability of the information reporting and backup withholding rules.
Principal accountant fees and services PricewaterhouseCoopers Accountants N.V. (PwC) has served as Aegon’s independent public accountant for the year ended December 31, 2014. For the two preceding fiscal years, for which audited financial statements appear in this Annual Report,
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 registration statements, periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings.
Audit Committee pre-approval policies and procedures Aegon’s Audit Committee is responsible, among other matters, for the oversight of the external auditor. The Audit Committee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by Aegon’s independent auditors (the
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 Audit
Changes in registrant’s certifying accountants As announced at the annual General Meeting of Shareholders in 2012, the audit of Aegon’s accounts from 2014 was put to tender in 2012. In February 2013, after a thorough process the Audit Committee and the Supervisory Board decided to propose to shareholders to appoint PwC as the Company’s independent auditor for the annual accounts of 2014 through 2016. These proposals were approved at the Annual General Meeting of Shareholders on May 15, 2013.
The reports of EY on the Company’s financial statements for 2013 and 2012, for which audited financial statements appear in this
2 On June 17, 2014, a repurchase program to neutralize the dilutive effect of the 2013 final dividend paid in shares was announced. As a consequence approximately 14.5 million shares have been repurchased between June 20 and July 17, 2014. Subsequently, on September 17, 2014, a repurchase program to neutralize the dilutive effect of the 2014 interim dividend paid in shares was announced. As a consequence approximately 16.5 million shares have been repurchased between September 17, 2014 and October 15, 2014.
New premium production accident and health insurance 261 235 241 204 941 225 173 167 181 746
Actuarial funding enables a life insurance company to reduce the size of the unit reserves it holds for unit-linked business to reflect some or all of the unit-linked charges it expects to receive in the future from the units nominally allocated. Actuarial funding is used on those contracts that have surrender penalties and the Company will hold a minimum of the surrender value at all times.
Alt-A mortgages relates to a type of US residential mortgage which are securitized home equity loans. Typical Alt-A borrower has a credit score high enough to obtain an: ‘A’standing. Alt-A
This can be realized through a purchase transaction or by means of a merger. A business combination involving entities
Collateralized Loan Obligation (CLO) is a type of CDO which is backed primarily by leveraged loans.
Liability adequacy testing is an assessment of whether the carrying amount of an insurance liability needs to be increased
Policyholder is a party that has a right to compensation under an insurance contract if an insured event occurs.
These are insurance policies issued by an insurer that is not a related party of the reporting entity, if the proceeds of the policies: �� Can be used only to pay or fund employee benefits under a defined benefit plan; and �� Are not available to the reporting entity’s own creditors.
Spread is the difference between the current bid and the current ask or offered price of a given security.
The reconciliation of these measures to the most comparable IFRS measure is provided in note 5 ‘Segment information’ of this report. Aegon believes that these non-IFRS measures, together with the IFRS information, provide meaningful information about the underlying operating results of Aegon’s business including insight into the financial measures that senior management uses in managing the business.
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 GBP for the United Kingdom, because those businesses operate and are managed primarily in those currencies. None of this information is a substitute for or superior to financial information about Aegon presented in EUR, which is the currency of Aegon’s primary financial statements.
�� Lowering of one or more of insurer financial strength ratings of Aegon’s insurance subsidiaries and the adverse impact such action may have on the premium writings, policy retention, profitability and liquidity of its insurance subsidiaries; �� The effect of the European Union’s Solvency II requirements and other regulations in other jurisdictions affecting the capital Aegon is required to maintain; �� Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business; �� As Aegon’s operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disrupt Aegon’s business, damage its reputation and adversely affect its results of operations, financial condition and cash flows; �� Customer responsiveness to both new products and distribution channels; Competitive, legal, regulatory, or tax changes that affect profitability, the distribution cost of or demand for Aegon’s products; �� Changes in accounting regulations and policies or a change by Aegon in applying such regulations and policies, voluntarily or otherwise, may affect Aegon’s reported results and shareholders’ equity; The impact of acquisitions and divestitures, restructurings, product withdrawals and other unusual items, including 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.
Agent for service in the United States of America Name: Jay Orlandi