Welcome to Aegon’s 2018 Annual Report To prosper, we believe companies must create long-term value for the societies in which they operate. Aegon creates value in several ways: as a provider of financial services, as well as a responsible employer and business partner. We also make significant social and economic contributions through returns to shareholders, tax and support for local communities, as well as through investments both for our own account and on behalf of our customers. Our aim is to be a responsible corporate citizen, fully aware of the impact we have on our stakeholders and on society as a whole.
Council (IIRC) framework and reporting standards issued by the Global Reporting Initiative (GRI). This report also conforms to relevant reporting requirements under the Dutch Corporate
This Annual Report is also used as the basis for our Form 20-F
If you have comments or suggestions about this report, please contact our offices in The Hague. Contact details may be found on page 446.
may be referred to as ‘Aegon Group’ or ‘the Group’. For the purposes of this report, ‘member companies’ shall mean, with respect to Aegon N.V., those companies consolidated in accordance with Dutch legislation relating to consolidated accounts.
Table of contents 2018 at a glance 4 Letter from our CEO
Who we are and what we do 8 Aegon today 10 Our businesses 13 Value creation 16 Stakeholder engagement 17 Our operating environment 21 Our strategy
Board Chairman 42 Corporate governance 46 Differences between Dutch and US
company laws 47 Composition of our Boards 51 Report of the Supervisory Board 59 Remuneration report 66 Non-financial policies, procedures and outcomes 69 Code of conduct 70 Regulation and supervision 76 Capital and liquidity management 86 Asset liability management 88 Reinsurance ceded 90 Risk management 97 In control statement 99 Controls and procedures
fundamentals which define why we exist and will continue to exist, and grow, long into the future. Our purpose is clear, to help people achieve a lifetime of financial security. That requires smart planning, promoting healthy lifestyles and offering the right solutions at every stage of our customers’ lives.
We are clear in the responsibility we have for our customers.
We have put forward a robust approach to securing the financial security of our customers’ retirement and promoting healthy aging in our society.
Aegon. One of the key shifts will be who provides that financial security during retirement. The responsibility is shifting fast from governments and employers to individuals. Though many people are neither equipped with the knowledge nor the resources to protect their financial futures. It is our responsibility to help customers make the right choices.
Our annual retirement research shows that there is a clear connection between wealth and health. We have therefore taken our commitment one step further, supporting people to achieve prosperity and health through all stages of their lives. We are a vocal participant in debates about the retirement challenge and share our knowledge and expertise with the governments and international organizations we work with. Meeting the dynamic needs of our customers and society, responding to new competition, technological and regulatory change, shapes our DNA. We strive to be future fit: by acting as one in an agile manner, being accountable, and above all, being customer centric.
a strong increase the year before. The result only strengthens our commitment to continue to enrich the quality, solutions and support we provide to customers.
Financial results and new medium-term targets Financially, 2018 was challenging. Markets significantly declined toward the end of the year and this directly influenced the value of our customers’ investments, which impacted results of our own administration and services businesses. Even so, we further strengthened our capital position. We raised our full year dividend per share based on our strong capital position and the confidence that we can continue the sustainable growth of capital generation. We have achieved two out of three financial targets for the period 2016-2018: realizing cost savings of EUR 355 million and returning EUR 2.1 billion of capital to shareholders. We made significant progress on our third target, a return on equity of 10%. We have focused on increasing capital generation across our units, providing sustainable and diversified remittances to the Group. This gives us the capacity to invest a significant portion back into existing businesses and to drive future growth. In addition, steps to significantly reduce our leverage ratio in recent years have lowered funding expenses and increased our financial flexibility.
‘Manage for Value’ includes mature, at-scale businesses, which are important sources of capital and earnings for many years to come. We carefully manage their financial and operational risks to ensure that the important cash flows we generate from these businesses are optimized. In the ‘Drive for growth’
category, we have grouped businesses which are at scale and have strong market positions with attractive, profitable longterm growth potential. This is where the vast majority of our investments will be directed. Propositions in this category are mostly digital or platform-based, with an emphasis on fee income and protection coverage, while focusing on broader and longer relationships with our customers and advisors.
Actions like these have allowed us to remove expenses from our operations, while at the same time freeing up resources to focus on further improving customer experience and reduce time-to-market. We finalized the sale of the Irish operation and divested our businesses in the Czech Republic and
The growth opportunities in the US are in three core areas: integrated solutions to customers in the workplace market, new innovative and fairly priced products for individuals and the level of advice and guidance we offer to our customers.
In the Netherlands, we are consolidating the administration of pension products into the systems of our subsidiary TKP.
The sale closed in January 2019.  Aegon US subsidiaries reach a settlement with the SEC over concerns relating to certain investment models.
Percentage of customers with two or more products (% of total number of customers)
Benchmarked NPS (% of businesses ranked in top half against peers)
2 Normalized capital generation after Holding expenses, excluding market impacts and one-o� items.
 The Aegon brand operates as Aegon Insights in Australia, China, Indonesia, Japan, Thailand and Hong Kong.  The Transamerica brand operates as Transamerica Life Bermuda in Hong Kong, Singapore and Bermuda.  Aegon Asset Management operates under the Aegon brand in the US, the Netherlands, Hungary, Spain, Germany, Hong Kong and
Who we are and what we do Aegon today Aegon today
Where our earnings come from (underlying earnings before tax, in EUR million)
Aegon is an international financial services group. We provide life insurance, pensions and asset management. Our main operations are in the US, the Netherlands and the UK. We also have significant businesses in Southern and Eastern Europe, Asia and Latin America.
1 Europe includes Aegon’s operations in the Netherlands, UK, Central and Eastern Europe, Spain and Portugal.
Our products and services Aegon’s businesses offer a range of financial products and services to help customers throughout their working lives and into retirement. These include life insurance, accident & health cover, pensions and retirement plans, annuities, savings products and investments. In some countries, we also offer mortgages, home and car insurance. We insure customers’ lives, protect their families and help them save for education and retirement. We help them buy new homes, and manage their long-term investments. When they retire, we provide a stable income. We also help our customers meet care costs – a growing concern in many parts of the world – and ensure, that when they are gone, their families’ future is secure. In retirement particularly, we see a connection between health and long-term financial security.
Our holding company, Aegon N.V., is headquartered in The Hague, the Netherlands. Aegon Asset Management manages assets on behalf of third parties and Aegon’s own businesses, covering all major asset classes, including fixed income, equity and real estate. We also have Transamerica Ventures – our corporate venture capital firm, which invests in innovative, new technology companies. Our businesses operate locally through two main brands: Aegon (mainly in Europe and Asia) and Transamerica
In many countries, we have joint ventures; these give us access to local markets and expertise. In Spain and Portugal, for example, we offer products through Banco Santander’s more than 3,000 bank branches. We also have significant joint ventures in China, India, Japan, France, the Netherlands, Brazil and Mexico.
For further details on our businesses, see our Business Overview on pages 345-377.
With businesses across the Americas, Europe and Asia, we have the advantages of a global group. We can share talent, knowledge, processes and technologies. We are also more efficient with our capital: alone, our businesses would not be able to diversify risk, and as a result would need to hold significantly more capital. Size can also be important in the investment industry – our global presence is the basis for our growing asset management business.
Distribution In many markets, to distribute our products, we work with intermediaries. These include brokers, agents, banks, employee benefit consultants and independent financial advisors. This multi-channel approach allows us to reach more customers.
Increasingly, our products and services are sold direct to customers and companies, including via online platforms.
Since the crisis, regulators have emphasized the need for more effective consumer protection. As a result, we have seen tighter controls on product design, distribution and reporting.
The biggest change was the introduction of new capital rules in 2016 under Solvency II; an insurer’s Solvency II ratio has now become an important measure of its financial strength.
Directive) will bring in more open banking, allowing consumers to share their personal financial data electronically. We are also seeing further efforts to open up Europe’s financial services market, via MiFID II, as well as changes in financial reporting rules with IFRS 17 on accounting for insurance contracts (due for
Locations US, Canada, Brazil, Mexico Netherlands, UK, Hungary, Poland, Turkey, Romania, Spain, Portugal
US, UK, Netherlands, Hungary, Spain, Germany, France, China, Hong Kong, Japan
• Agents • Employee benefit consultants • Bancassurance • Self service/online, call/advice centers
• Aegon affiliated companies • Direct B2B (non-affiliated) • Banks, other financial institutions and (their) investment platforms (non-affiliated)
1 Bermuda relates to Transamerica Life Bermuda. 2 Asia includes locations of our joint venture GoBear. Financial results of GoBear are reported under Holding and other activities. 3 Akaan Aegon operates under the brand name Akaan Transamerica.
1 In markets where we no longer pay commissions because of local regulations, we ‘enable’ customer payments for financial advice to brokers and other intermediaries through the sale of our products and services.
Long-term value creation Our business creates value for our stakeholders and society.
 For our employees, we offer training in new skills and opportunities for career development. We pay salaries and other social benefits, and provide a safe, fulfilling environment in which to work.
 For our business partners, we pay fees to brokers, financial advisors and other intermediaries1. We also invest in our joint ventures and partnerships. We pay reinsurers and suppliers for their goods and services.
 Our investors receive returns on their investments through regular dividends, share buy-backs and interest payments; they may also gain financially if our share price increases.  For the wider community, we pay fair taxes and provide employment. We also support local communities through donations and volunteering. We take a responsible approach to investments, and contribute to society’s current debate on retirement, pensions and healthy aging.
Social and economic role of financial services Our businesses make a significant social and economic contribution. Insurance, in particular, strengthens social stability by protecting people, property and assets. Financial companies are also significant long-term investors in the economy, funding public and private sectors, creating new jobs and driving business growth. More broadly, financial services allow individuals and businesses to take risks, as well as plan and invest for the future.
As a company, we take in financial resources – essentially debt and equity – from our investors and creditors. This gives us the financial capital we need to run our businesses. From our resources, we pay employees, reinsurers, suppliers and intermediaries – and invest in our business.
Financial capital To our customers, we pay out pensions, benefits and insurance claims. From our profits, we offer sustainable, attractive returns for investors. We also provide financial support to local economies through tax payments and donations to charities and other good causes.
• EUR 8.4 billion in impact investments, including renewable energy, affordable housing and international development banks1
To sell our products and services, we rely on key relationships with customers, intermediaries and other business partners. These relationships provide important services and give us access to local markets. At the base of these relationships is trust in our two main brands, Aegon and Transamerica.
• EUR 53.6 billion to our customers in claims, benefits and plan withdrawals
• EUR 861 million to our investors in dividends and interest payments
• EUR 10.1 million in support for local communities through cash donations and employee volunteering
• Our Company-wide employee engagement score was 65, unchanged from 2017
Explanatory note: This chart is based on the International Integrated Reporting
Definitions: Financial capital represents the funds to which Aegon has access. This includes debt and equity finance. Human and intellectual capital refers to individual knowledge, skills and capacities in Aegon’s workforce, as well as the company’s institutional knowledge, processes and expertise. Social and relationship capital covers relationships both within and outside the company. These include relationships with customers, employees, suppliers and other business partners.
Our stakeholders As an international business, we have many stakeholders. Their relationship with Aegon depends not only on the nature of each stakeholder’s organization and activities, but also the value created by that relationship (both for the stakeholder and for Aegon). Aegon defines its stakeholders as ‘any individual or organization affected, or likely to be affected, by its business or that may, in turn, affect the environment in which the Company operates’.
Aegon recognizes five main stakeholder groups:  Customers (individual customers, group and corporate clients)  Employees (full-time and part-time employees, tied agents, trade unions and other employee representative groups)
Employees Time, resources, skills and knowledge Salaries and benefits, training, career development, safe and productive working environment
Engagement allows us to take different stakeholder views into account when making our decisions. We engage with stakeholders regularly through polls and surveys, conferences, perception studies, workshops and face-to-face meetings.
We use their feedback to improve our products and services, to make sure we are aware of risks and opportunities for our business and can continue to deliver long-term value.
Blockchain has the potential to revolutionize the financial services industry; we are part of a reinsurance initiative looking at blockchain, known as B3i.
If successful, this initiative will make processing reinsurance transactions much quicker – and much more efficient.
It should also increase trust. With blockchain, once data is verified and stored, it cannot be changed. B3i began initial testing in October 2017. Alongside Aegon, other leading insurers are also involved, including Allianz, Swiss Re,
Zurich Financial, SCOR and Munich Re. Blockchain could have far-reaching benefits – arguably, its main benefit is in bringing down the cost of insurance. Reducing that cost would benefit insurers, but it should also make insurance more affordable and help close the current ‘protection gap’ –
widest in developing countries, where many people cannot afford private insurance and governments lack the resources to offer state cover.
At the same time, customers are demanding more from financial services. Aging means people are spending longer in retirement; older populations also bring more health issues. People need financial products that will not only help them save, but also manage their savings in retirement and ensure they can meet healthcare costs. Currently, only around 25% of people believe they are saving enough for retirement1.
People need to know that, when the time comes, their insurer or pensions provider will pay out their claims and benefits.
Thanks to technology, we know far more about our customers; with access to data, we are putting more emphasis on prevention.
Business and economic conditions In the past two years, market conditions have generally been favorable, though there are now significant tensions in the global economy. We have seen economic growth in both the US and the Netherlands, as well as in emerging markets like China and
Low interest rates continue to act as a drag on earnings and revenue. And growth in the UK has slowed, in part because of concerns over the country’s planned withdrawal from the EU 2.
1 Source: Aegon Retirement Readiness Survey 2018. 2 See page 75 for more details on our preparations for the UK’s withdrawal from the European Union.
Aegon’s operating environment, based on internal discussions and a thorough media review. We then surveyed both senior management and a cross-section of stakeholders1 to determine which of these topics were most material for the Company.
January 2018. This exercise is a central part of Aegon’s approach to stakeholder engagement (see pages 93 and 421 for further information on our materiality exercise). For the December 2017 assessment, we introduced a number of new topics to reflect changes in our operating environment; these new topics included: reputation & trust, cyber security & information security, big data
In the chart above, arrows indicate movement in topics from the previous assessment; no arrows are included for new topics.
Customers want to be with companies they know and trust. For companies, that means providing reliable products and services – but it also means acting as a responsible corporate citizen.
Degree of influence or control: We can build trust through our business practices, culture and values. But we are also affected by levels of public trust in the wider financial sector.
For our business: with technology, we can be more efficient, speed up internal processes and save costs. Digital technologies also allow us to get closer to our customers. We have more access to data, which means we understand our customers’ needs better (see below). We are also investing in automation to improve customer service and protect our customers’ data. Introducing technology, however, requires investment, both in systems and in new skills. Technology also lowers barriers to competition, particularly from providers currently outside the financial sector.
Increased investment in systems and new skills within workforce; need to retrain employees for new roles as a result of automation; improved and faster customer service, which could lead to increased retention.
For our stakeholders: there are clear benefits for our stakeholders – quicker, more reliable service for both customers and intermediaries. Reducing costs could also mean better returns for our investors. However, increased use of technology has already brought significant job losses, particularly in areas like administration and claims management.
1 For more information on our approach to risk management, see page 90.
In Europe, interest rates remain at historical lows, though in the US rates have been increasing since late 2016.
Degree of influence or control: We have no direct control over interest rates. Benchmark rates are the responsibility of central banks and governments. Longer-term rates, meanwhile, are determined by financial markets (though we do have control over the guarantees we provide to our customers).
Customers are increasingly digital. They want quick, reliable service, more frequent interaction and simple, easy-to-understand products and services.
For our business: changes in customer behavior are opening up new markets for us. These markets will provide future growth for our business. At the same time, we need to adapt quickly – and change our own culture and way of working, which brings risks: if we do not adapt quickly enough, we will lose business to competitors.
Opens up new markets and forms of distribution and partnership, as well as new products and services.
Climate change Climate does not rank highly in our materiality assessment1.
Our review showed only minor direct risks to Aegon’s businesses; our principal risk is reputational. The assessment covers several areas: these include regulatory, strategic, underwriting and investment risk. All risks are assessed for both impact and likelihood. There are nine risks in all. Most were rated either
potential impact on our business. One risk was categorized as ‘likely’ – negative media coverage of our investments (this, according to our assessment, would have a moderate impact on our business).
Our review is overseen by our Climate Working Group (CWG); the CWG’s work is based on recommendations from the Task
Driven by our purpose, we believe everybody deserves a secure future. Our strategy is about building life-time relationships with customers, to create financial security and well-being throughout their lives. Our strategy helps us address material topics important to our customers, employees, investors and other stakeholders.
Our vision For us, creating this secure future means smarter, long-term financial planning. It means the right financial products and services at every stage of life. It also means healthier lifestyles, redefining what we want from retirement, and it means building a cleaner, healthier environment. In each of these areas, we believe Aegon has a positive contribution to make: in helping people achieve financial security; in speaking out on retirement and healthy aging; in using our influence as an investor on environmental issues, and in supporting the UN’s sustainable development agenda. To implement this responsible business strategy, we are also changing the way we do business. Over recent years, we have built a strong foundation – restructuring our businesses, and investing more in new technologies and growth markets. As a result, we are more efficient – and more focused on sustainable growth and the value we can create over the long term, for both our customers and the wider community.
To support the implementation of our strategy, we have set ourselves financial targets for the period 2019-2021 and have selected six non-financial indicators; these will be used to assess progress against specific aspects of our strategy.
For individuals: financial security and well-being This goes to our purpose as a company. In many countries, we know people can no longer rely on state or company pensions and benefits. They need to take more personal responsibility for their finances. To help them, we are investing in new digital technologies. For our customers, this means instant access to their finances, so they can track their savings and investments. And we are putting more into financial education; to take personal responsibility, people need information and knowledge. In the Netherlands, for example, we have the ‘Goed met Geld’ – or ‘Mastering Money’ – program. By the end of 2018, more than 100,000 people had completed the program’s basic financial awareness test.
With ARC, customers and their financial advisors can manage individual pensions, assets and savings through a single, easyto -access platform. We are simplifying our products, expanding distribution and stepping up workplace marketing – offering pensions and other products through employers. Aegon now has 11 million workplace customers in our three main markets: the US, UK and the Netherlands. We want to serve customers throughout their working lives and into retirement. We realize that customers need us most at crucial points in their lives: when they buy a home, have children, or prepare for retirement, for example. We also want to increase interaction with customers –
See page 39 for more information on how our approach to financial security and well-being contributes to these UN Sustainable Development Goals.
For society: secure retirement and healthy aging We know the world is getting older. People are spending much longer in retirement. In 1950, you might expect to have lived another 13 years after retirement. Now, that figure is more than 20 years 1. For many people in the US, Europe and Asia, ‘outliving your savings’ has become a real possibility. At the same time, the cost of long-term care is rising. Aging is driving real change in our business – it is putting pressure on state and company pensions; in response, it is clear people will need to take more personal responsibility for saving for their retirement.
For decades, retirement systems in many countries relied on an implicit social contract between government, employers and individuals. Recently, this social contract has started to fall apart.
In 2018, the Aegon Center for Longevity and Retirement called for a new deal - one that would give people the resources they need to save and invest for retirement, but also ensure the more vulnerable in society are not left behind. The Center’s recommendations included sustainable social security benefits to provide a financial safety net for pensioners, automatic pension plans that make it easier to save, and affordable healthcare to promote healthy aging. The proposals would also mean a step-up in financial education to make sure people have the right knowledge to make investment decisions – and an important role for companies in offering their employees proper workplace savings plans, skills training and healthcare.
Our aim is to become a thought leader on retirement and healthy aging. We invest in research through the Aegon Center for
Longevity and Retirement (ACLR) and its sister organizations in the US and Brazil. We have also built a network of partnerships to push for change and reform in the way we manage retirement, healthcare and aging. As part of this network, we work with the Global Coalition on Aging, the American Association of Retired Persons (AARP), the VU University Alzheimer Centre and the MIT AgeLab.
We also have supplemental health and long-term care businesses in the US. In the UK and the Netherlands, we invest in care homes for the elderly. In 2018, we supported a new Dementia
Discovery Fund and stopped investments in tobacco; smoking is a leading cause of many of the chronic illnesses pushing up healthcare costs.
1 Aegon excludes investment in: - companies deriving 30% or more of their total production from oil sands. - pipeline companies involved in the transportation of oil sands.
Today, we are more likely to see retirement as a new, potentially exciting phase of our lives. However, we are still not saving enough for our pensions – our own research shows that nearly half of people believe that, because of the economic and social consequences of aging, future generations will be worse off than their own. With this work, we want to change attitudes to retirement, health and aging – and encourage more people to save and invest for the long term.
For the environment: clean energy and sustainable real estate As an investor, we have an important role to play – in supporting new low-carbon technologies, and improving the carbon footprint of our real estate investments, so we contribute to a cleaner, healthier environment.
Climate change has been a focus of our investment strategy since 2014. We have built consideration for climate change into our daily investment decisions. We have stopped investing in many coal-mining companies. In February 2019, we also stopped investment in companies involved in oil sands1; prior to the decision, we had approximately EUR 500 million in these investments. Aegon has also signed up to the Dutch national climate agreement, which looks to reduce the Netherlands’
Shared control Control of the topic is shared with, or exercised through, another company, organization or third party.
Some influence Company has ability to influence, but only within its own businesses (not its wider value chain).
We have also sold annuities books in both the US and UK – and have exited Ireland, the Czech Republic and Slovakia2.
As a result of these changes, approximately two-thirds of our earnings now come from newer, growth businesses. We expect 1 Business and Company-Owned Life Insurance. 2 Sale of Aegon’s businesses in the Czech Republic and Slovakia closed in January 2019.
We estimate that automating internal processes will bring significant savings. Using artificial intelligence also helps reduce fraud. At the same time, we have been investing in digitalization –
In both the US and UK, we have transferred policy administration, improving customer service and speeding up product development. With more services transferred to external providers, we have strengthened our global procurement department; this will help bring down costs and ensure effective controls over these services.
Improving product pricing and control environment We have controls embedded in our processes and systems; this is to ensure we have strong and adequate risk and management control – important if we are to retain trust, particularly among customers and investors. In 2018, we settled two cases in the US; one linked to concerns over investment models, the other to rate adjustments on life insurance policies.
In some areas, we have also reviewed product pricing and design.
and Japan. We have also introduced a stricter approach to pricing; this includes targets for returns and pay-back requirements. Our approach should mean better margins and avoid unprofitable sales, which weighed on our performance in the past.
at 211%1, above our 150%-200% target range. Our main businesses are all well within, or above, their own target ranges. Aegon’s stronger capital position is the result of both improved capital generation from our businesses and continued investment in less capital-intensive products and businesses.
Meeting our capital targets also increases flexibility to return capital to our investors.
Over the past three years, to support our strategy, we have made significant changes at our businesses: Americas In the US, we introduced a five-point plan: to sell off non-core businesses, overhaul our products and distribution, save on expenses, reduce our geographical footprint and improve management of existing policies. As part of this plan, we transferred some of our policy administration to Tata Consultancy
Europe In the Netherlands, Aegon is concentrating on pensions, income protection and mortgages. In recent years, we have seen a sharp decline in premium income from defined benefits pensions and individual life insurance. In difficult financial conditions, there is also increased pressure on capital. In response, Aegon has taken steps to reduce risk, and sold UMG, its distribution business in the Netherlands. We also injected more capital into our
Dutch operations – and, since the end of 2015, have cut costs by EUR 79 million. At the same time, we have invested more in fee-based products and products that require less capital.
In the UK, we have repositioned our business. In 2016, we sold our annuities book, and made two important acquisitions: Cofunds and BlackRock’s UK workplace pension business. Over the past year, we have been busy switching assets from these acquisitions onto our UK investment platform. Most of these migrations are now complete, though we expect a final tranche 1 Estimate only. Solvency II ratios are subject to review by regulators. 2 Source: Fundscape. 3 Underlying earnings before tax (2010: EUR 46 million; 2018: EUR 151 million).
in early 2019 with the inclusion of business from UK building society Nationwide. We also announced the transfer of some policy administration. Atos will take over administration of policies belonging to around 1.4 million UK customers not currently on our investment platform. Over time, the new contract will save us GBP 30 million a year, and bring down our costs per policy by around 40%. We expect the partnership to be effective as of mid-2019. In making these changes, Aegon in the UK has moved from providing insurance to pensions and long-term savings. And, in doing so, we have digitized our business, focused on key products for our customers, and sharply reduced our credit and longevity risk. Currently, Aegon has more than 20%
In Southern and Eastern Europe, we sold our businesses in the Czech Republic and Slovakia. We also withdrew from the mortgage and home savings markets in Hungary. At the same time, we expanded our distribution agreement with Banco
GoBear has 15 million users across Asia for its comparison website. In Japan, we have been less successful. We recently repriced our products. We are currently reviewing our business there with our joint venture partner Sony Life.
Asset Management Over the past several years, Aegon’s asset management operations have been growing steadily. Since 2010, our earnings from asset management have more than trebled3. We have used our traditional strength in fixed income to expand. We have seen positive net inflows from third-party clients in each of the past seven years; that has more than offset outflows from Aegon businesses (as units have shifted to more fee business, they have brought down risk, changed mandates and reduced their reliance on investment returns). Aegon Asset Management’s recent growth is built partly on our partnerships – in France, with
La Banque Postale Asset Management (LBPAM) and in China with Industrial Fund Management Company (IFMC). These partnerships give us access to strong distribution. LBPAM has access to the French Post Office’s more than 17,000 branches across France. Internally, we have restructured Aegon Asset
We expect this will help us expand our customer base, and ensure customers we already have stay with us for longer.
Investing in automation, meanwhile, will speed up customer service and further help us protect our customers’ data.  Capitalize on the advantages of being a global group; this means: we are able to diversify risk – and sources of income; we can also attract and retain talent, share innovations and technology and build a strong, global asset management business.
(see charts below). Our ‘Scale up for the Future’ businesses include, for example, mutual funds in US, our joint ventures in Asia, and our growing banking and services business in the Netherlands.
Across our main businesses, we have strategies to put this approach into practice: Americas In the US, we will modernize our processes and systems.
Our partnership with TCS means we can concentrate on faster product development, improving customer service and expanding our use of technology. We will build a single platform for workplace sales, covering pension administration, life and health, and managed financial advice. We already have six million workplace customers in the US at more than 40,000 companies.
Europe In the Netherlands, we will focus on ‘income and living’. We want to consolidate our leading position in pensions, and move more workplace customers into individual pensions and investments.
At the same time, our aim is to scale up distribution – in part by working through external partners. We will also look to play an active role in the consolidation of the Dutch insurance market.
In the rest of Europe, we will bring our businesses closer together. By sharing knowledge and expertise, we can reduce costs and improve customer service. In Hungary, we will look to protect our market position by investing more in IT. In Poland, we will focus on pensions – our insurance business has been shrinking. In Turkey, we are looking for growth despite difficult market conditions. In Spain and Portugal, we will pursue growth, particularly through our partnership with Banco Santander.
1 Source: Fundscape, five-year platform projections, January 2017. NMG Advisers, Platforum. Total assets under administration in the UK are expected to exceed GBP 1 trillion by 2022.
Asia In Asia, we want to continue our recent growth. Over the next several years, we will focus on three important markets: China, India and Indonesia. Key to our strategy is reaching beyond high-net-worth customers, and to increase sales to the region’s burgeoning middle classes.
Source: see footnote 1 on this page AuA: Assets under Administration
Culture and values To implement our strategy successfully, we need the right corporate culture. We want to build a flexible organization –
one that has the customer at the center of its decision-making.
In 2016, Aegon introduced Future Fit. This program sets out four themes. For each theme, we have defined specific behaviors: Theme Acting as one Customer centricity Agility Accountability
• No more working in silos • Collaborating across boundaries and businesses
By adopting these behaviors, our aim is to create a company that is fit for the future – one that meets customers’ expectations, is right for our digitally-connected, data-driven world, and can adapt quickly to changing market conditions; this is important if we are to compete with smaller companies that face less regulation and are able to deliver services more quickly.
Future Fit has been written into our collective labor agreement with trade unions.
As a next step, we will be including Future Fit behaviors in our recruitment. This is important: first, to ensure we recruit the right people for our business and strategy; second, to build a culture focused on long-term value creation.
Future Fit complements our core values. These values form part of Aegon’s Code of Conduct, which applies to all employees worldwide. They are also built into our approach to recruitment and performance appraisal. We require our employees to behave in a way that is consistent with the highest ethical standards to ensure we remain a trusted partner for our customers. Aegon’s Code of Conduct sets out rules and guidelines in different areas, including legal and regulatory compliance, insider dealing, discrimination in the workplace, money laundering, corruption and bribery, protection of personal data and fair treatment of customers and other stakeholders.
In 2018, we faced difficult market conditions; share prices declined sharply toward the end of the year. This affected the value of customer investments, and reduced income from our administration and services businesses. Our earnings were also affected by a series of one-off charges.
Net income 744 2,361 (68%) Net income decreased mainly as a result of one-off charges; these related to four items: • Settlement of a class action lawsuit with US universal life policyholders • Changes to our mortality and lapse assumptions in the Netherlands • Book losses from the sale of Aegon Ireland and our US life reinsurance business • By comparison, our 2017 net income was boosted by a one-off tax credit.
New life sales 820 896 (9%) In the US, we had lower sales of term and indexed universal life insurance; sales to high-net-worth customers in Asia were also down.
Solvency II 211% 201% +10 pp Aegon’s capital position remained strong – well above our Solvency II target range of 150%-200%; our Solvency II ratio increased during the year, despite unfavorable market conditions; this was due mainly to further capital generation during the year and management action to increase capital efficiency. Solvency ratios in our three main units – the US, Netherlands and UK – all remained within or above their target zones.
Non-financial performance Aegon has six global non-financial indicators; these indicators are tied directly to specific aspects of our strategy; they also help us address material topics and measure progress toward our objectives as both an employer and a provider of financial services.
Metric 2018 2017 % change Aspect of strategy supported by indicator
Number of digitally connected customers (% of total number of customers)
Employee engagement score 65 65 Unchanged Customer centricity ('winning outside starts inside')
NA – not available NM – not measured pp – percentage points For more information on these indicators, please refer to pages 30 (Customers) and 32 (Employees).
To support our strategy, we had a series of financial targets for 2016-2018 (see table below). These targets addressed return on equity, expense savings and returns to shareholders. For both expenses and returns to shareholders, we met our targets; for return on equity, we saw an improvement over the three-year period, but failed to meet our 2018 target.
Expense savings (run rate, annualized) EUR 350 million EUR 355 million
Capital returns to shareholders (cumulative, 2016-2018) EUR 2.1 billion EUR 2.1 billion 1 Using the changed definition, return on equity for 2018 is 10.2%. See page 28 for details.
Please note that we decided to discontinue our annual sales growth target before the end of the target period. This was because we felt the metric did not properly reflect Aegon’s underlying strategy.
The current capital framework and related Group target range remain unchanged for the years 2019-2021.
Over the period, our aim is to maintain a capitalization required for a minimum AA- financial strength rating (for our current ratings, see page 80).
In addition to NPS, we use a number of other measurements to assess value created for customers and progress with our strategy. These include our total number of customers and new customers – as well as the percentage of customers who are
‘digitally connected’ and those with two or more Aegon products.  By the end of 2018, we had 28.5 million3 customers, an increase of 1.3% from the previous year. During the year, we added just under 3.8 million new customers. Customers with two or more Aegon products totaled 5.2 million, approximately 18% of our customer base.
For customers, the benefit is generally convenience and ease of use; we can also provide tailored information directly to connected customers.
Responsible products and investments Among our products and services, we offer specific financial products for vulnerable groups and socially-responsible investment funds (SRI). In several countries, we sell products for customers on low incomes – for example: our ‘My Family’
In addition to our products, we also support a number of financial education programs – in many countries, people are taking more personal responsibility for their finances. In the Netherlands, for example, we pay for budget coaches to help customers in financial difficulty. In the US, we work closely with the National
(% of Aegon businesses in top half vs. peers) Increase in SRI funds under management2 (2013-2018, in EUR billion)
Global Remuneration Framework. This contains several important principles, including ‘pay for performance’. Pay is tied directly to regular performance appraisals. To assess performance, we use both financial and non-financial metrics (the precise combination depends on an individual’s position and seniority).
Employee engagement To implement our strategy effectively, we need a committed and engaged workforce. We measure employee engagement annually. Our latest survey was carried out in November 2018.
It showed an overall engagement score of 65, unchanged from the previous year. 89% of Aegon employees completed the survey. We benchmark our score against both the finance and professional services sectors; this benchmark compares scores for individual questions, however; there is no benchmark for our overall engagement score.
Aegon as a financial services provider’ also scored lower in the survey. As part of our response to these results, we are putting a specific focus on leadership and development.
We also use the survey to track progress with our Future
Fit program (for details, see page 27). Survey results are communicated to all levels of the business, and broken down by unit and individual team, so that effective action plans can be put in place to address areas of weakness. In addition to our employee survey, we also measure turnover. Our goal is to keep turnover to a sustainable level. In 2018, turnover increased to 33%, up from 25% the previous year; this was due mainly to an increase in involuntary departures following recent reorganizations.
1 Study carried out by Dutch data company AnalitiQs. The study took into account employees’ age, work experience, length of service and background. 2 Median for the UK financial and insurance sector (source: UK Parliament, The Gender Pay Gap, November 2018). Aegon’s report into its UK gender pay gap is available online at aegon.co.uk. The current report covers the year to April 5th, 2018. Figures for the year to April 2019 will be included in the next report.
We offer benefits, including flexible working, regular health checks, parental leave and company retirement plans. We also provide paid time-off for employees who wish to volunteer on local community projects. We work to keep absenteeism to a minimum. Most of our businesses have health programs; these include fitness programs and screening for serious illnesses like cancer and heart disease, as well as programs to reduce workplace stress. In 2018, our absentee rate was unchanged at 2.4%. The number of work-related accidents and illnesses fell slightly – to 163, down from 167 in 2017.
Diversity and inclusion We believe diversity leads to better decision-making; it also brings us closer to the communities we serve. Diversity and non-discrimination are built into our Code of Conduct.
In the Netherlands, our latest collective labor agreement stipulates equal pay for men and women performing the same functions. In 2018, we conducted a study into equal pay; this found, in general, no difference in pay between men and women doing the same work1. In the UK, we also report our gender pay gap each year. Like other financial companies, we have fewer women in leadership positions; this results in a significant gender pay gap. In 2017, this gap stood at just over 27% – compared with a sector average of 30%2.
Board members are women, as are three of our ten Management
Board members. We want to increase the proportion of women on both Boards, over time, to at least 30% – in line with Dutch government objectives1.
1 For further information, see page 57 (Report of the Supervisory Board – Diversity) and the diversity section of our Corporate Governance Statement, available online.
Business partners Our partners We work with a number of different business partners. These partners help us develop, market and distribute our products and services. In many countries, we operate through joint ventures, particularly where this gives us immediate access to a large customer base. To distribute our products and services, we work through brokers and other financial intermediaries (including banks, agents, independent financial advisors etc.). In the US and
When working with outside providers, our goal is to create long-term relations that benefit Aegon and allow our partners to develop and grow their businesses. We regularly assess the companies we work with against minimum social and environmental standards. These standards are set out in our
We provide training to our distributors, so they understand our policies and are able to provide the right advice to our customers.
Suppliers As a financial services company, we buy goods and services
– including IT support, office equipment and management consultancy. We also buy utilities (electricity, water etc.).
That said, we do not have a particularly complex supply chain
– we do not need to source raw materials or deliver physical goods to customers. In 2018, we spent EUR 1.5 billion on our suppliers, up from EUR 1.4 billion in 2017. We have a Sustainable
Reinsurance We work with a number of reinsurers; they help us offset risk and ensure we are able to meet our financial commitments, even in extreme scenarios. In 2018, we paid EUR 2.7 billion in premiums to our reinsurers, and received EUR 3.7 billion in claims (this compares with EUR 3.4 billion and EUR 4.3 billion in 2017, respectively).
Investors Payments to investors Shareholders receive regular dividends. An interim dividend is paid following half-year results. Final dividends must then be approved by Aegon’s General Meeting of Shareholders in May before payment. Shareholders can opt for payment in cash or stock. Just under half our shareholders are based in the US, another 20% in the Netherlands and 10% in the UK.
In 2018, we paid a total of EUR 861 million to Aegon investors.
Of this, EUR 570 million was in dividends to shareholders; the remaining EUR 291 million was paid to Aegon bondholders.
Dividend policy Payment of dividends depends ultimately on the Company’s capital position and cash flow. Before deciding on dividends, management will also assess future prospects for financial performance. Our goal, over time, is to deliver sustainable dividend growth for our shareholders. In recent years, we have been able to do this thanks to an improvement in our earnings and a stronger capital position. Since 2012, we have increased dividends every year by either one or two cents – equivalent to a 38% increase over six years. Currently, our dividend yield
Stock performance Shareholders may also derive (or lose) value from the performance of our shares. In 2018, Aegon’s stock price fell by 23.3%, which we believe was largely a reflection of wider concerns over economic growth, trade tensions and the effect of persistently low interest rates, as well as concerns about
Jan Feb Mar Apr May Jun Jul Aug Sep DecOct Nov 1 Note that the final dividend for 2018 is subject to approval by Aegon’s General Meeting of Shareholders, scheduled for May 17, 2019.
Wider community Job creation In 2018, Aegon reduced its total workforce by a net 1,775 employees. A total of 5,666 employees left the Company –
In Europe and Asia, we work closely with trade unions and other employee representative groups. We provide training, advice and support to those leaving the Company.
Responsible investment We take a responsible approach to investments. As part of this approach, we integrate ESG (environmental, social and governance) factors into our daily investment decisions. We do this for our own investments; we also advise customers to take a similar approach, though in most cases the final decision as to how and where to invest remains with our clients. Integrating ESG
1 Our exclusion list was last updated in October 2018. The list comprises 14 companies involved in controversial weapons, 48 in thermal coal mining, 11 in oil sands and a further 63 in tobacco. We also exclude investment in 15 countries.
In 2018, we engaged with 360 companies. We have been especially active on climate change in support of our corporate strategy. Over the past year, we engaged on a number of issues, including climate risk and reporting, and corporate governance. When engaging, our aim is to improve companies’
business practice, and reduce investment risk for ourselves and our customers.
We prefer to engage, though we do exclude some investments, where there are international agreements in place, or a clear social or environmental case to do so. Currently, we exclude a total of 136 companies – involved in tobacco, coal mining, oil and tar sands, or controversial weapons, such as cluster bombs and anti-personnel mines1. In the Netherlands, we exclude investments in palm oil. We also refuse to invest in countries that are subject to sanctions, or where there is evidence of systematic human rights abuses. We publish a full list of exclusions on our website. For more details on our approach, see our Responsible
Student loans and sports facilities EUR 208 million Support for the US Federal Family Education Loan Program; this program helps children from low and middle-income families into university
In addition to the above, Aegon has also investments in sustainable timber. At the end of 2018, these totaled EUR 7.9 million. These investments are currently in run-off. Please note that amounts above include some investments made on behalf of Aegon clients and other third parties.
Survey, covering 15 countries around the world. The ACLR’s 2018 report called for a new social contract on pensions and retirement (see page 22). Through our research, we want to raise awareness of aging issues among both public and policymakers.
We also use our research to drive improvements in customer service and product development.
Academy for Vitality and Aging, and the Global Coalition on Aging
Responsible tax We are firmly committed to making a valuable economic and social contribution to the communities in which we operate, both through our own tax payments and through collection and payments of third party taxes. We seek to pay ‘fair taxes’, which for us means paying the right amount of tax in the right places.
It is our policy to allocate profits where value is created through our commercial business activities. For us, tax follows business, which means that our decisions are taken for business reasons and not for tax advantages. We will not, for example, set up artificial tax structures or base business in countries simply to reduce the amount of tax we pay.
wide and by region in the charts below. Taxes borne are a cost of business and affect our financial results. Taxes collected are not a direct cost of business but are collected on behalf of government from others. The reported numbers are on cash payment or accrual basis.
2. the tax consequences are considered as part of every major business decision.
Management Boards on day-to-day operations and the status and effectiveness of the function. At least once a year, the tax function reports to the Supervisory Board’s Audit Committee.
Through our businesses, we support more than 500 local charities and good causes. Among the largest recipients in 2018 were United Way and Habitat for Humanity in the US, the VUMC Alzheimer Center in the Netherlands, and Sick Kids
We have a Charitable Donations Policy, setting out our approach to community investment. In the US, our donations are channeled through the Transamerica Foundation. This Foundation donates at least 5% of its assets each year. In the UK, donation decisions are taken by our employee Charity Committee. We also encourage our employees to volunteer; 97% of our staff worldwide can now claim paid time-off to work on local community projects.
US: 147 Netherlands: 220 UK: 120 Asia: 37 Others: 97 3 Includes dividends, interest, royalties and others 4 Policyholders (including social security tax)
1 Includes state and withholding tax 2 Related to company's own personnel (including social security tax)
1.2: By 2030, reduce at least by half the proportion of men, women and children of all ages living in poverty in all its dimensions, according to national definitions.
• Investments in international development banks that work for poverty reduction and job creation in developing countries
• Investment in micro-finance institutions to provide loans and savings to people without access to traditional financial services
• Working with customers in financial difficulty – budget coaches in the Netherlands /cooperation with National Foundation for Credit Counseling in the US
• Strengthening financial literacy through local initiatives and programs 3.4: By 2030, reduce by one third premature mortality from non-communicable diseases through prevention and treatment, and promote mental health and well-being.
• Supplemental health insurance for customers on low incomes • Cover for customers facing chronic illnesses, including diabetes and cancer • Investment in care homes for the elderly in UK and Netherlands • Support for research into chronic illnesses, including cancer, heart disease and Alzheimer’s • Investment in Dementia Discovery Fund, dedicated to finding treatments for the condition • Exclusion of tobacco from investment to help address health concerns over smoking 8.10: Strengthen the capacity of domestic financial institutions to encourage and expand access to banking, insurance and financial services for all.
• Support for economic growth and job creation through our businesses and investments
• Providing a long-term source of employment for communities in which we operate
7.2: By 2030, increase substantially the share of renewable energy in the global energy mix. 7.3: By 2030, double the global rate of improvement in energy efficiency. 7.a: By 2030, enhance international cooperation to facilitate access to clean energy research and technology, including renewable energy, energy efficiency and advanced and cleaner fossil fuel technology, and promote investment in energy infrastructure and clean energy technology.
• Significant investments in renewable energy – primarily wind and solar power
• Launch of new mortgage feature in the Netherlands, allowing customers to finance energy efficiency improvements to their homes 13.2: Integrate climate change measures into national policies, strategies and planning.
• Support for Dutch national climate agreement, working to reduce carbon emissions
Further details of our support for the UN SDGs may be found on page 435.
During 2018, Aegon’s Supervisory Board focused on how senior management continued to execute its strategy and transform the company. Aegon is now well positioned for growth from a capital, control, management, people and technology perspective. This gives us confidence for the future.
Board in May 2018. Our Board consists of people from a diverse range of backgrounds, nationalities and specialisms, with an equally diverse range of perspectives. What we share, is a common desire to support management in meeting its objectives.
Aegon has undergone in recent years, both in terms of what it does and where it does it. In particular, we are impressed by Aegon’s embrace of new digital technology, and its new capital allocation model. Now that Aegon’s transformation is largely complete, the Supervisory Board looks forward to shifting its focus to supporting the company’s growth agenda.
Beyond the horizon From regulatory requirements to customer demands, the financial services landscape has never changed so fast and as fundamentally as over the last decade. This process of change is only likely to accelerate in the years to come. For this reason, when it comes to strategy, our role as a Supervisory Board is to look beyond ‘the here and now’ and to focus on what lies beyond the horizon. What will, for instance, the industry look like a decade from now? What are the opportunities and risks?
How we safeguard long-term value creation Letter from our Supervisory Board Chairman Letter from our Supervisory Board Chairman
task. Indeed, while regular meetings with senior management are critical to what we do, Supervisory Board visits to Aegon’s various business units can prove every bit as illuminating, offering a
The Supervisory Board is working with the Management Board to examine how Aegon can be part of the solution. Moreover, it is impressed with how Aegon’s purpose continues to not only provide the basis for putting customers first in all that it does, but also the inspiration to raise awareness about financial matters – such as the need to start saving early, and the consequences of moving away from traditional pension systems. Simple changes that can have hugely positive effects on millions of people’s lives.
Aegon also takes its responsibility to assist policy makers to deliver the right legislation that keeps pace with changes in society and continues to meet customers’ needs. The company can only do so because of the dedication and expertise of its people. I would, therefore, like to say a big thank you to Aegon staff across all businesses and regions.
Aegon also has a Management Board. This works in unison with the Executive Board, and helps to oversee operational issues and the implementation of Aegon’s strategy. Aegon’s corporate governance structure is the responsibility of both the Supervisory
Composition of the Supervisory Board Members of the Supervisory Board are appointed by the General Meeting of Shareholders, following nomination by the Supervisory Board itself. Aegon aims to ensure that the composition of the Company's Supervisory Board is in line with Aegon’s diversity policy for the Supervisory Board, Executive
Board and Management Board and is as such well-balanced in terms of professional background, geography, gender and other relevant aspects of the diversity policy. A profile, which is published on aegon.com, has been established that outlines the required qualifications of its members. Supervisory Board members are appointed for a four-year term, and may then be reappointed for another four-year period. Subsequently, the Supervisory Board member can be reappointed again for a period of two years, and then extended by two years at the most. Supervisory Board members are no longer eligible for (re)appointment after reaching the age of 70, unless the Supervisory Board decides to make an exception.
Board. At present, Aegon’s Supervisory Board consists of seven members, all of whom qualify as independent in accordance with the Dutch Corporate Governance Code.
In 2018, no transactions were concluded between the Company and either member of the Executive Board. Furthermore, the Company did not provide any loans to or issue guarantees in favor of either of the members of the Executive Board.
Patrizi, Marco Keim, Onno van Klinken, Carla Mahieu, Mark Mullin and Sarah Russell.
Aegon’s Management Board works in unison with the Executive Board, and helps oversee operational issues and the implementation of Aegon’s strategy. Members are drawn from Aegon’s business units and from Aegon’s global functions.
The members have both regional and global responsibilities. This ensures that Aegon is managed as an integrated international business. While the Executive Board is Aegon’s sole statutory executive body, the Management Board provides vital support and expertise in pursuit of the Company's strategic objectives.
Board and the Management Board committee have been given shape, the members of the Management Board will act in accordance with the provisions provided therefore in the Management Board Charter, the Executive Board Charter and the Supervisory Board Charter.
fortieth (1/40th) of the financial rights attached to a common share. The rights attached to the shares of both classes are otherwise identical. For the purpose of the issuance of shares, reduction of issued capital, the sale and transfer of common shares B or otherwise, the value or the price of a common share B
Significant shareholdings On December 31, 2018, Vereniging Aegon, Aegon’s largest shareholder, held a total of 279,236,609 common shares and 571,165,680 common shares B.
Merger Agreement. All requirements determined by Best Practice 2.7.5 of the Dutch Corporate Governance Code were complied with in the execution of these transactions.
Stock Fund stated to hold 131,792,024 common shares, which represent 4.9% of the issued capital and votes as at
Markten as at March 27, 2018, BlackRock, Inc. stated to hold 112,661,670 shares, representing 4.2% of the issued capital as at December 31, 2018 and 131,979,873 voting rights, representing 4.9% of the votes as at December 31, 2018. On February 4, 2019, BlackRock, Inc.’s filing with the US Securities and Exchange Commission (SEC) shows that
amounting to 15% or more;  A tender offer for Aegon N.V. shares; or  A proposed business combination by any person or group of persons, whether acting individually or as a group, other than in a transaction approved by the Company’s Executive and
the General Meeting of Shareholders. A resolution authorizing the Executive Board to issue new shares is usually presented at Aegon’s Annual General Meeting of Shareholders.
Common shares B can only be transferred with the prior approval of Aegon’s Supervisory Board.
Share plan Senior executives at Aegon companies and some other employees are entitled to variable compensation of which part is granted in the form of shares. For further details, please see the remuneration report on page 59 and note 53 of the notes to
Annual General Meetings of Shareholders in the year of vesting of these shares.
Meeting of Shareholders may cancel the binding nature of these nominations with a majority of two-thirds of votes cast, representing at least one half of Aegon’s issued capital.
Such a resolution also requires a two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital.
Aegon’s Articles of Association or to dissolve the Company, in accordance with a proposal made by the Executive Board and approved by the Supervisory Board.
Best Practice 4.3.3 The Dutch Corporate Governance Code recommends that the General Meeting of Shareholders may cancel the binding nature of nominations for appointments of members of the Executive Board and Supervisory Board with an absolute majority of votes and a limited quorum.
How we safeguard long-term value creation Differences between Dutch and US company laws46 47
Alex Wynaendts began his career in 1984 with ABN AMRO Bank, working in Amsterdam and London in the Dutch bank's capital markets, asset management, corporate finance and private banking operations. In 1997, Mr. Wynaendts joined Aegon as Senior Vice President for Group Business Development.
Operating Officer. A year later, he became CEO and Chairman of Aegon’s Executive Board and Management Board. His current term of office ends in 2019.
Mr. Wynaendts has been an Independent Director of the Board of Air France-KLM S.A. since May 2016 and the Chairman of the Supervisory Board of Puissance B.V. (not listed)
Mark Bloom has over 30 years' experience in information technology. He joined Aegon from Citi in February 2016, where he served as Global Head of Consumer Digital and
Operations Technology, responsible for digital, data and operations technology solutions and innovations. Prior to that, he held a number of technology leadership positions in financial services and the aerospace industry. As Global
Chief Technology Officer at Aegon, Mr. Bloom is responsible for leading the Company's technology and innovation activities, including leveraging technology to drive efficiency and enhancing the customer experience. Mr. Bloom was appointed as a member of Aegon’s Management Board in August 2016.
Adrian Grace (1963, British) CEO of Aegon UK and member of the Management Board of
He was member of the Board of Scottish Financial Enterprise until June 2013.
Marco Keim (1962, Dutch) Head of Aegon Continental Europe and member of the
CEO three years later. Mr. Keim was appointed CEO of Aegon the Netherlands and member of Aegon’s Management Board in June 2008, and Head of Aegon Continental Europe in January 2017. Mr. Keim is a member of the Supervisory Board of Eneco
Onno van Klinken (1969, Dutch) General Counsel and member of the Management Board of
Klinken rejoined Aegon in 2014 as General Counsel responsible for Group Legal, Regulatory Compliance, the Executive Board
Office, and Government and Policy Affairs. Mr. Van Klinken has been a member of Aegon’s Management Board since August 2016. Mr. Van Klinken was appointed member of the Board of Stichting Continuïteit SBM Offshore in December 2016.
Mark Mullin (1963, American) CEO of Aegon Americas and member of the Management Board of Aegon N.V.
How we safeguard long-term value creation Composition of our Boards48 49
Sarah Russell (1962, Australian) CEO of Aegon Asset Management and member of the
Sarah Russell has over 25 years’ experience in international finance and asset management.Ms. Russell began her career at Toronto Dominion in Melbourne before joining ABN AMRO
Robert J. Routs is a former Executive Director for Downstream at the energy company Royal Dutch Shell. He was appointed to Aegon’s Supervisory Board in April 2008 and became
Meeting of Shareholders. Following a ten year tenure, Mr. Routs retired as per May 18, 2018.
Board of ING Bank, where he was responsible for ING's corporate, financial institutions and financial markets activities. He started his career at Chase Manhattan Bank, fulfilling senior roles in commercial and investment banking in France, the Netherlands,
Chairman in May 2018 and his current term ends in 2021.
Mr. Dineen was the non-executive Chairman of the Board of Aretec Inc (not listed, US-based) and was a member of Lincoln
Ben van der Veer (1951, Dutch) Chairman of the Audit Committee
Ben van der Veer is former Chairman of the Board of Management of KPMG N.V. Mr. Van der Veer retired from KPMG on September 30, 2008, and was appointed to Aegon’s Supervisory Board in October 2008. Mr. Van der Veer was re-appointed as a member of the Supervisory Board during the 2016 Annual General
Mr. Van der Veer is a non-executive member of the Board of Directors of RELX PLC. He is also a member of the Supervisory
Board of Royal FrieslandCampina N.V. (not listed), and member of the Supervisory Board of Royal Vopak N.V. since April 2018.
Dirk P.M. Verbeek is a former Executive Board member and former vice president Emeritus of Aon Group. Mr Verbeek is a member of the Advisory Council of OVG Real Estate (not listed). Mr. Verbeek was appointed to Aegon’s Supervisory
How we safeguard long-term value creation Composition of our Boards50 51
Shareholders concerning all appointments and reappointments to, and dismissals from, both the Executive Board and the
Board in 2018 can be found on pages 47-50. All members of the Supervisory Board are considered independent under the terms of best practice provisions 2.1.7, 2.1.8 and 2.1.9 of the Dutch Corporate Governance Code.
There were a number of changes to the Supervisory Board in 2018. Following a ten-year term, Rob Routs stepped down as Chairman and member of the Board at the Annual General
How we safeguard long-term value creation Report of the Supervisory Board51
Dona Young 1 7/7 6/6 4/4 - 5/5 1/1 1 Where a Supervisory Board member retired from the SB, stepped down from a Committee or was appointed throughout the year, only meetings during his/her tenure are taken into account.
Members of the Executive Board and Management Board attended the Supervisory Board meetings held in 2018 when relevant with regard to the meeting agenda. At the request of the Supervisory Board, other Company executives also attended the meetings to provide reports and updates on specific topics. Representatives from Aegon’s external auditor PwC attended the March 2018 Supervisory Board meeting on Aegon’s 2017 Annual Report. PwC also attended all 2018 Audit Committee meetings except for the October deep dive meeting in Edinburgh, the UK, focused on Aegon UK and the combined Supervisory Board Audit and Risk Committee in December. Regular Board meetings were preceded or followed by meetings attended only by the members of the Supervisory
Quarterly results were discussed on the basis of feedback from the Audit Committee. The full-year results reported in this
Board meeting in December 2018, the budget for 2019 was approved and the Medium Term Plan was discussed.
Board strategy meeting, the strategy is discussed as part of the annual strategy process. Plans and projects were discussed during executive sessions and in regular meetings, together with the strategic focus for all operating segments. Furthermore, digitization and the cultural transformation of the business were additional important strategic priorities that were discussed during the Supervisory Board meetings.
Acquisitions and divestments were regularly discussed in the context of the execution of the strategy. The Supervisory
M&A transactions, including but not limited to the acquisition of Robidus in the Netherlands, the divestment of the businesses in Czech Republic, Slovakia and Ireland and the divestment of the last block of US life reinsurance business to SCOR
Aegon’s Global Head Human Resources on progress made towards achieving the objectives of Aegon’s talent agenda: continuing to attract new staff with a wide range of different skills and experience; identifying sufficiently qualified succession candidates; and strengthening the talent pipeline for future succession. The Board also received and discussed the results of the annual global employee survey.
How we safeguard long-term value creation Report of the Supervisory Board52 53
In 2018, Supervisory Board discussions included the following topics:  Strategy, including Aegon’s long-term value creation, its responsible business strategy and business reviews;  Acquisitions, divestments and the strategic direction of Aegon’s businesses, including the organizational transformation throughout the business, such as the strategic partnership to outsource administration of the majority of Transamerica’s insurance and annuity business, and the decision made by Aegon UK to extend the partnership with
Board’s effectiveness;  Human resources, including talent development, results of the global employee survey, cultural change and the risks of cultural behavior within the Company;  Annual and quarterly results, dividends and the
Aegon’s engagement with regulators, and the settlement with the SEC and the settlement in relation to the universal life litigation in the US;  Highlighted topics by Supervisory Board Committees;  Regulatory changes at both a regional and global level;  Tax policy and tax developments; and  Technology, including the technology strategy, technological developments and innovations, and how they can be used to enhance customer centricity.
Results and budget In February 2018, the Supervisory Board convened to discuss the fourth quarter 2017 results. In March 2018, the Supervisory
Management. In particular, the Board discussed the consequences and actions resulting from being designated as a Global
DNB) in the first half of 2018 for their annual meeting.
Aegon. The Board visited local offices and employees in Asia, the UK and the US and was furthermore in particular informed on the strategic direction of Aegon’s activities in Europe, Asia and Asset Management and on the transformation processes within the Company. In addition, the Board was updated on the developments around the General Data Protection
How we safeguard long-term value creation Report of the Supervisory Board53
The Board review assesses the collective performance and effectiveness of the Board and its Committees, and the performance of the Chairman and the individual members of the Board. In doing so, it addresses the composition, competencies, expertise and profile of the Board, the meeting processes and procedures, the mutual interaction, dynamics and communication in the Board, and the Board's key areas of supervision. The questionnaire further addresses events from which lessons can be learned, and reviews the mutual interaction between the Supervisory Board and the Executive Board and
The Committee confirmed that all of its members qualified as independent according to Rule 10A-3 of the SEC, and it also confirmed that the Chairman of the Audit Committee, Ben van der Veer, qualified as a financial expert according to the Sarbanes
Committee meetings In 2018, the Audit Committee held seven meetings, one of which was a combined meeting with the Risk Committee of the Supervisory Board in December 2018. As part of regular deep-dive sessions, a separate meeting took place in October in the UK dedicated to Aegon’s business in the UK. Topics for discussion included the developments within Aegon UK in general, the capital generation, operational management including outsourcing and the digital solutions and integration initiatives within Aegon UK. Audit Committee meetings were attended by the members of the Audit Committee, Aegon’s Chief
Financial Officer, the Head of Corporate Financial Center, the Chief Risk Officer, the Chief Internal Auditor, and partners of PwC, Aegon’s external auditor.
Aside from the Audit Committee meetings, additional sessions were held with internal and external auditors without members of the Executive Board or senior management present.
Financial Reporting In discharging their responsibilities with regards to the 2018 interim and full year financial statements, the Audit Committee:  Reviewed and discussed the management letter and follow up actions with PwC, Internal Audit, the Executive and the
Committee) the Audit Committee:  Reviewed and approved the internal and external audit plans for 2018 and monitored execution, including progress in respect of recommendations made;  Discussed quarterly updates on the activities of the internal audit function, together with details of progress on internal audits with the internal auditor. Areas of focus in 2018 included the Internal Audit strategy, audit planning process,
Security, Solvency II, third party management and outsourcing, performance management and integrity;  Contributed to the appointment process of the new Global
External audit effectiveness The Audit Committee discussed and approved the external auditor's engagement letter for 2018 and contributed to the appointment process of the new lead partner(s). Aegon has well-established policies on audit effectiveness and independence of auditors that set out, among other things:  The review and evaluation of the external auditor and the lead partner of the external audit team on at least an annual basis;  Non-audit services performed by the external auditor;  Rotations of the external auditor and lead partner; and  Discussions about planning and staffing of the external audit activities.
Committee and has an annual combined meeting, which in 2018 was held in December. This combined meeting focused on the Group integrated risk reporting, the preparations for IFRS
The Company's Chief Executive Officer and Chief Risk Officer attend all the Committee meetings. The Chief Financial Officer had a standing invitation to attend the Committee meetings, and also attended one of the meetings in 2018. Other Management
Board members and senior managers attended the meetings when relevant for the discussion.
Risk management and Internal controls Recurring items on the Risk Committee agenda in 2018 were risk exposure information, risk policy compliance monitoring, and risks associated with large modernization and change programs in the company. The Risk Committee assessed the effectiveness of the design and operation of the ERM framework and internal control systems in 2018 by:  Discussing the quarterly risk dashboard, including all material group level risks, with the Executive Board members and relevant senior managers. The material group level risks consisted of financial, actuarial and operational risks, including cybersecurity and information security risks and controls;  Assessing a quarterly modernization dashboard that outlined risks with regards to the execution of the strategic change programs in each region, and how those risks were monitored and mitigated;  Discussing in-depth regional programs, referred to as 'Control
The Risk Committee also discussed several regulatory topics on a regular basis, including the DNB Focus report and the consequences and actions following the designation of Aegon as a G-SII in November 2015. The Risk Committee furthermore spent time on the Group ORSA report, the strategic human resources program Future Fit and on risks and approaches in dealing with third party relations of the Company. In addition, the Risk Committee dedicated time to wider developments in the geopolitical environment, including risks associated with
Brexit and financial markets in 2018, and to an educational session on Asset and Liability Management within the Company.
Resources Management and Corporate Governance. This includes:  Board member and senior management succession planning;  Drawing up selection criteria and procedures for Board members, together with supervising the selection criteria and procedures for senior management;  Advising on and proposing nominations, appointments and reappointments;  Reviewing and updating the Supervisory Board profile and charters for the Supervisory Board and its committees;  Periodically assessing the functioning of individual members of the Supervisory Board and the Executive Board;  Overseeing the corporate governance structure of the
Committee meetings Aegon’s Nomination and Governance Committee held eight meetings in 2018. In addition to the committee members, these meetings were attended in whole or in part by the CEO, the Global Head Human Resources and the General Counsel.
Governance Committee discussed the Company's responsible business strategy. The Nomination and Governance Committee also reviewed the important outside board positions of the members of the Management and Supervisory Board, and discussed specific appointments to important outside board positions where applicable.
Supervisory Board related activities The Nomination and Governance Committee discussed the composition of the Supervisory Board and its Committees and governance topics. The profile of Supervisory Board members, as well as their capabilities in terms of working collectively with other members of the Supervisory Board, were debated by the Committee. Furthermore, the existing and impending vacancies in the Supervisory Board were discussed and a search process for fulfilling those vacancies was ongoing. A Supervisory
Executive Board related activities During 2018, the Nomination and Governance Committee reviewed the composition of the Executive Board. Considering the appointment schedule of the Executive Board, the Nomination and Governance Committee evaluated Mr.
The Nomination and Governance Committee furthermore reviewed the composition of the Management Board, together with the functioning and effectiveness of the Board members, both individually and as a team. Acknowledging the importance of good succession planning, the Committee discussed with the CEO and Aegon’s Global Head Human Resources the extent to which sufficient internal candidates are available to fill positions at Executive Board, Management Board and senior management level both in the event of emergency and when positions open up in the future. The CEO also discussed changes in the global senior management team with the Nomination and
Governance Committee during the year. The Committee was kept appraised of developments in employee engagement, talent management and international mobility. As in previous years, the Supervisory Board noted that Aegon continued to make progress in order to ensure proper succession planning is in place. The Supervisory Board was also informed about the annual
Global Employee Survey, which was conducted at the end of 2018. The Supervisory Board discussed the outcome of this survey in detail in the first quarter of 2019.
'balanced composition' requirement under Dutch law with regard to gender diversity (at least 30% of the positions should be filled by women and at least 30% by men). Following the appointment of Corien Wortmann-Kool to the Supervisory Board in 2014, the gap in terms of the 'balanced composition' was reduced, and the Supervisory Board currently has two female Board members. When identifying candidates for open positions in the Executive, Management and Supervisory Board, the Board actively searches for female candidates. It also instructs external search firms to present female candidates. While this has had a positive effect, the requirement has not yet been fully met.
More information on diversity within the Board is available in the Supervisory Board Composition and Competency Overview as published on aegon.com.
This includes:  Reviewing the Aegon Group Global Remuneration Framework and making recommendations on the remuneration policies;  Preparing recommendations regarding variable compensation both at the beginning and at the end of the performance year; How we safeguard long-term value creation Report of the Supervisory Board57
In 2018, the Remuneration Committee oversaw the further application, implementation and approval of Aegon’s Group
Global Remuneration Framework and the various policies and procedures related to it, including the Remuneration Policy for
Executive Board Remuneration Policy; and  Reviewing and/or approving the ex-ante assessments and ex-post assessments, any exemption requests under the remuneration policies, and changes to the list of
Annual Accounts This Annual Report includes the Annual Accounts for 2018, which were prepared by the Executive Board and discussed by both the Audit Committee and the Supervisory
How we safeguard long-term value creation Report of the Supervisory Board58 59
The GRF has been designed in accordance with relevant rules, guidelines and interpretations, for instance the Decree on Sound
100% of fixed compensation). This provision was specifically created for corporate office employees of companies based in the Netherlands, which employed at least 75% of their employees abroad. In 2018, Aegon met this criterion and offered selected senior corporate office employees a variable compensation opportunity up to this maximum.
Role of Risk Management and Compliance Variable compensation may have an impact on risk-taking behaviors and, as such, may undermine effective risk management. The opportunity to receive high variable compensation can lead to excessive risk taking, which can have a material impact on the company's financial soundness.
The GRF includes separate remuneration policies for three specific groups of employees. This is in recognition of the fact that these employees' roles and responsibilities require specific risk mitigating measures and governance processes.
Members of the Supervisory Board are entitled to the following:  A base fee for membership of the Supervisory Board.
No separate attendance fees are paid to members for attendance at the regular Supervisory Board meetings;  An attendance fee for each extra Board meeting attended, be it in person or by video and/or telephone conference;  A committee fee for members on each of the Supervisory
Under the current policy, as approved by shareholders at the Annual General Meeting on May 15, 2013, members of the Supervisory Board are entitled to the following payments: How we safeguard long-term value creation Remuneration report60 61
Base fee for membership of the Supervisory Board EUR/year Chairman 80,000
Information on members of the Supervisory Board and the composition of Aegon’s four committees – Audit, Nomination and
Executive Board Remuneration Policy 2018 The following section describes how the Company applies the principles of good governance relating to the remuneration of its Directors. It was prepared by the Remuneration Committee of Aegon N.V. in accordance with the Dutch Corporate Governance
Annual Remuneration Policy review The Supervisory Board has the overall responsibility for the company's Remuneration Policies, including the Executive
Board Remuneration Policy. The Supervisory Board established the Remuneration Committee from among its members. This committee has to ensure that the remuneration policies are consistent with the longer-term strategy of the company and the longer-term interest of its shareholders, investors and other stakeholders, as well as the public at large. For this purpose, the Remuneration Committee reviews the Executive Board
Future changes Compensation for individuals in the financial sector, in particular for those who could materially influence the risk profile of the organization such as the Executive Board members, continue to be a focus of political and regulatory attention.
Company's objectives, business strategy, risk tolerance and long-term performance. The variable compensation award is based on annual performance against a number of individual and Group performance indicators  These performance indicators are a mix of financial and non-financial indicators with a one-year performance horizon.  The result of an individual performance indicator must exceed a predefined threshold level, before this indicator contributes to the overall performance result. When an indicator result is below this threshold, the contribution of this indicator to the overall performance result is zero (i.e. a circuit breaker).  In case the performance of an indicator exceeds the target, the contribution of this indicators is capped once it reaches a predefined maximum level. This means that strongly exceeding performance on one specific indicator can only contribute up to a certain level to the overall performance result (i.e. a contribution cap).
Management team (i.e. the ex-ante risk assessment) before it is send to the Supervisory Board. The Supervisory Board can approve, revise or reject the recommendation, taking the results of the risk assessment into account.
The deferred parts vest in equal tranches over a three-year period. After an ex-post risk assessment, which may lower the vesting parts, these individual parts are paid 50% in cash and 50% in shares. The shares are restricted for a further period of three years (with the exception of shares withheld to cover for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares).
The variable compensation payout can be illustrated by the following example and the table below. For every 1,000 in variable compensation that is allocated following the performance year, 400 is paid out/vested in the year following that performance year (N in the following table).
This part will be paid 50% in cash (=200) and 50% in shares vesting immediately (=200/Aegon share price at grant = number of allocated shares). The remaining 600 is deferred and vests according to a pre-defined schedule.
Ex-post risk assessment After the completion of the performance year, the Remuneration
The Remuneration Committee sends its recommendation and the ex-post risk assessment to the Supervisory
Board. The Supervisory Board can approve, revise or reject the recommendation. When this recommendation includes
a proposal to adjust unvested deferred variable compensation, this adjustment can only be downwards.
Pension arrangements The Executive Board members are offered pension arrangements and retirement benefits. These benefits are in line with the Executive Board Remuneration Policy. Details on the pension contributions to the Executive Board over the course of 2018 can be found in note 53 on page 307.
The arrangements with Mr. Wynaendts include retirement provisions that allow benefits to be taken at the end of the term.
Board membership. The arrangement with Mr. Rider is similar to the arrangements for other staff in the Netherlands and consists of a so-called career average defined benefits plan up to EUR 105,075 (2018 threshold) base salary and a defined contribution plan for the amount above EUR 105,075. Details are not disclosed due to the individual nature of such arrangement.
Other benefits Other benefits include non-monetary benefits (e.g. company car), social security contributions by the employer, and tax expenses borne by the Group.
Aegon does not grant Executive Board members personal loans, guarantees or other such arrangements, unless in the normal course of business and on terms applicable to all employees, and only with the approval of the Company's Supervisory Board.
Both Executive Board members have an Engagement Agreement with Aegon N.V., rather than an employment contract.
The arrangements with the current Executive Board members contain provisions for severance payments in the event that their agreement is terminated as a result of a merger or takeover.
He was re-appointed in 2007, 2011 and most recently in 2015. In 2019 the General Meeting of Shareholders will be asked to re-appoint Mr. Wynaendts for four years.  Matthew J. Rider, Chief Financial Officer and member of the
conditional variable compensation level of 80% of their annual fixed compensation, which was split into equal parts of cash and shares. However, their actual variable compensation award depended on their results on the performance indicators and related target levels, which had been approved by the Supervisory
Board at the start of 2018. As a result they would receive:  50% of their annual fixed compensation if the results of the performance indicators reached the threshold level. This would result in the allocation of EUR 323,717 and 59,892 shares for Mr. Wynaendts and EUR 229,500 and 42,460 shares for Mr. Rider;  80% of their annual fixed compensation if the results of the performance indicator met their target levels. This would result in the allocation of EUR 517,947 and 95,827 shares for
This would result in an allocation up to EUR 647,434 and 119,784 shares for Mr. Wynaendts and up to
Mr. Wynaendts and Mr. Rider were based on the 2018 performance of the following individual and Group performance indicators: Objectives Performance indicator Maximum % of variable compensation
Group financial IFRS based Group underlying earnings after tax and return on equity 15.0% 15.0%
As a result, Mr. Wynaendts has been awarded EUR 1,062,438 in conditional variable compensation for the 2018 performance year and Mr. Rider EUR 759,645.
Of this award 20% will be paid in upfront cash and 20% in upfront shares. For Mr. Wynaendts this will be EUR 212,490 in cash and 39,314 shares, where for Mr. Rider this will be EUR 151,931 in cash and 28,110 shares.
Pay ratio The Remuneration Committee has considered the ratio of the average employee pay expense (excluding CEO expense)
We have internal policies, procedures and frameworks setting out how decisions should be made in areas such as procurement, investment, tax, product development, remuneration and information security. We also have a Code of Conduct, which applies to all Aegon employees worldwide; this Code of Conduct contains basic principles governing our workplace, social responsibility and business conduct. The aim of these policies and procedures is to protect stakeholders by ensuring we are aware in our decision-making of all relevant financial and nonfinancial factors. We monitor implementation and take remedial action where necessary to ensure full compliance. We have a dedicated Non-Financial Risk Committee, meeting monthly.
The table below shows how various ESG risks are incorporated into Aegon’s decision-making processes, as well as the measurement of outcomes, policies and metrics: Area Policy or guideline Indicators (used to monitor compliance and/or outcomes)
• Also contains provisions for reporting suspected illegal and unethical behavior
In addition to the Code of Conduct, Aegon has separate global policies addressing prevention of financial crime (fraud, money laundering, economic sanctions, bribery and corruption). Aegon also has a Global Ethics Line, allowing employees and those outside the Company to report suspected infringements of the Code of Conduct in complete confidence.
• Significant fines amounted to EUR 84.8 million; most of this amount was related to our settlement with the SEC over the use of investment models in the US; during the year, there were two other significant fines, both in the US – a civil penalty relating to market conduct and a fine connected with the sale of an out-of-state hospital indemnity product.
Statement on Diversity and Non-Discrimination • Applies to all Aegon businesses worldwide • Diversity also included in the Code of
• In 2018, women made up 49% of Aegon’s workforce; women, meanwhile, accounted for 33% of the Company’s senior management, up from 28%. For details of our Supervisory, Executive and Management Board members, see pages 47-50.
• Electricity consumption was 7.5% lower at 79.7 GWH; gas consumption, however, rose 16.3% to 2.1 million m3.
• Use of renewable energy decreased to 24% (down from 26%).
Results of Aegon’s global human rights risk assessment (this assessment is conducted internally, based on external sources3; Aegon’s countries of operation are assessed for civil and political rights, corruption, human development, health coverage, business environment, illicit economy, gender equality, working conditions, Rule of Law and internet inclusion.
Our 2018 assessment identified four 'Aegon' countries where the operating environment presents a meaningful human rights risk: China, Indonesia, India and Turkey. These risks relate essentially to local political factors. In the US, the Netherlands and UK, Aegon faces little or no significant human rights risk. In Southern and Eastern Europe, the environment is potentially more difficult, particularly with regard to corruption. In the Americas, risk is concentrated in Brazil and Mexico; again, this relates mainly to corruption. For those countries with highest risk, Aegon has recommended preventative or remedial measures for local management4. These focus on issues where there is greatest risk and where Aegon has most influence (corruption, corporate governance, discrimination in the workplace, working conditions, freedom of association and collective bargaining). The aim, with these measures, is to ensure Aegon’s overall human rights risk remains low.
Investment Responsible Investment Policy • Covers all major asset classes • Sets out minimum social and environmental standards for Aegon’s investments
Under the policy, Aegon also excludes investment in some areas, including controversial weapons, tobacco, oil sands and certain coal mining companies. Aegon’s approach in this area is overseen by a Responsible Investment Strategy Committee, supported by a technical committee, which manages all operational aspects. Aegon also has an extensive program of shareholder engagement, focused on ESG issues.
• Our impact investments totaled EUR 8.4 billion; most of this was invested in affordable housing, renewable energy, and international development banks.
• Our number of work-related injuries and illnesses totaled 163, down from 167 the previous year.
• Absentee rate • Our absentee rate was unchanged at 2.4%.
• EUR 620 million paid by Aegon in tax (up from EUR 444 million in 2017); another EUR 2.16 billion in taxes collected on behalf of others, down from EUR 2.22 billion (decrease was due to lower wage and insurance premium taxes).
1 Includes any fines in excess of EUR 100,000. 2 Aegon no longer collects data on water consumption. As an office-based company, our water use is not material. 3 Aegon’s assessment is derived essentially from the UN Declaration of Human Rights. The assessment uses external data from (among others) Freedom House,
Transparency International, UN Development Program and World Health Organization. 4 These measures include effective access to Aegon’s Global Ethics Line, raising employees’ awareness of human rights risk, ensuring basic healthcare and financial services for employees, suggesting alternative employee representation where there is no independent trade union, ensuring neutrality at times of regime change and enforcing a zero tolerance approach to corruption and discrimination in the workplace.
How we safeguard long-term value creation Non-financial policies, procedures and outcomes68 69
Code of Conduct Aegon’s Code of Conduct embodies the company’s values and helps ensure that all employees act ethically and responsibly.
Reporting misconduct Employees are often the first people to witness any wrongdoing within the company. It is important that such incidents are quickly identified and resolved to prevent or reduce any adverse effects, such as financial loss and reputational harm. Aegon is committed to create and maintain an open and supportive culture in which employees feel safe to raise concerns or report suspected or actual violations. Employees are encouraged to use the available reporting channels to report concerns of poor practice, inappropriate, unethical or illegal behaviour.
It is also possible for employees to report violations outside the normal reporting channels if they wish to remain anonymous, or to elevate the matter to higher levels within the organization.
(Re)insurance companies and Aegon Bank, as well as a number of the investment undertakings in the Group, are required to maintain a minimum solvency margin based on local requirements. In addition, some parts of the Group are subject to prudential requirements on a (sub)-consolidated basis, including capital and reporting requirements. Such additional requirements lead, in certain circumstances, to duplicative requirements, such as the simultaneous application of consolidated banking requirements and Solvency II group solvency requirements. Eligible capital to cover solvency requirements includes shareholders' equity, perpetual capital securities, and dated subordinated debt.
Bank (DNB) is Aegon’s Solvency II group supervisor. Solvency II, which came into effect in EU member states on January 1, 2016, introduced economic, risk-based capital requirements for insurance and reinsurance companies in all EU member states, as well as for groups with insurance and/or reinsurance activities in the EU. The Solvency II approach to prudential supervision can be described as a 'total balance sheet-approach,' and takes material risks to which insurance companies are exposed into account in addition to the correlation between these risks.
(the rules for which are set out in detail in the Solvency II rules and guidelines); (b) use an internal model (for which the approval of the supervisory authorities is required); or (c) use a partial internal model (PIM) (which is a combination of the standard formula and an internal model, and requires approval of the supervisory authorities). An internal model is developed by the insurance or reinsurance company in question, and should better reflect the actual risk profile of the insurance or reinsurance company than the standard formula. Aegon
own funds against the SCR and MCR. Own funds capital is divided into three tiers in accordance with the quality of the own funds.
Solvency II requirements. Possible enforcement measures include: the imposition of capital add-ons (for instance in the event that the risk profile of the undertaking deviates from the SCR calculation or if there are weaknesses in the system of governance); the requirement to submit and execute a recovery plan (in the event of a (potential) breach of the SCR or a shortterm financing plan (in the event of a (threatening) breach of the MCR); and ultimately, the revocation of an insurance or reinsurance license (a measure that relates to EU-licensed insurance or reinsurance undertakings, and not to the Group as a whole, which does not have a license).
basis through regular supervisory reports (RSR), complemented by detailed quantitative reporting templates (QRTs) reported on a quarterly basis, which contain detailed financial data.
In addition, it is a requirement to publish a Solvency and Financial
(such as entities in other financial sectors, non-financial entities, and regulated and non-regulated entities in third countries) are not directly subject to Solvency II requirements, these entities may be affected indirectly by the Solvency II group requirements.
Bank N.V. is subject to Basel III requirements (as implemented in Europe in the EU Capital Requirements Directive (CRD IV)
States, Aegon uses the Deduction and Aggregation method, with local regulatory requirements to translate these into the Group Solvency position. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local U.S. Risk-Based Capital (RBC)
RBC requirement to reflect transferability restrictions. This methodology is subject to annual review, and the change enhances comparability with European peers. The RBC and CAL, as well as the allocation of restricted Tier 1 and Tier 2 capital instruments between the accounting consolidation and deduction and aggregation part of the Group are described in more detail in the ‘Capital and Liquidity’ section of this Annual Report.
The amendments are expected to enter into force, after the scrutiny period of three months, that is available to the European
Parliament and the European Council has ended, and the amendments have been approved accordingly by the European
The changes included in the proposal may impact the Solvency II
In addition to the review of the 2018 review of the Solvency II
Delegated Regulation, a review of the Solvency II Directive has been foreseen, referred to as the 2020 review. This includes a review, as foreseen in the directive by the end of 2020, on the impact of the so-called "long-term guarantees" package, in particular the functioning and stability of European insurance markets, the extent to which insurance and reinsurance undertakings continue to operate as long-term investors, and the availability and pricing of long-term insurance products.
to provide by the end of 2019, the European Commission with information on insurance liabilities (including illiquid liabilities), information on asset management of insurers and information on long-term guarantee measures and information on the market valuation of insurance liabilities.
has recently launched a public call for advice on the application of disclosure and reporting requirements under Solvency II.  In addition, on February 10, 2019, the European Commission has requested EIOPA to provide, in the context of the 2020 review, by June 30, 2020, technical advice in the following area’s: long-term guarantees (LTG) measures and measures on equity risk; How we safeguard long-term value creation Regulation and supervision72 73
framework entered into force, relating to Solvency II standard formula treatment of standardised, transparent and simple (STS)
securitisations. Aegon will take these amended provisions into account as of first quarter 2019 (confidential) supervisory reporting and future Solvency II public disclosures.
Financial conglomerate supervision Since October 2009, Aegon has been subject to supplemental group supervision by the DNB in accordance with the requirements of the EU's Financial Conglomerate Directive.
Conglomerate Directive includes supplementary capital adequacy requirements for financial conglomerates and supplementary supervision on risk concentrations and intra-group transactions in the financial conglomerate. Due to the introduction of the
Important Insurer (G-SII), based on an assessment methodology developed by the International Association of Insurance
Consequently, Aegon continues to be designated at the time of publication of this annual report. As a result of the G-SII
designation, Aegon is subject to an additional layer of direct supervision at group level. Aegon has put a specific G-SII
Absorbing Capacity (HLAC) on a confidential basis pursuant to IAIS guidelines. On November 2, 2017, the IAIS has announced its members have reached an agreement on a unified path to convergence on the development of International Capital
(IAIGs). Aegon will qualify as such. After an extended field testing period of ICS version 1.0, that ended in 2017, the IAIS
version 2.0 will be conducted in two phases – a five-year monitoring phase, where all IAIGs will submit mandatory reference ICS, followed by an implementation phase where the ICS is envisaged to become a required capital standard.
States of development of an aggregation-based group capital calculation, the IAIS has further agreed to collect data during the monitoring period to assess whether the aggregation approach can be considered as outcome-equivalent for implementation of ICS in the US.
If and when this framework would be adopted, an enhanced set of policy measures and supervisory powers of intervention would be applied in a proportionate manner to a broader set of insurers by integrating these measures into the holistic framework. According to the IAIS, a final decision on the need for an (annual) G-SII identification should, however, depend on an assessment of the consistent application of the holistic framework by supervisors and the effectiveness of the IAIS global monitoring exercise. In November 2022, based on the initial years of implementation of the holistic framework, it is recommended that the FSB reviews the need to either discontinue or reestablish an annual identification of G-SIIs. According to the IAIS, between 2020, when the holistic framework is implemented, and 2022, when the review takes place, it is recommended to suspend the annual identification of G-SIIs.
Recovery and resolution Dutch Act on Recovery & Resolution for Insurers On January 1 2019, the Dutch Act on Recovery & Resolution for
The R&R Act introduces a requirement for Dutch insurance companies and reinsurance companies, such as the Dutch insurance and reinsurance subsidiaries in the Aegon Group, to draw up and maintain an ex ante recovery plan, that should allow these entities, when faced with financial problems, to take measures to recover their solvency ratio and continue to operate in going concern. In addition, the Dutch Central Bank, in its capacity as national resolution authority in gone concern circumstances (as opposed to its role as supervisory authority in going concern) is required to draw up and maintain a resolution plan, which should provide for the orderly resolution of the Dutch insurance and reinsurance entities in the group, or the group, to avoid unnecessary damage to policyholders and beneficiaries and to provide an alternative to ordinary bankruptcy proceedings.
Recovery and Resolution Directive also contains provisions that, in certain specific circumstances, where both Aegon Bank N.V.
to undertake a fundamental review of leading interest rate benchmarks in 2013. The FSB proposed new standards to reform interest rate benchmarks and the use of transaction-based input data instead of non-transactional/panel input data. In the EU this is adopted in the new Benchmark Regulations (BMR) which stipulates that from January 2020 only BMR compliant benchmarks may be used within the EU.
Union through parliament and it is still not clear if a deal will be approved. Aegon is prepared for all scenarios, including a so-called ‘hard Brexit’. In this scenario the UK becomes a third country and leaves the internal market of the EU on March 30, 2019 at 00:00h (CET). The main consequences of a ‘hard Brexit’
Aegon believes that the combination of these guiding principles strengthen the Company's ability to withstand adverse market conditions, enhances its financial flexibility, and serves both the short-term and the long-term interests of the Company, its customers and other stakeholders.
The management and monitoring of capital and liquidity is firmly embedded in Aegon’s ERM framework, and is in line with Aegon’s risk tolerance. Aegon’s risk tolerance focuses on capital generation, solvency and liquidity, risk balance and responsible business with effective controls. Its core aim is to assist management in carrying out Aegon’s strategy within the Group's capital and liquidity resources.
Solvency II regulatory framework determines the regulatory capital requirements. In Aegon’s Non-EEA (European Economic
On November 9, 2018, the European Commission (EC) has published a proposal, for public consultation, for the amendment of the Solvency II Delegated Regulation in respect of the 2018 review of the Solvency II Framework that was carried out by the EC. The EC has published a formal proposal on March 8, 2019. Aegon is investigating the impact, if any, of these upcoming amendments.
Please note that numbers and ratios related to Solvency II as disclosed in this section represent Aegon’s estimates and are subject to supervisory review. At December 31, 2018, Aegon has applied a loss absorbing capacity of deferred taxes (LAC-DT)
factor in the Netherlands of 75% unchanged from 2017, while the corporate tax rate was lowered to reflect the upcoming tax rate changes in 2020 and 2021. The LAC-DT factor will be recalibrated on a quarterly basis using the agreed methodology. In 2018 the Dynamic Volatility Adjustment
(VA) model has been updated for Aegon the Netherlands, to align with the guidance from the European Insurance and
On November 9, 2018, the European Commission has published a proposal, for public consultation, for the amendment of the Solvency II Delegated Regulation. This draft proposal is the preliminary result of the 2018 review of the Solvency II
Regulation in respect of the 2018 review of the Solvency II
European Parliament and Council. Aegon is investigating the impact, if any, of these upcoming amendments. The proposals include amendments to the Solvency II standard formula calculations, such as in the counterparty default risk sub module, which might specifically impact the treatment of guarantees of
Model. Furthermore, amongst others, the proposal contains amendments related to tiering requirements for subordinated liabilities, as part of Own Funds and LAC DT. Currently it is not
Adequate capitalization To calculate its Group Solvency Ratio, Aegon applies a combination of the Group consolidation methods available under Solvency II: the Accounting Consolidation
Solvency II capital requirements are mainly used for the EEAbased insurance and reinsurance entities, applying the Accounting
As at December 31, 2018, Aegon’s estimated capital position was: Group own funds 17,602 15,628
Group Solvency II ratio 211% 201% 1 The Solvency II ratios are estimates and subject to supervisory review. 2 The Solvency II ratios are based on Aegon’s partial internal model. 3 Aegon Bank is not included in the Group Solvency II ratio.
Insurance Company (TLIC). The increase was partly offset by the negative impact from new business strain, the impact of the dividend paid and the impact from framework, model and assumption changes (including the decrease in Ultimate Forward
Rate (UFR) (from 4.2% to 4.05%) following revision of the UFR
Requirement (SCR) amounted to EUR 8,349 million on December 31, 2018 (2017: EUR 7,774 million). The SCR
release following the sale of Aegon Ireland and the merger of Firebird into TLIC.
The capitalization levels of the most relevant country units are as follows: Aegon USA (Life entities) (RBC CAL) 465% 472%
Aegon United Kingdom (Solvency II ratio) 184% 176% 1 The Solvency II ratios are estimates, are not final until filed with the regulator and are subject to supervisory review. 2 Refer to section ‘Internal capital management framework’ for Aegon’s capitalization target ranges.
Aegon Americas In the United States, regulation of the insurance business is principally undertaken at the state level. State insurance regulators and the National Association of Insurance
depending on the type, volume and nature of the business being conducted. The domiciliary state regulator also has the ability to require corrective actions if a company is deemed by the commissioner to pose a Hazardous Financial Condition.
The CAL is set at 200% of the Authorized Control Level (ACL), the level at which regulators are permitted to seize control of the Company. At the end of 2018, the combined risk-based capital ratio of Aegon’s life insurance subsidiaries in the United
States was estimated to be 465% (2017: 472%) of the CAL
Solvency II, using Solvency II valuation and capital requirement calculations for these entities. The contribution of the Aegon
(EIOPA) and the updated Dynamic VA model uses an assetonly model approach to quantify required capital for spread risk. The initial internal model of Aegon the Netherlands was approved on November 26, 2015, by the supervisor,
The solvency position of the banking activities is calculated using the CRR/CRD IV framework. As at December 31, 2018, the factor of LAC DT is set at 75%, unchanged from 2017, while the corporate tax rate was lowered to reflect the upcoming tax rate changes in 2020 and 2021. The upcoming decrease from the corporate tax rate in The Netherlands resulted in a change in LAC DT (Loss absorbing capacity of deferred taxes)
and a change in deferred tax position. The Solvency II capital ratio of the Group and Aegon the Netherlands does not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past, as the potential liability cannot be reliably quantified at this point.
(for the with-profits fund). The initial internal model of Aegon UK
Gifford External Fund Links (EFLs) and the impact of trades to sell excess credit. This is partly offset by new business strain and the completion of the Part VII transfer of BlackRock.
Sensitivities Aegon calculates sensitivities of its Solvency II ratios as part of its risk management framework. The following table provides an overview of the shocks to parameters used to assess the sensitivities, and their estimated impact on the Solvency II ratio as at December 31, 2018.
How we safeguard long-term value creation Capital and liquidity management78 79
Ultimate Forward Rate -50bps n.a. (4%) n.a. n.a. n.a. (12%) n.a. n.a.
Ultimate Forward Rate -15bps (1%) n.a. n.a. n.a. (3%) n.a. n.a. n.a.
UK. An increase in equity market values has a positive impact on the ratio for all CUs with the exception of UK. UK Own Funds do increase but the SCR also increases significantly resulting in a decrease in UK solvency ratio. The non-linearity in SCR
is owing to the equity hedges (put options) held in the General
Credit spread sensitivities at Group level are driven by movements in Aegon NL and the EIOPA VA. NL is exposed to a reduction in spreads since this leads to an increase to the liabilities (via the lower VA) which are only partly offset by gains on the fixed income assets resulting in a net loss on Qwn Funds due to the spread duration mismatch. In the US, we have included the impact of credit spreads on the pension plan. Spread widening results in gains from the rise in the discount rate being greater than the loss on plan assets.
The higher liability values decrease Own Funds in US and NL, as longevity is only partially hedged, and increase the SCR.
Rating agency ratings Aegon’s objective is to maintain a very strong financial strength rating in its main operating units, and this plays an important role in determining the Company's overall capital management strategy. Aegon maintains strong financial strength ratings from leading international rating agencies for its main operating units, and a strong credit rating for Aegon N.V..
December 31, 2018 Aegon N.V. Aegon USA Aegon the Netherlands Aegon UK
Internal capital management framework In managing the capital adequacy of the Group and its operating units, Aegon’s capital management framework is built on, among other things, managing capitalizations towards target capital management zones. Under Aegon’s capital management framework, the most relevant target capitalization zones are as follows: Capitalization target range 1
Aegon USA (Life entities) 350% – 450% RBC Company Action Level
The capital management zones and the management interventions connected to these zones are set consistently throughout the Group, as illustrated in the following table.
How we safeguard long-term value creation Capital and liquidity management80 81
150% – 200% SCR Target 350% – 450% RBC 150% – 190% SCR 145% – 185% SCR Execute capital deployment and remittances according to capital plan.
Aegon the Netherlands has started a process to review its capitalization zones as a result of a change in credit sensitivities and increased 1-in-10 year combined sensitivities for the Netherlands. The higher capital sensitivities arise from the adoption of a new dynamic VA model which has been adopted to align with the guidance from the European Insurance and Occupational Pensions Authority (EIOPA).
With the introduction of Solvency II for EEA countries, Aegon views these minimum regulatory capital requirements as the level at which regulators will formally require management to provide regulatory recovery plans. This is set at 100% CAL for
Aegon United Kingdom 1 100% Solvency II SCR 184% Solvency II SCR EUR 1.2 bln 1 Please note, this reflects Aegon’s estimated Capitalization levels. 2 Including Aegon Bank.
US run-off business, acquired the income protection service provider Robidus in The Netherlands and expanded its business in the Netherlands and Spain.
In addition, Aegon is actively involved in hedging longevity risk in the Netherlands and has an active global reinsurance program in order to optimize the risk-return profile of other insurance risks. Aegon strictly monitors the risk-return profile of new business written, withdrawing products that do not meet the required hurdle rates for all stakeholders including the policyholders and shareholders.
Own Funds. Aegon’s total Own Funds are comprised of Tier 1,
Tier 2 and Tier 3 basic Own Funds. Aegon does not currently have ancillary Own Funds. Tier 1 basic Own Funds are divided into unrestricted Tier 1 items and restricted Tier 1 items. The latter category contains Own Fund items subject to the restrictions of article 82 (3) of the Solvency II Delegated Regulation, which includes grandfathered Tier 1 Own Fund items. Based on agreements with its supervisory authorities, Aegon applies a fungibilty and transferability restriction with respect to charitable trusts within Aegon Americas, and a restriction equal to the Own
Restricted Tier 1 capital consists of Aegon’s junior perpetual capital securities and perpetual cumulative subordinated bonds, both of which are grandfathered. Restricted Tier 1 capital is subject to tiering restrictions.
Aegon’s Tier 2 capital consists of Solvency II compliant subordinated liabilities that were issued during 2018 and grandfathered dated subordinated notes. Tier 2 capital is subject to tiering restrictions.
Eligible Own Funds Under Solvency II regulation, restrictions apply to the eligibility of Tier 2 and Tier 3 capital, as well as the eligibility of restricted
Tier 1 capital. The total of Tier 2 and Tier 3 capital may not exceed 50% of the SCR while the eligibility of Tier 3 capital is limited to 15% of SCR. Restricted Tier 1 capital may not exceed 20% of Tier 1 Own Funds. As a result, it is possible that part of the Own Funds overflows to another tier or that is not considered eligible in determining the Group Solvency ratio.
When applying the eligibility restrictions, Aegon determines its tiering limits based on:  EEA entities – representing the part of the Group covered by the Accounting Consolidation based method, for which tiering limits are based on the SCR of the consolidated part of the Group, i.e. the consolidated group SCR; and  Non-EEA entities – representing the part of the Group covered by the Deduction & Aggregation method. If a prudential regime of an equivalent or provisionally equivalent thirdcountry applies, such as the regulatory regimes in the United
Funds brought in by the Deduction & Aggregation method are then allocated to tiers according to the principles laid out in
Articles 87 to 99 of the Solvency II Directive for each individual third-country insurance undertaking.
Available own funds Eligible own funds Available own funds Eligible own funds
Funds of EUR 518 to Tier 2 in the eligible Own Funds as of
Aegon’s use of leverage Aegon uses leverage in order to lower the cost of capital that supports businesses in the Aegon Group, thereby contributing to a more effective use of capital and realizing capital efficiencies. In managing the use of financial and non-financial leverage throughout the Group, Aegon has implemented a Leverage Use Framework that is part of Aegon’s broader
Aegon’s fixed charge coverage is a measure of the Company's ability to service its financial leverage. It is calculated as the sum of underlying earnings before tax and interest expenses on financial leverage divided by interest payments on financial leverage. The fixed charge coverage includes the impact of interest rate hedging.
All external financing provided to captives to support statutory reserves is disclosed in note 39 'Borrowings' to the consolidated financial statements to the extent to which it has been funded. Letters of Credit (LOCs) issued by third parties provided to captives to provide collateral to affiliated insurers are disclosed in note 48 'Commitments and contingencies'
to the consolidated financial statements. These LOCs have been provided by third parties for the benefit of the affiliated company whose liabilities are reinsured.
Aegon companies have also issued debt securities, but for the most part these securities are guaranteed by Aegon N.V.
As at December 31, 2018, Aegon had EUR 82 million outstanding under these programs (2017: EUR 72 million).
Sources and uses of liquidity Liquidity in Aegon’s subsidiaries Aegon’s operating units are primarily engaged in the life insurance and pensions business, which is a long-term activity with relatively illiquid liabilities and generally matching assets. Liquidity consists of liquid assets held in investment portfolios, in addition to inflows generated by premium payments and customer deposits. These are used primarily to purchase investments, as well as to fund benefit payments to policyholders, policy surrenders, operating expenses, and, if the subsidiary's capital position allows, to pay dividends to the holding.
Aegon N.V. are dividends from operating units, movements in debt, net expenses (including interest), funding operations, capital returns to shareholders, and the balance of acquisitions and divestitures. In addition, contingent internal and external liquidity programs are maintained to provide additional safeguards against extreme unexpected liquidity stresses.
Aegon’s holding excess cash 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 operating units to pay dividends to the holding company. In order to ensure the holding company's ability to fulfil its cash obligations and maintain sufficient management flexibility to allocate capital and liquidity support for Aegon’s operating units and external dividend stability, it is the Company's policy that the holding excess cash position, including Aegon’s centrally managed (unregulated)
perpetual capital securities (grandfathered Restricted Tier 1), which was pre-financed by the issuance of USD 800 million
Tier 2 subordinated debt securities, first callable on April 11, 2028, and maturing on April 11, 2048. Additionally, the 1-year
EUR 500 million senior unsecured notes that were issued in 2017, were redeemed.
An amount of EUR 97 million was paid for the acquisition of the protection income service provider Robidus
How we safeguard long-term value creation Capital and liquidity management84 85
in The Netherlands. The payments in 2018 were offset by proceeds from the sale of Aegon Ireland of EUR 196 million and dividends from Aegon Americas (EUR 906 million), Aegon NL
(EUR 200 million), and Aegon UK (EUR 113 million). Dividends from other units were largely offset by capital injections, amounting to a net of EUR 14 million.
During 2018, payments related to the 2017 final dividend and 2018 interim dividend and the corresponding share buybacks amounted to EUR 577 million and holding and funding expenses amounted to EUR 333 million.
US and Dutch units may use external market solutions to match projected liquidity requirements with funding.
Infrastructure Regulation (EMIR) derivative regulations led to Aegon transitioning a significant proportion of formerly over-the-counter positions to clearing houses in recent years.
For traditional general account insurance, the ALM strategy is to select high-quality investment assets that are matched to the corresponding liability. This strategy takes currency, yield and maturity characteristics into consideration. Asset quality and diversification are also taken into account, together with policyholders' reasonable expectations with regard to the sharing of excess interest.
Program' is an overlay hedge that provides additional protection for distributable earnings against a sharp fall in equity markets.
Europe The Netherlands Aegon the Netherlands uses fixed income instruments to match its long-term liabilities. These include high-quality sovereign and corporate bonds, together with a sizeable portfolio of Dutch residential mortgages. Cash flow matching is used to manage the asset portfolio, and a derivative-based dynamic hedge program in addition to the cash flow matching. The hedge program is rebalanced on a daily basis in order to both offset embedded guarantee sensitivities, and protect against volatility in best estimate economic cost of these guarantees.
Central & Eastern Europe and Spain & Portugal Aegon has a range of ALM programs in place across life and non-life businesses in the Central & Eastern Europe region and in Spain and Portugal. Across the CEE units, ALM focuses on asset-liability matching in terms of duration and liquidity.
In Spain & Portugal, insurance liabilities are predominately longterm life benefits, and the focus of ALM is to minimize interest rate risk by duration matching.
Reinsurance ceded Aegon uses reinsurance to manage and diversify risk, limit volatility, improve capital positions, limit maximum losses, and sometimes to enter into strategic partnerships and gain access to reinsurer technology. While the objectives and use can vary by region due to local market considerations and product offerings, the use is coordinated and monitored globally.
In order to minimize its exposure to reinsurer defaults, Aegon regularly monitors the creditworthiness of its reinsurers, and where appropriate, arranges additional protection through letters of credit, trust agreements and overcollateralization. For certain agreements, funds are withheld for investment rather than relying on the reinsurer to meet investment expectations. Default exposure is further reduced by the use of multiple reinsurers within certain reinsurance agreements. Aegon has experienced no material reinsurance recoverability problems in recent years.
that specializes in internal reinsurance and related consideration, and offers product and underwriting expertise to Aegon units and partners. In accepting risks from Aegon units, Blue Square
Re may at times retrocede risk to external reinsurers, thereby realizing economies of scale and diversification.
Europe The Netherlands Aegon the Netherlands reinsures part of its insurance exposure with third-party reinsurers under traditional indemnity and
Central & Eastern Europe Aegon CEE uses reinsurance for its life and non-life businesses in order to mitigate insurance risk. The majority of treaties in force for Aegon’s operations in Central & Eastern Europe are non-proportional excess of loss programs – except for the life reinsurance treaties – which are made on a surplus and quotashare basis (including various riders). The most significant reinsurance programs currently in force are property catastrophe excess of loss treaty and excess of loss treaties for other risks.
This means that both its joint ventures in Spain & Portugal and own business are treated as a whole, with similar economic conditions and a similar panel of reinsurers, while individual profit shares without losses are carried forward by each entity belonging to Aegon Spain. The main contract for mortality and morbidity provides proportional reinsurance protection for both its individual risk and group risk policies. Aegon Spain thereby seeks to optimize the cost of reinsurance coverage, including through profit sharing, while achieving prudential diversification of its insurance risk by limiting the maximum possible losses on risks that exceed retention levels. Household insurance contracts for the Aegon Santander joint ventures follow the same principles, with maximum retention levels varying both by product and by the nature of the risk being reinsured. Natural catastrophe reinsurance programs are also in place to provide cover for high impact – low frequency events.
Asia China: Aegon THTF Aegon THTF shares its morbidity and mortality risk with international and national reinsurers. The mortality risk of individual products is shared through a surplus reinsurance structure. Aegon THTF reviews the reinsurance structure regularly, adjusting it based on claims experience and its risk acceptance capability.
Japan: Aegon Sony Life and SARe Aegon Sony Life reinsures 100% of its guarantees on variable annuities with SARe. In addition, Aegon Sony Life maintains a Surplus Relief reinsurance contract on a local statutory basis only. Surplus Relief provides relief from acquisition cost recovery risk.
Hong Kong and Singapore: Transamerica Life Bermuda (TLB) TLB uses third-party mortality reinsurance for its universal life and traditional policies. Mortality reinsurance takes the form of yearly-renewable term, excess-of-retention or quotashare arrangements. This is typically arranged through a pool of reinsurers. In October 2016, TLB entered into a reinsurance treaty to provide further protection for the local solvency position in Singapore.
For Aegon, risk management involves:  Understanding risks that the Company faces;  Maintaining a company-wide framework through which the risk-return trade-off associated with these risks can be assessed;  Maintaining risk tolerances and supporting policies to limit exposure to a particular risk or combination of risks; and  Monitoring risk exposures and actively maintaining oversight of the Company’s overall risk and solvency positions.
Enterprise Risk Management (ERM) framework Aegon’s ERM framework is designed and applied to identify and manage potential risks that may affect Aegon. This means identifying and managing individual and aggregate risks within Aegon’s risk tolerance in order to provide reasonable assurance regarding the achievement of Aegon’s objectives.
The ERM framework covers the ERM components as identified by the Organizations of the Treadway Commission (COSO).
Aegon wants to keep on the balance sheet, and the risks Aegon would like to avoid.
Aegon’s risk appetite statement is linked to Aegon’s strategy and purpose as expressed in the mission statement: helping people achieve a lifetime of financial security. Aegon’s risk appetite statement is to: “Fulfill our promises towards our customers and other stakeholders by delivering sustainable growing long-term free capital generation, with strong resilience in solvency and liquidity, healthy balance in exposures, and by running a responsible business with effective controls.”
Risk identification and risk assessment Aegon has identified a risk universe that captures all known material risks to which the Company is exposed. In order to assess all risks, a consistent methodology for measuring risks is required. Aegon’s methodology for this is documented in a manual and maintained up-to-date. The risk metrics are embedded in Aegon’s key reports and are used for decision making.
Risk response Aegon distinguishes the following risk responses:  When the risk exposure is within the set risk tolerance, management can accept the risk; and  When an exposure exceeds the risk tolerance of management or if cost-benefit analysis supports further actions, management can decide to control, transfer or avoid the risk.
Risk universe and risk appetite The risk factors described in this Annual Report (see risk factors in the 'additional information' section) generally have an impact on financial markets (e.g. interest rates and share prices), underwriting assumptions (e.g. longevity and policyholder behavior) or result in operational risk events (e.g. fraud and business disruption). Aegon’s risk universe is structured to reflect the type of risk events to which the Company is exposed.
In the context of Aegon’s risk strategy, a risk appetite is set for the three identified risk categories (see table below).
Equity market risk and other investment risks Aegon runs the risk that the market value of its investments changes. Investment risk affects Aegon’s direct investments in the general account, indirect investments on the account of policyholders and agreements where Aegon relies on counterparties, such as reinsurance and derivative counterparties. Aegon has a low preference for investments in equity securities via the general account. Equity investments generate an equity risk premium over the long run, but in combination with a high capital charge result in a relatively low return on capital. Aegon has experience and expertise in managing complex investment guarantees, and leverages this capability by providing customers access to a range of investment strategies and guaranteed benefits.
liability matching principles. Assets allocated to equity are held in local currencies to the extent shareholders' equity is required to satisfy regulatory and self-imposed capital requirements.
Liquidity risk Aegon needs to maintain sufficient liquidity to meet short term cash demands not only under normal conditions, but also in the event of a crisis. To that end, Aegon has put a strong liquidity management strategy in place. The Company considers extreme liquidity stress scenarios, including the possibility of prolonged 'frozen' capital markets, an immediate and permanent rise in interest rates, and policyholders withdrawing liabilities at the earliest conceivable date. In addition, the Company has liquidity stress planning in place.
Emerging risk process and materiality assessment In addition to the management of described risk types,
Aegon defines an emerging risk as follows: “A newly developing or changing risk, which is perceived to have a potential significant impact on Aegon’s financial strength, competitive position or reputation. Emerging Risk may not be fully understood yet or factored into terms and conditions, pricing, reserving or capital setting.”
by ensuring that the most significant emerging risks are identified on a timely and an ongoing basis, thus limiting the possible impact on the business. The process consists of risk identification and analysis. In the risk identification phase inputs are collected from a number of sources, including a contest among all employees, interviews with experts and the use of external sources. Intermediate decisions to perform a risk analysis can be taken in case a material emerging risk is identified in the timeframe between the annually structured process through regular risk identification and monitoring. Topics that have been analysed relate to for instance economic and financial market developments, regulatory developments, innovations and developments impacting underwriting risks.
In addition, every year Aegon performs a materiality exercise with the aim to incorporate the results into Aegon’s strategy and reporting processes. The exercise involves both stakeholders and Aegon’s senior management. Material topics are those likely to have the most impact, over the next few years, on Aegon’s business, profits, reputation, and its ability to continue creating long-term value for stakeholders. For the identified material topics it is determined to which degree
Risk governance framework Aegon’s risk management is based on clear, well-defined risk governance. The goals of risk governance are to:  Define roles and responsibilities, and risk reporting procedures for decision makers;  Institute a proper system of checks and balances;  Provide a consistent framework for managing risk in line with the targeted risk profile; and  Facilitate risk diversification.
Governance structure Aegon’s risk management framework is represented across all levels of the organization. This ensures a coherent and integrated approach to risk management throughout the Company. Similarly,
Aegon’s risk management governance structure has four basic layers:  The Supervisory Board and the Supervisory Board Risk
The SBRC reports to the Supervisory Board on topics related to the ERM framework and the internal control system.
Board of any risk that directly threatens the solvency, liquidity or operations of the Company.
The Executive Board and Management Board are supported by the GRCC. The GRCC is Aegon’s most senior risk committee.
Each of Aegon’s regions has a Risk & Capital Committee (RCC).
In addition to the four basic layers described above, Aegon has an established group-wide risk function. It is the mission of the Risk Management function to ensure the continuity of the Company through safeguarding the value of existing business, protecting Aegon’s balance sheet and reputation, and through supporting the creation of sustainable value for all stakeholders.
In the context of these roles, the following responsibilities can be distinguished: Advising on risk-related matters  Bringing businesses together to facilitate information exchange, sharing best practices and working together on relevant case studies and external standards in order to develop, adopt and maintain relevant standards of practice throughout Aegon; and  Optimizing the use of capital and growth within risk/return and consumer conduct criteria.
Aegon’s risk universe remains up to date;  Designing the Solvency II PIM, including the validation thereof.
Recovery Plan defined triggers and early warning indicators;  Acting as independent business partner with focus on talent development, control excellence, customer conduct, capital allocation and by providing management focused risk tools or fostering debates and proactively challenging on key business developments that may create significant exposure for example through hedging and investment remits;  Providing subject matter expertise and overseeing critical business initiatives to strengthen risk management activities, to improve the risk profile and to resolve risk events and control issues noted;  Embedding robust oversight and risk management culture and processes; and  Protecting group capital for all stakeholders.
Oxley Act and Solvency II). Aegon’s control activities should assure an adequate level of internal control over
Aegon’s objectives and in particular compliance, operational and financial reporting objectives including the production of IFRS
Aegon’s internal audit function assists the Executive Board in maintaining effective controls by independently and objectively evaluating the adequacy and effectiveness of the organization's internal control and risk management systems. Criteria established under 'Internal Control –
Aegon’s enterprise risk management under the supervision of the Supervisory Board and its Risk Committee. Through oversight and framework setting, Aegon’s risk management function ensures that the group-wide risk profile is managed in line with Aegon’s risk tolerances, and stakeholder expectations are managed both under normal business conditions and adverse conditions caused by unforeseen events. The Executive
On the basis of the above, Aegon’s Executive Board states the following with respect to risks to the Company's financial reporting:  The report provides sufficient insights into any failings with regards to the effectiveness of the internal risk management and control systems;  Aegon’s risk management and control systems provide reasonable assurance that the Company’s financial reporting does not contain any material inaccuracies;  Based on the current state of affairs, it is justified that the financial reporting is prepared on a going concern basis; and  The report states those material risks and uncertainties that are relevant to the expectation of the Company’s continuity for the period of twelve months after the preparation of the report.
Significant audiences: This report is intended first and foremost for investors. We believe it’s important that financial markets price in fully social, business and environmental risk. For this to happen, management must disclose these risks, and work to understand the connection between value creation and longerterm financial performance. Legislators are already moving in this direction, with the adoption of the EU Directive on Non-Financial
Reporting and the publication of recommendations from the Financial Stability Board’s Task Force on Climate-Related
and CFO concluded that, as of December 31, 2018, the disclosure controls and procedures were effective. There have been no material changes in the Company's internal controls or in other factors that could significantly affect internal controls over financial reporting subsequent to the end of the period covered by this Annual Report.
Exchange Commission regulations adopted pursuant to Section 404 of the Sarbanes-Oxley Act, or SOX 404. These regulations require that Aegon’s CEO (the Chairman of the Executive
Management's Annual Report on internal control over financial reporting The directors and management of Aegon are responsible for establishing and maintaining adequate internal control over financial reporting. Aegon’s internal control over financial reporting is a process designed under the supervision of Aegon’s principal executive and financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its published financial statements. Internal control over financial reporting includes policies and procedures that:  Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;  Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles;  Provide reasonable assurance that receipts and expenditures are made only in accordance with the authorizations of management and directors of the Company; and  Provide reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on Aegon’s financial statements would be prevented or detected in a timely manner.
Management assessed the effectiveness of Aegon’s internal control over financial reporting as of December 31, 2018.
Management’s assessment of going concern The directors and management of Aegon have adopted a going concern basis, in preparing the consolidated financial statements, on the reasonable assumption that the Company is, and will be, able to continue its normal course of business in the foreseeable future.
Report of Independent Registered Public Accounting Firm To: The Annual General Meeting of Shareholders' and Supervisory
Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual
Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provide a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
Financial information 104 Selected financial data 106 Results of operations 107  Worldwide 115  Americas 123  Europe 133  Asia 139  Aegon Asset Management
224 16 Interest charges and related fees 224 17 Other charges 227 19 Earnings per share 227 20 Dividend per common share 228 21 Cash and cash equivalents 230 22 Assets and liabilities held for sale 233 24 Investments for account of policyholders 237 26 Investments in joint ventures 239 27 Investments in associates 239 28 Reinsurance assets 241 29 Deferred expenses 241 30 Other assets and receivables 244 31 Intangible assets 246 32 Shareholders’ equity 252 33 Other equity instruments 253 34 Subordinated borrowings 254 35 Trust pass-through securities 254 36 Insurance contracts 257 37 Investment contracts 258 38 Guarantees in insurance contracts 264 41 Defined benefit plans 271 42 Deferred gains 271 43 Deferred tax 273 44 Other liabilities 274 46 Capital management and solvency 278 47 Fair value 290 48 Commitments and contingencies 294 49 Transfers of financial assets 296 50 Offsetting, enforceable master netting arrangements and similar agreements 297 51 Business combinations 300 52 Group companies 302 53 Related party transactions 309 54 Events after the reporting period
Other non-financial information 418 Other non-financial data 421 Basis of preparation 425 Reference tables 425  Global Reporting Initiative (GRI) standards 433  International Integrated Reporting Council (IIRC)
A summary of historical financial data is provided in the table below. It is important to read this summary in conjunction with the consolidated financial statements and related notes (see pages 143-309) of this Annual Report.
Selected consolidated income statement information In EUR million (except per share amount) 2018 2017 2016 2015 2014
This Annual Report includes the non-IFRS-EU financial measure: underlying earnings before tax. The reconciliation of this measure to the most comparable IFRS-EU measure is presented in the table below in addition to note 5 ‘Segment information’ of the consolidated financial statements. This non-IFRS-EU measure is calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s joint ventures in China, Japan, Mexico, the Netherlands, Portugal and Spain and Aegon’s associates in Brazil, India, Mexico, the Netherlands and United Kingdom.
1 Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands. Comparative numbers have been restated accordingly. For further details please refer to page 208.
The table also includes the non-IFRS-EU financial measure: net underlying earnings. This is the after-tax equivalent of underlying earnings before tax. The reconciliation of net underlying earnings to the most comparable IFRS-EU measure is presented in the table below. Aegon believes that these non-
IFRS-EU measures presented in this report. While many other insurers in Aegon’s peer group present substantially similar non-IFRS-EU measures, the non-IFRS-EU measures presented in this document may nevertheless differ from the non-
Aegon and its peers present similar information before making a comparison. Aegon believes the non-IFRS-EU measures present within this report, when read together with Aegon’s reported
IFRS-EU financial statements, provide meaningful supplemental information for the investing public. This enables them to evaluate Aegon’s businesses after eliminating the impact of current IFRS-EU accounting policies for financial instruments and insurance contracts, which embed a number of accounting policy alternatives that companies may select in presenting their results (as companies may use different local generally accepted accounting principles (GAAPs)), and this may make the comparability difficult between time periods.
is included in underlying earnings before tax. In addition, Aegon the Netherlands started to record its management’s best estimate investment return on consumer loan investments (net of expected impairments) in underlying earnings before tax, where previously the gross returns were recorded in underlying earnings before tax and the impairments in the impairment line. All other alternative investments are reported similarly with ‘management’s best estimate investment return’ being included in underlying earnings before tax and the overor underperformance in Fair value items.
For segment reporting purposes, the impact of this change in measurement on full year 2017 was an increase in Aegon Group consolidated underlying earnings before tax of EUR 37 million and a decrease in fair value items of EUR 61 million and a decrease in impairment charges of EUR 24 million. There is no impact on net income in any of the reporting periods.
Results 2018 worldwide Underlying earnings geographically Amounts in EUR millions 2018 20171 %
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (47) (44) (6)
Commissions and expenses 6,673 6,309 6 of which operating expenses 3,786 3,878 (2) 1 Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands.
Gross deposits (on and off balance) Amounts in EUR millions 2018 2017 %
Net deposits (on and off balance) Amounts in EUR millions 2018 2017 %
V en tu re s el im in at io ns
Accident and health insurance premiums 1,571 219 29 2 100 351 94 - - 2,015 (36) 1,979
Underlying earnings before tax Aegon’s underlying earnings before tax decreased compared with 2017 to EUR 2,074 million in 2018. This was mainly driven by lower fee revenue due to declining equity markets and net outflows of revenue generating investments, and unfavorable mortality experience in the Americas, which more than offset higher earnings in Europe, Asia and Asset Management.  In Americas, underlying earnings before tax in 2018 decreased by 12% compared with 2017 to EUR 1,216 million caused by adverse currency movements, lower fee revenue due to declining equity markets and net outflows, and unfavorable mortality experience. This was partly offset by expense reductions.
 In Europe, underlying earnings before tax in 2018 increased by 13% compared with 2017 to EUR 839 million as a result of growth in all regions.
Fair value items The loss from fair value items amounted to EUR 260 million in 2018. Fair value losses in the Americas amounted to EUR 613 million in 2018, which was primarily related to hedge losses, reflecting the equity market decline at the end of the year, and losses on fair value investments. Fair value gains in Europe amounted to EUR 346 million, as a result of real estate investments in the Netherlands and gains on equity hedges in the United Kingdom. Gains on fair value items in Asia and at the Holding totaled EUR 8 million.
Realized gains on investments Realized losses on investments amounted to EUR 77 million in 2018, as losses on the sale of US treasuries as part of normal trading activity were more than offset by realized gains on investments in the Netherlands and the united Kingdom.
Other charges Other charges amounted to EUR 875 million in 2018. Other charges in the Americas of EUR 397 million in 2018 mainly related to the transition and conversion charges for the TCS
partnership (EUR 127 million), a EUR 140 million charge for a class action litigation settlement with universal life policyholders, a EUR 93 million book loss on the divestment of the last remaining substantial block of life reinsurance business, EUR 33 million impact from assumption updates, and a EUR 27 million addition to the provision for unclaimed property. Other charges in Europe of EUR 409 million in 2018 reflect EUR 111 million model & assumption changes in the Netherlands, EUR 93 million loss on the sale of Aegon
Run-off businesses The results of run-off businesses declined compared with 2017 to a loss of EUR 14 million in 2018, following the divestment of the majority of the remainder of these businesses in 2017.
Income tax The effective tax rate amounted to 10% as a result of onetime tax benefits of declining US and Dutch corporate income tax rates next to the regular tax exempt income items and tax credits. The effective tax rate on underlying earnings before tax amounted to 15%, reflecting the lowering of the US tax rate.
Commissions and expenses Commissions and expenses increased by 6% compared with 2017 to EUR 6.7 billion in 2018. Operating expenses decreased by 2% compared with 2017 to EUR 3.8 billion in 2018. Expense savings and the divestment of UMG in 2017 more than offset restructuring expenses associated with the acquisitions of Cofunds and BlackRock’s defined contribution business in the United Kingdom as well as the partnership with TCS
to EUR 121.7 billion in 2018, driven by lower platform deposits in the United Kingdom and lower Asset Management deposits.
States. New premium production for accident & health and property & casual insurance decreased by 52% compared with 2017 to EUR 429 million in 2018, caused by the strategic decision to exit the travel insurance, affinity and stop loss insurance segments.
As announced in our 2H 2018 earnings release on February 14, 2018, to align closer to definitions used by peers and rating agencies, Aegon has retrospectively changed its internal definition of adjusted shareholders’ equity used in calculating return on equity for the group, return on capital for its units, and the gross financial leverage ratio. Shareholders’ equity will no longer be adjusted for the re-measurement of defined benefit plans. All figures in this annual report, including comparatives, are based on the new definition, unless stated otherwise.
The gross leverage ratio improved to 29.2% on December 31, 2018, compared with 30.7% at the end of 2018, which was mostly the result of the maturity of EUR 500 million senior debt in August 2018. Excess cash in the holding declined in 2018 compared with 2017 to EUR 1.3 billion, as remittances from business units were more than offset by dividends to shareholders, interest payments, operating expenses and capital injections into the units, and the repayment of unstructured senior debt.
Solvency II ratio at the end of 2018 of Aegon United Kingdom amounted to 184%, up from 176% at the end of 2017.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 2,437 836 192 Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 44 31 45
Net deposits (on and off balance) Amounts in EUR millions 2017 2016 %
Results 2017 worldwide Aegon’s net income in 2017 improved compared with 2016 to EUR 2,361 million. Underlying earnings before tax increased by 10% compared with 2016 to EUR 2,140 million in 2017, as higher underlying earnings before tax from the Americas, Europe and Asia were only partly offset by lower Asset Management underlying earnings before tax and Holding and other activities. The net result in 2017 benefited from realized gains of EUR 413 million mainly related to normal trading in the investment portfolio, as well as a EUR 554 million benefit related to the US tax reform. Other charges amounted to EUR 68 million in 2017, as the net gain from divestments was more than offset by other items, including charges related to assumption changes and model updates.
Underlying earnings before tax Aegon’s underlying earnings before tax increased compared with 2016 to EUR 2,140 million in 2017. This was mainly driven by expense reductions, an improvement in claims experience in the Americas, and higher fee revenue resulting from favorable equity market performance.
 Underlying earnings before tax from Asset Management decreased by 9% in 2017 compared with 2016 to EUR 136 million. This decline was mainly driven by lower underlying earnings before tax from the United Kingdom due to lower management fees.
Realized gains on investments Realized gains on investments amounted to EUR 413 million in 2017 and were primarily related to normal trading activity, the sale of an equity investment in the United States, and gains on bonds to optimize the general account investment portfolio in the Netherlands and the United Kingdom.
Impairment charges Net impairments of EUR 15 million in 2017 primarily related to a single commercial mortgage loan in the United States.
(EUR 231 million) were more than offset by the loss on the divestment of an additional block of life reinsurance business in the Americas (EUR 105 million), charges related to assumption changes and model updates (EUR 276 million), a provision in anticipation of a possible settlement in connection with an investigation by the US Securities and Exchange
Run-off businesses The results of run-off businesses declined compared with 2016 to EUR 30 million in 2017, mainly as a result of the divestment of the majority of the run-off businesses.
Commissions and expenses Commissions and expenses decreased by 6% compared with 2016 to EUR 6.3 billion in 2017, mainly driven by lower sales of life and annuity products in the United States.
Operating expenses increased by 3% compared with 2016 to EUR 3.9 billion in 2017. Expense savings were more than offset by higher expenses associated with the acquisitions of Cofunds and BlackRock’s defined contribution business in the United Kingdom.
Capital management During 2017, shareholders' equity decreased by EUR 0.3 billion to EUR 20.6 billion, as net income was more than offset by a weakening of the US Dollar, dividends paid to shareholders, and a reduction in revaluation reserves net of deferred tax liabilities. During the year, the revaluation reserves net of deferred tax liabilities decreased by EUR 0.5 billion to EUR 4.9 billion. The benefit from US tax reform in connection to the reduction in net deferred tax liabilities related to revaluation reserves was more than offset by the adverse impact from higher interest rates. Aegon’s shareholders' equity, excluding revaluation reserves amounted to EUR 15.7 billion on December 31, 2017, or 7.66 per common share. The gross leverage ratio improved to 30.8% on December 31, 2017, compared with 32.2% at the end of 2016, which was mostly the result of retained earnings. Excess cash in the holding declined in 2017 compared with 2016 to EUR 1.4 billion, as remittances from business units were more than offset by dividends to shareholders, interest payments, operating expenses and capital injections into the units, including a EUR 1 billion injection to increase the Solvency II ratio of Aegon the Netherlands.
On December 31, 2017, Aegon’s estimated Solvency II ratio amounted to 201%, up from 157% at the end of 2016.
The methodology is subject to annual review. The RBC ratio in the United States increased from 440% at year-end 2016 to 472% on December 31, 2017. The benefit to the ratio from capital generation and the divestment of the majority of the run-off businesses more than offset remittances to the Group.
In the Netherlands, the estimated Solvency II ratio at the end of 2017 amounted to 199%, up from 134% at the end of 2016. The ratio benefited from the aforementioned capital injection, model changes, derisking and the divestment of UMG. The estimated Solvency II ratio at the end of 2017 of Aegon United Kingdom amounted to 176%, up from 156%
at the end of 2016. The capital generation, the completion of the Part VII transfers related to the divestment of the majority of the UK annuity book and model changes more than offset remittances to the Group.
Aegon’s estimates, are not final until filed with the regulator, and are subject to supervisory review.
EUR 176 million from Asia and EUR 167 million from the United
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 2 5 (53) 2 5 (55)
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (2) (5) 53 (2) (5) 55
New premium production accident and health insurance 312 818 (62) 264 725 (64)
Total net deposits excluding run-off businesses (17,409) (33,549) 48 (14,734) (29,713) 50
Results 2018 Americas The net income from the Americas amounted to USD 61 million in 2018. Underlying earnings before tax in 2018 decreased by 8% compared with 2017 to USD 1.4 billion caused by lower fee revenue due to declining equity markets and net outflows of revenue generating investments, and unfavorable mortality experience, partly offset by expense reductions. Gross deposits increased by 4% to USD 45.2 billion in 2018 compared with 2017, as a result of increases at all business lines. New life sales declined to USD 496 million in 2018 compared with USD 533 million in 2017 due to lower indexed universal life and term life sales. New premium production for accident & health insurance was down 62% compared with 2017 to USD 312 million in 2018, reflecting the strategic decision to exit travel insurance, affinity and stop loss insurance segments.
compared with 2017 to USD 1.4 billion. Results on fair value items amounted to a loss of USD 724 million in 2018, which was primarily related to:  The loss on fair value hedges without an accounting match under IFRS was USD 558 million. This loss was higher than anticipated, mainly due to USD 96 million lower than expected gains as a result of the lack of implied volatility movements during the equity market decline at the end of the year.  The result on fair value hedges with an accounting match amounted to a loss of USD 7 million.
 The results on fair value investments amounted to an underperformance of USD 152 million, mainly from lower commodity prices and equity markets, as well as widening credit spreads. This was partly offset by positive revaluations on real estate.
Net impairments amounted to USD 10 million, reflecting an impairment of corporate bonds caused by a bankruptcy filing. Income before tax from run-off businesses in 2018 was a loss of USD 16 million, which is in line with expectations following the divestment of the majority of the remainder of these businesses in 2017. Other charges of USD 469 million in 2018 mainly related to USD 150 million transition and conversion charges for the TCS partnership, a USD 166 million charge for a class action litigation settlement with universal life policyholders, a USD 110 million book loss on the divestment of the last remaining substantial block of life reinsurance business, USD 39 million impact from assumption updates, and a USD 32 million addition to the provision for unclaimed property.
to USD 263 million in 2018 compared with USD 251 million in 2017. This increase was driven by higher investment income and lower expenses, which were largely offset by adverse mortality experience and adverse persistency.
 Accident & health underlying earnings before tax decreased to USD 259 million in 2018 compared with USD 284 million in 2017, mainly due to lower favorable morbidity experience.  Underlying earnings before tax from Mutual Funds declined from USD 54 million in 2017 to USD 45 million in 2018. This was caused by higher expenses as a result of changes in the expense allocation between product lines, partly offset by higher fee income from business growth.
Commissions and expenses Commissions and expenses increased by 17% compared with 2017 to USD 4.8 billion in 2018. Operating expenses increased by 3% compared with 2017 to USD 1.9 billion in 2018 reflecting higher restructuring expenses due to the transition and conversion charges related to the TCS partnership.
Variable Annuities and Fixed Annuities saw outflows as these books mature.
Results 2017 Americas The net income from the Americas amounted to USD 1.8 billion in 2017. Underlying earnings before tax in 2017 increased by 13% compared with 2016 to USD 1.6 billion as expense reductions, an improvement in claims experience, and higher fee revenue resulting from favorable equity market performance more than offset net outflows. Gross deposits decreased by 4% to USD 43.5 billion in 2017 compared with 2016, mainly as a result of lower variable annuity and retirement plans deposits. New life sales declined to USD 533 million in 2017 compared with 2016 due to lower indexed universal life and term life sales, partly as a result of not following competitors’ pricing changes. New premium production for accident & health insurance was down 9% to USD 0.8 billion in 2017 compared with 2016, as product exits and lower supplemental health sales more than offset higher travel sales.
option based program and real estate investments. Income before tax from run-off businesses in 2017 almost halved compared with 2016 to USD 33 million following the divestment of the majority of run-off businesses in 2017, while realized gains on investments in 2017 amounted to USD 177 million.
Net impairments amounted USD 19 million in 2017, primarily related to a single commercial mortgage loan. Other charges of USD 409 million in 2017 mainly related to the impact of model updates and assumption changes related to conversion of the largest block of universal life business to a new model and a provision in anticipation of a possible settlement in connection with an investigation by the US SEC (USD 51 million), which more than offset a net gain on divestments due to the sale of BOLI/COLI and Payout annuities (USD 250 million) and life reinsurance block (USD 119 million). The benefit from US tax reform amounted to USD 626 million driven by a reduction in deferred tax liabilities.
 Underlying earnings before tax from Stable Value Solutions amounted to USD 99 million in 2017 compared with
USD 96 million in 2016 mainly due to lower hedging costs.  Latin America remained stable at USD 1 million of underlying earnings before tax in 2017.
Production Gross deposits decreased by 4% in 2017 compared with 2016 to USD 43.5 billion. Higher gross deposits in Mutual Funds and
Introduction Europe The Results 2018 Europe cover the following operating segments: The Netherlands, United Kingdom, Central & Eastern Europe, Spain & Portugal.
Income statement – Underlying earnings Amounts in EUR millions The Netherlands United Kingdom
Underlying earnings before tax by product segment 615 128 72 24 839
Income/(loss) before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 815 19 69 7 909
Income statement – Underlying earnings Amounts in EUR millions The Netherlands1 United Kingdom Central & Eastern Europe Spain & Portugal Europe1
Income/(loss) before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 872 137 66 4 1,078
The results of operations Europe for 2017 and 2016 are based on the figures of the separate operating segments that are further disclosed on the following pages.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 11 6 70
Net income Net income amounted to EUR 777 million in 2018 compared with EUR 846 million in 2017, as higher underlying earnings before tax and positive fair value items were more than offset by other charges. Other charges of EUR 409 million in 2018 included EUR 111 million for model & assumption changes in the Netherlands, EUR 94 million restructuring expenses in the United Kingdom and a EUR 93 million loss on the sale of Aegon Ireland, and EUR 49 million reserve strengthening in the UK related to the net residual annuity book.
Net income for the Netherlands Net income from Aegon’s businesses in the Netherlands amounted to EUR 681 million in 2018, largely driven by underlying earnings before tax of EUR 615 million. Results on fair value items increased compared with 2017 to a gain of EUR 280 million in 2018, driven by positive real estate revaluations. Realized gains of EUR 46 million in 2018 were the result of normal trading activity in the investment portfolio.
Realized gains amounted to EUR 83 million in 2018 and reflect optimization of the investment portfolio. Other charges amounted to EUR 252 million, mainly caused by EUR 93 million loss on the sale of Aegon Ireland, EUR 75 million integration expenses for Cofunds and Blackrock’s DC business as well as EUR 19 million transition and conversion charges related to the agreement with Atos for administration services, and a EUR 49 million reserve strengthening related to the residual annuity book.
Net income for Spain & Portugal Net income from Aegon’s businesses in Spain & Portugal amounted to a loss of EUR 3 million in 2018 as underlying earnings before tax of EUR 24 million were more than offset by EUR 18 million other charges, reflecting a restructuring charge in Aegon’s own business in Spain, and income tax of EUR 10 million.
Underlying earnings before tax for the Netherlands Underlying earnings before tax for the Netherlands in 2018 increased by 10% compared with 2017 to EUR 615 million.  Underlying earnings before tax from Life increased by 15%
compared with 2017 to EUR 103 million, driven by a higher net interest margin as a result of balance sheet growth and lower funding costs. This was partly offset by higher expenses in line with the bank’s growth.
 Underlying earnings before tax from the Service business decreased by 75% compared with 2017 to EUR 11 million.
The decrease was caused by the loss of earnings due to sale of UMG in 2017, and investments in new digital propositions.
Underlying earnings before tax for the United Kingdom Underlying earnings before tax in the United Kingdom increased by 10% compared with 2017 to EUR 128 million in 2018.  Underlying earnings before tax from Existing Business declined by 14% compared with 2017 to EUR 107 million in 2018, reflecting net outflows, including upgrades to the digital platform, and lower investment income following bond sales.
Commissions and expenses for Central & Eastern Europe Commissions and expenses increased by 1% compared with 2017 to EUR 265 million in 2018. Operating expenses increased by 9%
Commissions and expenses for Spain & Portugal Commissions and expenses increased by 9% compared with 2017 to EUR 210 million in 2018. Operating expenses increased by 13% compared with 2017 to EUR 106 million in 2018, mainly reflecting the restructuring expenses for Aegon’s own business, partly offset by expense reductions and the non-recurrence of one-time expense items.
New life sales increased by 2% compared with 2017 to EUR 278 million in 2018, driven by higher protection sales in the United Kingdom. New premium production for accident
Production for Central & Eastern Europe Gross deposits increased by 16% compared with 2017 to EUR 374 million in 2018, driven by higher pension deposits in Romania, Poland, Hungary and Slovakia. New life sales declined by 6% compared with 2017 to EUR 83 million in 2018, reflecting adverse currency movements.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 1,078 288 n.m.
Commissions and expenses 2,141 2,058 4 of which operating expenses 1,610 1,445 11 1 Aegon has changed the measurement of underlying earnings before tax for its real estate investments portfolio held by Aegon the Netherlands.
Net income Net income amounted to EUR 846 million in 2017 compared with EUR 127 million in 2016. Drivers of this improvement were
Other income and a higher underlying earnings before tax. Other income of EUR 336 million in 2017 included a gain on the sale of UMG in the Netherlands, while the sale of the majority of the UK annuity portfolio was the main driver behind Other charges of EUR 658 million in 2016.
Net income for the United Kingdom Net income from Aegon’s businesses in the United Kingdom amounted to EUR 81 million in 2017. The main driver was the underlying result before tax of EUR 116 million.
Losses from fair value items of EUR 82 million were mainly caused by losses on equity hedging programs as a result of increased equity markets where hedges have been set up to protect against a decline in equity markets. Realized gains amounted to EUR 62 million in 2017 and reflect rebalancing of the investment portfolio, and the sale of bonds to fund remittances to the Group. Other income amounted to EUR 40 million, mainly driven by the net release of provisions following the completion of the Part VII transfers of the annuity portfolios sold to Rothesay and Legal & General. This was partly offset by integration expenses for the acquired Cofunds and
Net income for Spain & Portugal Net income from Aegon’s businesses in Spain & Portugal amounted to a loss of EUR 2 million in 2017 as underlying earnings before tax of EUR 4 million were more than offset by income tax of EUR 6 million.
compared with 2016 to EUR 744 million. This was driven by higher fee income in the United Kingdom and growth in CEE.
 Underlying earnings before tax from Life & Savings declined by 2% compared with 2016 to EUR 301 million, reflecting lower investment income in Life, partly offset by a higher interest margin in Savings.
Underlying earnings before tax for the United Kingdom Underlying earnings before tax in the United Kingdom amounted to EUR 116 million in 2017.
Commissions and expenses for the Netherlands Commissions and expenses decreased by 5% compared with 2016 to EUR 930 million in 2017. Operating expenses were down by 0% compared with 2016 to EUR 818 million in 2017, reflecting the sale of UMG. Expense savings in the insurance businesses were more than offset by investments in growth.
Commissions and expenses for Spain & Portugal Commissions and expenses increased by 12% compared with 2016 to EUR 192 million in 2017. Operating expenses increased by 7% compared with 2016 to EUR 94 million in 2017, mainly resulting from the growth of Aegon’s joint ventures with
Aegon’s online bank. New life sales declined compared with 2016 to EUR 99 million in 2017, caused by lower DB pension sales and individual life sales. Premium production for accident & health increased compared with 2016 to EUR 16 million in 2017, while property & casualty insurance production decreased compared with 2016 to EUR 15 million in 2017.
Production for the United Kingdom Gross deposits increased from EUR 5.8 billion in 2016 to EUR 17.2 billion in 2017 as a result of higher platform sales, reflecting the inclusion of Cofunds. New life sales decreased compared with 2016 to EUR 37 million in 2017, mainly due to the sale of the majority of the annuity business in the second half of 2016.
Production for Central & Eastern Europe In Central & Eastern Europe, new life sales in 2017 increased compared with 2016 to EUR 88 million, driven by sales growth in Turkey. For the property & casualty insurance business, there were higher sales compared with 2016 amounting to EUR 64 million in 2017, reflecting the acquisition of a portfolio in Hungary.
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (15) (19) 19 (13) (16) 23
Net deposits (on and off balance) 2018 2017 % 2018 2017 %
Results 2018 Asia Net income in 2018 increased by USD 7 million to USD 13 million in 2018 compared with 2017. This was mainly driven by improved underlying earnings before tax. Underlying earnings before tax improved by USD 10 million to USD 65 million in 2018 compared with 2017. This was mainly driven by improved underlying earnings before tax and lower other charges, partly offset by losses and impairments on investments. Gross deposits decreased to USD 151 million in 2018 compared with USD 250 million in 2017, primarily due to lower variable annuity sales in Japan as a result from a shrinking market due to the low interest rate environment. New life sales amounted to USD 144 million for 2018, and mainly related to the critical illness product in China and universal life sales from the High Net Worth business.
Net income Net income improved from USD 6 million in 2017 to USD 13 million in 2018, mainly due to increased underlying earnings before tax in the High Net Worth business and
 Underlying earnings before tax in Aegon Insights decreased to USD 9 million in 2018 compared with USD 10 million in 2017 as lower operating expenses were more than offset by a reduced size of the in-force business, and by favorable one-time reserve and fee adjustments in 2017.  Losses from Strategic partnerships improved to
Singapore, new life sales were down 38% to USD 53 million in 2018, compared with USD 84 million in 2017. This decrease was mainly the result of higher cost of premium financing for customers as short-term interest rates rose.  New life sales in Strategic Partnerships were up 7% to
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 38 16 141 33 14 136
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (19) (2) n.m. (16) (2) n.m.
Accident and health insurance premiums 110 115 (5) 97 104 (6)
Insights and China. Fair value losses improved compared with 2016 to USD 1 million due to lower losses on hedging of the variable annuity business in Japan. Realized gains decreased to USD 5 million in 2017 due to lower gains from normal trading activity compared with 2016. Other charges increased compared with 2016 to USD 21 million as a result of the net impact of assumption changes and model updates in 2017. Income tax increased to USD 32 million in 2017 compared with USD 30 million in 2016 as higher taxes on higher underlying earnings before tax were partially offset by a one-time tax benefit of USD 10 million from the write-down of deferred tax liabilities in Aegon Insights as a result of US tax reform.
Production New life sales increased by 20% in 2017 to USD 170 million compared with 2016.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 149 90 65
Results of operations – Aegon Asset Management  Aegon Asset Management  Aegon Asset Management
Results 2018 Aegon Asset Management Net income in 2018 increased to EUR 105 million compared with EUR 48 million in 2017 as a result of higher underlying earnings before tax compared with 2017 and the fact that 2017 contained a provision related to the settlement with the SEC. Gross flows in external third-party asset management decreased by 3% to EUR 59.5 billion in 2018 compared with 2017. Higher gross inflows in the Netherlands were more than offset by lower gross inflows in Strategic partnerships, the Americas the UK. Inflows in Strategic partnerships in 2017 included a single large mandate won by Aegon’s strategic partner LBPAM.
Underlying earnings before tax Underlying earnings before tax increased by 12% in 2018 compared with 2017 to EUR 151 million. This increase was mainly driven by higher underlying earnings before tax in 2018 compared with 2017 from Strategic partnerships and the
 Underlying earnings before tax from Strategic partnerships increased by EUR 16 million compared with 2017 to
Net external third-party inflows in 2018 increased compared with 2017 to EUR 7.5 billion, as higher net flows in the Netherlands were partly offset by net outflows in the United Kingdom and lower net inflows in Strategic partnerships and the Americas.
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 90 145 (38)
Total net flows external third-party 6,913 2,964 133 1 Rest of world include intragroup eliminations from internal sub-advised agreements
Results 2017 Aegon Asset Management Net income in 2017 decreased compared with 2016 to EUR 48 million as a result of lower underlying earnings before tax compared with 2016 and a provision taken for a potential settlement with the SEC. Lower underlying earnings before tax in 2017 compared with 2016 was mainly the result of lower management fees in the United Kingdom. Gross flows in external third-party asset management increased by 32% to EUR 61.3 billion in 2017 compared with 2016, mainly driven by higher gross inflows in the US, the Netherlands and Strategic partnerships.
In addition, Aegon has taken a provision in anticipation of a possible settlement in connection with a previously disclosed investigation by the US Securities and Exchange Commission
(SEC). The investigation relates to the operation or existence of errors in the quantitative models in question and disclosures regarding these matters. Aegon had discovered these errors in its asset management operations in the United States. The Company notified the SEC and cooperated fully with the investigation.
 Americas underlying earnings before tax increased to EUR 59 million in 2017, compared with EUR 55 million in 2016, as lower expenses more than offset lower management fee income in 2017 compared with 2016.  Underlying earnings before tax from Europe in 2017 decreased by EUR 13 million to EUR 31 million compared with 2016, as higher management fee income in the Netherlands was more than offset by lower management fees in the
United Kingdom and higher expenses in the Netherlands in 2018 compared with 2017.
 Underlying earnings before tax from Strategic partnerships decreased by EUR 1 million compared with 2016 to
EUR 53 million in 2017. Aegon’s Chinese asset management joint venture AIFMC had lower performance fee income in 2017 compared with 2016. This was partly offset by higher underlying earnings before tax from French joint venture La
Commissions and expenses Commissions and expenses declined in 2017 compared with 2016 to EUR 481 million. Operating expenses decreased by 2% in 2017 compared with 2016 to EUR 444 million. This decrease was mainly driven by lower expenses in the Americas and the United Kingdom as a result of continued strong expense control and favorable currency movements. These were partly offset by restructuring charges and higher one-time expenses in the Netherlands. The cost/income ratio in 2017 increased by 2 percentage points to 77% compared with 2016, as lower expenses were more than offset by lower revenues in 2017 compared with 2016. Annualized operating expenses as a percentage of average assets under management increased in 2017 compared with 2016 by 1 basis point to 14 basis points.
Production Gross inflows in external third-party increased by 32% in 2017 to EUR 61.3 billion compared with 2016. This was mainly the result of higher gross flows in Strategic partnerships in 2017 compared with 2016, and higher gross flows in the US and the Netherlands.
Net external third-party inflows in 2017 increased compared with 2016 to EUR 6.9 billion, as higher net flows in Strategic partnerships and the Americas were partly offset by net outflows in the United Kingdom and lower net inflows in the Netherlands.
Assets under management Assets under management decreased by EUR 14 billion in 2017 to EUR 318 billion compared with the start of 2017. Favorable market movements and net inflows in external third-party were more than offset by outflows in the general account, primarily resulting from the divestment of the majority of the run-off businesses in the US, outflows in affiliates, and unfavorable currency movements.
Exchange rates Exchange rates Consolidated financial statements of Aegon N.V. Exchange rates
Income before share in profit/(loss) of joint ventures, associates and tax 565 2,221 665
Income tax relating to items that will not be reclassified (8) (166) 86
Items that may be reclassified subsequently to profit or loss: Gains/(losses) on revaluation of available-for-sale investments (2,138) 1,283 854
Issued capital and reserves attributable to owners of Aegon N.V. 22,864 24,366
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 2018
Net income/(loss) recognized in the income statement - 744 - - - - 744 1 744
(Gains)/losses transferred to income statement on disposal and impairment of available-
Movements in foreign currency translation and net foreign investment hedging reserves - - 119 (32) 515 - 602 - 602
Total other comprehensive income/(loss) - (3) (1,459) (182) 539 - (1,105) 1 (1,104)
Issuance and purchase of treasury shares - 14 - - - - 14 - 14
1 Issued capital and reserves attributable to owners of Aegon N.V.
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 2017
Net income/(loss) recognized in the income statement - 2,361 - - - - 2,361 - 2,361
Income tax relating to items that will not be reclassified - - 9 (175) - - (166) - (166)
Items that may be reclassified subsequently to profit or loss: Gains/(losses) on revaluation of available-for-sale investments - - 1,283 - - - 1,283 - 1,283
Total comprehensive income/(loss) for 2017 - 2,374 (461) 151 (1,737) - 327 (3) 323
Issuance and purchase of treasury shares - (105) - - - - (105) - (105)
Items that may be reclassified subsequently to profit or loss: Gains/(losses) on revaluation of available-for-sale investments - - 854 - - - 854 - 854
Total other comprehensive income/(loss) - (2) (1,090) (288) 64 - (1,315) 14 (1,301)
Total comprehensive income/(loss) for 2016 - 584 (1,090) (288) 64 - (729) 15 (715)
Insurance and investment liabilities for account of policyholders (21,751) 12,988 10,716
Cash flow movements on operating items not reflected in income 8,462 11,082 4,260
Purchase of equipment and real estate for own use (81) (72) (69)
Disposal of subsidiaries and businesses, net of cash (200) (1,054) (1,082)
Net cash and cash equivalents at the beginning of the year 11,026 11,347 9,593
Net cash and cash equivalents at the end of the year 21 8,744 11,026 11,346 1 Trust pass-through securities. 2 Included in net increase/(decrease) in cash and cash equivalents are interest received (2018: EUR 5,914 million, 2017: EUR 6,215 million and 2016: EUR 6,691 million) dividends received (2018: EUR 1,222 million, 2017: EUR 1,292 million and 2016: EUR 1,387 million) and interest paid (2018: EUR 400 million, 2017: EUR 311 million and 2016: EUR 300 million). All included in operating activities except for dividend received from joint ventures and associates (2018: EUR 97 million, 2017: EUR 129 million and 2016: EUR 203 million).
The consolidated financial statements have been prepared in accordance with the historical cost convention as modified by the revaluation of investment properties and those financial instruments (including derivatives) and financial liabilities that have been measured at fair value. Information on the standards and interpretations that were adopted in 2018 is provided below in note 2.1.1 Adoption of new IFRS-EU accounting standards. The consolidated financial statements are presented in euro and all values are rounded to the nearest million unless otherwise stated. The consequence is that the rounded amounts may not add up to the rounded total in all cases. All ratios and variances are calculated using the underlying amount rather than the rounded amount.
The preparation of financial statements in conformity with IFRS-EU requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: fair value of certain invested assets and derivatives, deferred policy acquisition costs, value of business acquired and other purchased intangible assets, goodwill, policyholder claims and benefits, insurance guarantees, pension plans, income taxes and the potential effects of resolving litigation matters. Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk (macro hedging) under the European Union (EU) ‘carve out’ of IFRS-EU. Details are provided in note 2.9 Derivatives and note 25 Derivatives.
The shareholders’ meeting can decide not to adopt the financial statements but cannot amend them.
IFRS 2 Clarifications of Classification and measurement of Share Based Payments Transactions
IFRIC 22 Foreign currency transactions and advance consideration January 1, 2018 Yes Low
IFRIC 23 Uncertainty over Tax Treatments January 1, 2019 Yes No Low
Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures
IFRIC 4 Determining Whether an Arrangement Contains a Lease) are deemed compliant with IFRS 16;  The Group has elected to use hindsight in areas that involve judgment or estimation, such as in determining the lease term if the contract contains options to extend or terminate the lease.
At transition, the Group expects to recognise right-of-use assets of approximately EUR 248 million and lease liabilities of EUR 299 million (adjusted for any prepaid or accrued lease expenses) on January 1, 2019. The adverse impact on shareholders’
equity is expected to be approximately EUR 51 million pre-tax and is recognized as an adjustment to the 2019 opening balance of retained earnings. The right-of-use assets mainly consist of approximately EUR 216 million properties and of approximately
EUR 32 million equipment. The Group does not expect material movements in net income going forward.
The most significant judgment for the Group is related to the determination of the lease term. Under IFRS 16, the lease term includes extension periods where it is reasonably certain that a lease extension option will be exercised or that a lease termination option will not be exercised. Judgement is also required to determine the appropriate incremental borrowing rate.
published the final version of the IFRS 17 Insurance Contracts standard. Prior to its finalization, the IASB issued an amendment to IFRS 4 Insurance Contracts (the predecessor standard to IFRS 17) that provides for a qualifying insurer a temporary exemption that permits, but does not require, the insurer to apply IAS 39 Financial Instruments: Recognition and Measurement rather than IFRS 9 for annual periods beginning before January 1, 2021 (i.e., a temporary exemption of IFRS 9). The objective of the amendment is to address the temporary accounting consequences of the different effective dates of IFRS 9 and IFRS 17. This amendment was endorsed by the European Union in November 2017. However, in November 2018, the IASB agreed to start the process to amend IFRS 17, which could lead to the temporary exemption from IFRS 9 to be extended until January 1, 2022.
As Aegon defers the application of IFRS 9 until 2021, the full impact of the standard is not yet clear, however an initial impact assessment resulted in the expectation that it will have a significant impact on shareholders’ equity, income and/or other comprehensive income and disclosures. An implementation project has started in 2017 and is combined with the implementation of IFRS17 Insurance Contracts.
By qualifying for and electing the temporary exemption, the IFRS 4 amendment requires certain additional disclosures; specifically,
Aegon is required to disclose information to enable users of financial statements to compare insurers applying the temporary exemption with entities applying IFRS 9. This information is presented below: Integrated Annual Report 2018 CONTENTS
The table below presents an overview of the fair value of the classes of financial assets as of December 31, 2018, as well as the change in fair value during the reporting period. The asset classes are divided into two categories:  SPPI: assets of which cash flows represent solely payments of principal and interest on an outstanding principal amount, excluding any financial assets that meet the definition of held for trading in IFRS 9, or that are managed and whose performance is evaluated on a fair value basis; and  Other: all financial assets other than those specified in SPPI:  with contractual terms that do not give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding;  that meet the definition of held for trading in IFRS 9; or
The fair value at the end of the reporting period in the table reconciles back to the respective table in the fair value note.
Private loans – Carried at amortized cost 1,611 83 261 924 52 - - 1,136 4,068
Other financial assets – Carried at fair value - - 64 12 44 61 1 70 252
1 Mortgage loans with no low credit risk are defined as being more than 90 days past due, in line with regulatory guidelines.
Deposits with financial institutions – Carried at amortized cost 70 70
All Aegon’s equity accounted investments remain to apply IAS 39. Except AMVEST Vastgoed B.V. (AMVEST), Aegon does not hold any other individually material joint-venture nor associate. As most of AMVEST financial assets are measured at fair value through profit or loss, there is no material difference between the financial statements of AMVEST under IFRS 9 and IAS 39. As the remaining joint ventures and associates are not material on a consolidated level, the additional information required by IFRS 4 for electing the temporary exemption are not disclosed for these entities.
Subsidiaries and joint ventures applying IFRS 9 in their statutory accounts