The degree of judgment used in measuring the fair value of assets and liabilities generally inversely correlates with the level of observable valuation inputs. Aegon maximizes the use of observable inputs and minimizes the use of unobservable valuation inputs when measuring fair value. Financial instruments, for example, with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment.
Fair value of assets and liabilities The estimated fair values of Aegon’s assets and liabilities correspond with the amounts that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available, Aegon uses quoted market prices in active markets to determine the fair value of investments and derivatives. In the absence of an active market, the fair value of investments in financial assets is estimated by using other market observable data, such as corroborated external quotes and present value or other valuation techniques. An active market is one in which transactions are taking place regularly on an arm’s length basis. A fair value measurement assumes that an asset or liability is exchanged in an orderly transaction between market participants, and accordingly, fair value is not determined based upon a forced liquidation or distressed sale.
Shares When available, Aegon uses quoted market prices in active markets to determine the fair value of its investments in shares. Fair values for unquoted shares are estimated using observations of the price/earnings or price/cash flow ratios of quoted companies considered comparable to the companies being valued. Valuations are adjusted to account for company-specific issues and the lack of liquidity inherent in an unquoted investment. Illiquidity adjustments are generally based on available market evidence. In addition, a variety of other factors are reviewed by management, including, but not limited to, current operating performance, changes in market outlook and the third-party financing environment.
Debt securities The fair values of debt securities are determined by management after taking into consideration several sources of data. When available, Aegon uses quoted market prices in active markets to determine the fair value of its debt securities. As stated previously,
Aegon’s valuation policy utilizes a pricing hierarchy which dictates that publicly available prices are initially sought from indices and third party pricing services. In the event that pricing is not available from these sources, those securities are submitted to brokers to obtain quotes. The majority of brokers’ quotes are non-binding. As part of the pricing process, Aegon assesses the appropriateness of each quote (i.e. as to whether the quote is based on observable market transactions or not) to determine the most appropriate estimate of fair value. Lastly, securities are priced using internal cash flow modeling techniques. These valuation methodologies commonly use the following inputs: reported trades, bids, offers, issuer spreads, benchmark yields, estimated prepayment speeds, and/or estimated cash flows.
The impact of the illiquidity premium for private placement securities to the overall valuation is insignificant.
Residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and asset backed securities (ABS)
Mortgage loans, policy loans and private loans (held at amortized cost) For private loans, fixed interest mortgage loans and other loans originated by the Group, the fair value used for disclosure purposes is estimated by discounting expected future cash flows using a current market rate applicable to financial instruments with similar yield and maturity characteristics. For fixed interest mortgage loans, the market rate is adjusted for expenses, prepayment rates, lapse assumptions (unobservable inputs), liquidity and credit risk (market observable inputs). An increase in expense spread, prepayment rates and/or prepayment assumptions, would decrease the fair value of the mortgage loan portfolio.
Money market and other short-term investments and deposits with financial institutions The fair value of assets maturing within a year is assumed to be approximated by their carrying amount adjusted for credit risk where appropriate. Credit risk adjustments are based on market observable credit spreads if available, or management’s estimate if not market observable.
Most valuations are derived from swap and volatility matrices, which are constructed for applicable indices and currencies using current market data from many industry standard sources. Option pricing is based on industry standard valuation models and current market levels, where applicable. The pricing of complex or illiquid instruments is based on internal models or an independent third party. For long-dated illiquid contracts, extrapolation methods are applied to observed market data in order to estimate inputs and assumptions that are not directly observable. To value OTC derivatives, management uses observed market information, other trades in the market and dealer prices.
Some OTC derivatives are so called longevity derivatives. The payout of longevity derivatives is linked to publicly available mortality tables. The derivatives are measured using the present value of the best estimate of expected payouts of the derivative plus a risk margin. The best estimate of expected payouts is determined using best estimate of mortality developments. Aegon determined the risk margin by stressing the best estimate mortality developments to quantify the risk and applying a cost-of-capital methodology.
Aegon normally mitigates counterparty credit risk in derivative contracts by entering into collateral agreements where practical and in
Embedded derivatives in insurance contracts including guarantees Certain bifurcated guarantees for minimum benefits in insurance and investment contracts are carried at fair value. These guarantees include Guaranteed minimum withdrawal benefits (GMWB) in the United States, United Kingdom and Japan which are offered on some variable annuity products and are also assumed from a ceding company; minimum interest rate guarantees on insurance products offered in the Netherlands, including group pension and traditional products; variable annuities sold in Europe and Japan, and guaranteed minimum accumulation benefits on segregated funds sold in Canada.
Since the price of these guarantees is not quoted in any market, the fair values of these guarantees are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. Given the complexity and long-term nature of these guarantees which are unlike instruments available in financial markets, their fair values are determined by using stochastic techniques under a variety of market return scenarios. A variety of factors are considered, including
In 2013, Aegon updated the way it extrapolates yield curves beyond market observable maturities. The discount rates converge linearly in 10 years to an Ultimate Forward Rate of 4.25% from the last liquid point. The uniform last liquid point for all Aegon’s major currencies (USD, GBP and EUR) is set at 30 years. Additionally, Aegon updated the manner in which it estimates guarantees embedded within individual life contracts in the Netherlands. The impact on income before tax of these updates was EUR 27 million negative.
Since many of the assumptions are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level III of the fair value hierarchy. Refer to note 48 for more details about
Fair value hierarchy The table below provides an analysis of assets and liabilities recorded at fair value on a recurring basis by level of the fair value hierarchy: Level I Level II Level III Total 2013
Total unrealized gains and losses for the period recorded in the P&L for instruments held at
Corporate bonds 212 Discounted cash flow Credit spread 0.4% - 2.6% (2.33%) 259 Broker quote n.a. n.a.
16 Other n.a. n.a. Sovereign debt 19 Broker quote n.a. n.a.
Other investments at fair value Real estate funds 591 Net asset value n.a. n.a. Private equity funds 564 Net asset value n.a. n.a. Hedge funds 62 Net asset value n.a. n.a.
Total liabilities at fair value 1,431 1 Other in the table above (column Valuation technique) includes investments for which the fair value is uncorroborated and no broker quote is received. 2 Not applicable (n.a.) has been included when no significant unobservable assumption has been identified and used. 3 Investments for account of policyholders are excluded from the table above and from the disclosure regarding reasonably possible alternative assumptions.
Policyholder assets, and their returns, belong to policyholders and do not impact Aegon’s net income or equity. The effect on total assets is offset by the effect on total liabilities. Derivatives exclude derivatives for account of policyholders amounting to EUR 76 million.
Available-for-sale shares include shares in the Federal Home Loan Bank of EUR 94 million that are measured at par, which are reported as part of Other. The bank has implicit financial support from the United States government. The redemption value of the shares is fixed at par and they can only be redeemed by the bank.
Effect of changes in significant unobservable assumptions to reasonably possible alternatives
Financial liabilities carried at fair value Embedded derivatives in insurance contracts e 1,213 Credit spread 37 (36)
a. The primary unobservable assumptions used in fair value measurement of asset backed securities is in general a liquidity premium in the discount rate. Changing the liquidity premium changes the discount rate when using the discounted cash flow model.
d. The derivative included is a longevity index derivative. Most significant unobservable input is expected mortality. Changing the expected mortality changes the cash flow expectations from this derivative. Increasing (decreasing) the mortality rates decreases (increases) the value of the investment. Aegon adjusted longevity with 2% up or down for this input, compared to the expected mortality in determining the value of this derivative.
e. To determine the fair value of the bifurcated embedded derivatives related to guarantees, a discount rate is used including credit spread. An increase in the credit spread results in lower valuation, while a decrease results in a higher valuation of the embedded derivatives. Aegon increased or decreased the credit spread by 20 basis points.
Borrowings – held at amortized cost 11,003 2,067 1,527 7,697 11,291
Impairment of financial assets There are a number of significant risks and uncertainties inherent in the process of monitoring investments and determining if impairment exists. These risks and uncertainties include the risk that the Group’s assessment of an issuer’s ability to meet all of its contractual obligations will change based on changes in the credit characteristics of that issuer and the risk that the economic outlook will be worse than expected or have more of an impact on the issuer than anticipated. Any of these situations could result in a charge against the income statement to the extent of the impairment charge recorded.
Residential mortgage-backed securities (RMBS) are monitored and reviewed on a monthly basis. Detailed cash flow models using the current collateral pool and capital structure on the portfolio are performed quarterly. Model output is generated under a base and several stress-case scenarios. Aegon’s RMBS asset specialists utilize industry modeling software to perform a loan-by-loan, bottom-up approach to modeling. Key assumptions used in the models are projected defaults, loss severities, and prepayments. Each of these key assumptions varies greatly based on the significantly diverse characteristics of the current collateral pool for each security. Loan-tovalue, loan size, and borrower credit history are some of the key characteristics used to determine the level of assumption that is utilized.
Defaults were estimated by identifying the loans that are in various delinquency buckets and defaulting a certain percentage of them over the near-term and long-term. Assumed defaults on delinquent loans are dependent on the specific security’s collateral attributes and historical performance. Loss severity assumptions were determined by obtaining historical rates from broader market data and by adjusting those rates for vintage, specific pool performance, collateral type, mortgage insurance and estimated loan modifications.
Prepayments were estimated by examining historical averages of prepayment activity on the underlying collateral. Once the entire pool is modeled, the results are analyzed by internal asset specialists to determine whether or not a particular tranche or holding is at risk for not collecting all contractual cash flows taking into account the seniority and other terms of the tranches held. Aegon will impair its particular tranche to fair value where it would not be able to receive all contractual cash flows.
Other ABS securities are monitored and reviewed on a monthly basis. Where ratings have declined to below investment grade, the individual debt securities have been modeled. Results are then closely analyzed by the asset specialist to determine whether or not a principal or interest loss is expected to occur. Aegon will impair its particular tranche to fair value where it would not be able to receive all contractual cash flows.
Shares Objective evidence of impairment of an investment in an equity instrument classified as available-for-sale includes information about significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered. A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost is also objective evidence of impairment.
Goodwill Goodwill is reviewed and tested for impairment under a fair value approach. Goodwill must be tested for impairment at least annually or more frequently as a result of an event or change in circumstances that would indicate an impairment charge may be necessary.
The valuation utilized the best available information, including assumptions and projections considered reasonable and supportable by management. The assumptions used in the valuation involve significant judgments and estimates. Refer to note 21 for more details.
Valuation of defined benefit plans The liabilities or assets recognized in the statement of financial position in respect of defined benefit plans is the difference between the present value of the projected defined benefit obligation at the balance sheet date and the fair value of plan assets. The present value of the defined benefit obligation is determined by discounting the estimated future cash flows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity that approximate the terms of the related pension liability. Actuarial assumptions used in the measurement of the liability include the discount rate, estimated future salary increases, mortality rates and price inflation. To the extent that actual experience deviates from these assumptions, the valuation of defined benefit plans and the level of pension expenses recognized in the future may be affected.
Recognition of deferred tax assets Deferred tax assets are established for the tax benefit related to deductible temporary differences, carry forwards of unused tax losses and carry forwards of unused tax credits when in the judgment of management it is probable that Aegon will receive the tax benefits.
As part of its risk management programs, Aegon takes inventory of its current risk position across risk categories. Aegon also measures the sensitivity of net income and shareholders' equity under both deterministic and stochastic scenarios. Management uses the insight gained through these “what if?” scenarios to manage the Group’s risk exposure and capital position. The models, scenarios and assumptions used are reviewed regularly and updated as necessary.
Each sensitivity analysis reflects the extent to which the shock tested would affect management’s critical accounting estimates and judgment in applying Aegon’s accounting policies. Market-consistent assumptions underlying the measurement of non-listed assets and liabilities are adjusted to reflect the shock tested. The shock may also affect the measurement of assets and liabilities based on assumptions that are not observable in the market. For example, a shock in interest rates may lead to changes in the amortization schedule of DPAC or to increased impairment losses on equity investments. Although management’s short-term assumptions may change if there is a reasonably possible change in a risk factor, long-term assumptions will generally not be revised unless there is evidence that the movement is permanent. This fact is reflected in the sensitivity analyses.
The accounting mismatch inherent in IFRS is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However, the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based on locked-in assumptions or on management’s long-term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in IFRS net income and shareholders’ equity. Aegon has classified a significant part of its investment portfolio as “available-for-sale”, which is one of the main reasons why the economic shocks tested have a different impact on net income than on shareholders’ equity. Unrealized gains and losses on these assets are not recognized in the income statement but are booked directly to the revaluation reserves in shareholders’ equity, unless impaired. As a result, economic sensitivities predominantly impact shareholders’ equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalization ratios and capital adequacy are minimal.
Name Limit Policy. �� Concentration per sector, geography and asset class: Aegon’s investment strategy is translated in investment mandates for our internal and external asset managers. Through these investment mandates limits on sector, geography and asset class are set.
Compliance monitoring of the investment mandates is done by the insurance operating companies.
Aegon’s business strategy is tested in several extreme event scenarios. In the Depression and Inflation scenario financial markets are stressed without assuming diversification across different market factors. As part of the Extreme Event Scenario testing, appropriate management actions are implemented when management deems this necessary.
Concentration risk for insurance risks are measured and managed at the following levels: �� Concentration per risk type: Insurance risks include mortality, longevity, morbidity and policyholder behavior risk. Similar to financial risks, a risk tolerance framework is in place which sets risk limits per risk type and which promotes diversification across risk types. �� Concentration per insured life: Mortality risk retention limit per life is set as part of the Underwriting Risk Policy.
Risk mitigation/transfer programs are taken for the exposures that are close to or exceed the limit. More generally, Aegon’s processes for managing insurance risks include risk-based pricing, underwriting and claim process, risk analysis and modeling, and management actions such as repricing, risk mitigation/transfer, enhancing customer service, etc.
Aegon operates a Currency Risk Policy which applies currency risk exposure limits both at Group and regional levels, and under which direct currency speculation or program trading by country units is not allowed unless explicit approval has been granted by the Group
The sensitivity analysis in the table below shows an estimate of the effect of movements in the exchange rates of Aegon’s non-euro currencies relative to the euro on net income and shareholders’ equity. The effects as included in the table below are due to the translation of subsidiaries and joint-ventures in the consolidated financial statements.
the increase in market interest rates; this may result in realized investment losses. These cash payments to policyholders result in a decrease in total invested assets and a decrease in net income. Among other things, early withdrawals may also require accelerated amortization of DPAC, which in turn reduces net income.
Parallel movement of yield curve Estimated approximate effects on net income
Private loans - carried at amortized cost 1,783 21 - - - - - 21 - 1,761
Other loans - carried at amortized cost 2,381 - - - - - 1,925 1,925 1,149 1,606
Other financial assets - carried at fair value 2,947 - - - - - - - - 2,947
Mortgage loans - carried at amortized cost 28,350 1,513 - 1,652 37,224 - 2 40,391 13,066 1,025
Guarantees that have been received regarding mortgage loans that fulfill certain criteria of the Dutch Mortgage loan Guarantee (NHG)
are presented in the letters of credit/guarantees column. These specific mortgage loans are partly guaranteed by a Dutch Government
The assets in trust can be accessed to pay policyholder benefits in the event the reinsurers fail to perform under the terms of their contract. Further information on the related reinsurance transactions is included in note 28.
Aegon operates a Credit Name Limit Policy under which limits are placed on the aggregate exposure that it has to any one counterparty.
Austria. Highly rated sovereign assets (AAA rated) and domestically issued and owned in local currency sovereign exposures are excluded from the Credit Name Limit Policy.
Residential mortgage backed securities (RMBSs) 4,360 1,143 19 112 5,634 1,282
Commercial mortgage backed securities (CMBSs) 4,723 82 398 134 5,337 43
Asset Backed Securities (ABSs) - CDOs backed by ABS, Corp. Bonds, Bank loans 562 1,379 - - 1,941 43 1 Includes investments of Holding and other activities
Commercial mortgage backed securities (CMBSs) 5,227 9 438 147 5,821 65
(2012: 1.43%) is in delinquency (defined as 60 days in arrears). In 2013, Aegon Americas recognized EUR 11 million impairments
(net of recoveries) on this portfolio. In 2013, Aegon Americas foreclosed upon, or recovered EUR 73 million of real estate.
(2012: EUR 24,114 million). The LTV amounts to about 99% (2012: 96%). A significant part of the portfolio (58%; 2012: 54%)
is government guaranteed. Of the portfolio,1.2% (2012: 1.1%) is in delinquency (defined as 60 days in arrears). Impairments in 2013 amounted to EUR 22 million (2012: EUR 16 million). Historical defaults of the portfolio have been between 2 and 9 basis points per year.
For the most significant structured entities the following table presents the maximum exposure to loss for Aegon by type of structured security and by seniority of interest. Also shown are the amounts of losses that in each case would be absorbed first by investors whose interests rank junior to those of Aegon. If Aegon has interests in multiple tranches of one individual structured entity, Aegon’s maximum exposure to loss is excluded from the amount shown as potential losses borne by more junior interests. In each case, the amounts shown reflect the fair value of those interests as at the reporting date. Furthermore, the table presents a comparison of Aegon's interest with the total assets of those unconsolidated structured entities. The amount shown as total assets is based on the most current available information.
Monoline insurers About EUR 0.8 billion of the bonds in Aegon USA’s portfolio are insured by monoline insurers (2012: EUR 0.9 billion), of which
The following table breaks down bonds in Aegon USA’s portfolio that are insured by monoline insurers. The disclosure by rating follows a hierarchy of S&P, Moody’s, Fitch, Internal and NAIC.
Of which held by Aegon Americas, NL and UK 93,066 10,793 (1,397) 102,462 90,513 11,949
Unrealized bond losses by sector The composition by industry categories of debt securities and money market investments that are included in Aegon’s available-for-sale portfolios in an unrealized loss position held by Aegon at December 31 is presented in the following table: Unrealized losses ­ debt securities and money market investments
Total held by Aegon Americas, NL and UK 22,293 (1,575) 11,590 (1,341)
Most world equity markets performed well during 2013, with U.S., Japanese, and European markets up strongly. The U.S. Federal
(2012: EUR 97 million), which are classified as fair value through profit or loss.
Total amortized cost Total fair value 1 Reported as part of asset backed securities in the table on page 185.
The total gross unrealized loss on AFS RMBS of Aegon Americas, Aegon the Netherlands and Aegon UK amount to EUR 210 million
United States that started in 2007. The housing market in the United States has shown signs of improvement as evidenced by rising home prices and sales volume. Positive trends in the housing market have led to improvements in borrower delinquencies and prepayment rates as well as liquidation timelines. Loss severities on liquidated properties remain elevated for subprime loans but are starting to show signs of improvement for other RMBS sectors. The improving home prices and credit performance led to credit spread tightening across the asset class.
There are no individual issuers rated below investment grade in this RMBS sector which have unrealized loss position greater than EUR
The fair values of Aegon USA’s RMBS instruments were determined as follows: Level II Level III Total 2013 Level II Level III Total 2012
Commercial mortgage-backed securities Aegon Americas, Aegon the Netherlands and Aegon UK hold EUR 5,160 million (2012: EUR 5,606 million) of AFS commercial mortgage-backed securities (CMBS), of which EUR 4,663 million (2012: EUR 5,137 million) is held by Aegon USA, EUR 398 million
(2012: EUR 354 million), of which EUR 88 million (2012: EUR 247 million) relates to positions of Aegon USA and EUR 72 million relates to positions of Aegon UK. The commercial real estate market previously experienced a deterioration in property level fundamentals over 2008-2010, which led to an increase in CMBS loan-level delinquencies. The introduction of 30% credit enhanced tranches within the 2005-2008 vintage deals provide some offset to these negative fundamentals. Over the last year, the CMBS
market experienced several positive factors as commercial real estate fundamentals have begun to display some signs of stabilization.
The fair values of Aegon USA’s CMBS instruments were determined as follows: Level II Level III Total 2013 Level II Level III Total 2012
The total gross unrealized loss on AFS ABS of Aegon Americas, Aegon the Netherlands and Aegon UK amounts to EUR 99 million.
The breakdown by quality of the available-for-sale ABS portfolio of Aegon USA, Aegon the Netherlands & Aegon UK is as follows: ABS US, NL and UK AAA AA A BBB <BBB
CDOs backed by ABS, Corp. Bonds, Bank loans 380 537 187 49 171 1,324 1,252
majority of the gross unrealized loss is from the banking sub-sector. Companies within Aegon’s financial sector are generally high in credit quality and, as a whole, represent a large portion of the corporate debt market.
Since the peak of the financial crisis, unrealized losses in the financial sector have declined materially as progress has been made toward reducing operational and systemic risk. Following on global Central Bank actions to provide liquidity and valuation support, regulators have now implemented a wide array of reforms designed to strengthen capital levels, reduce balance sheet risk and improve liquidity across the sector. Given significant progress, central banks have now begun preparing the market for less central bank support going forward. Capital and liquidity buffers will continue to be strengthened as required by Basel III and decisive steps in the Euro area toward a Banking Union, supervised by the ECB, should further increase confidence in the sector’s ability to weather economic headwinds and reduce future risk to taxpayers.
Within the banking sub-sector, Aegon holds EUR 1,433 million (2012: EUR 1,606 million) of deeply subordinated securities with deferrable coupons that have an associated unrealized loss of EUR 130 million (2012 EUR 250 million).
There is one individual issuer rated below investment grade in the banking sub-sector which has unrealized losses greater than
Belfius Bank & Insurance Banking 99 (26) BB > 24 months
Aegon’s available-for-sale debt securities for Belfius Bank SA have a fair value of EUR 99 million as of December 31, 2013. These below investment grade securities are Upper Tier 2 and had gross unrealized losses of EUR 26 million as of December 31, 2013. Belfius
Notes to the consolidated financial statements of Aegon N.V. Note 4 prospects of the issuers in relation to the severity and duration of the unrealized loss and does not consider those investments to be impaired as of December 31, 2013.
Sovereign Aegon Americas, Aegon the Netherlands and Aegon UK’s government issued available-for-sale debt securities include emerging market sovereign bonds, US Treasury bonds, agency and state bonds. All of the issuers in the sovereign sector continue to make payments in accordance with their bond agreements. Aegon evaluated the near-term prospects of the issuers and it is believed that the contractual terms of these investments will be met and these investments are not impaired as of December 31, 2013.
There are no individual issuers rated below investment grade in the sovereign sector which have unrealized loss positions greater than
Unrealized loss by maturity The table below shows the composition by maturity of all debt securities, available-for-sale, in an unrealized loss position held by
The table below provides the length of time a security has been below cost and the respective unrealized loss.
Aging and severity unrealized losses Carrying value Unrealized losses Carrying value Unrealized losses
Impairment losses and recoveries The composition of Aegon Americas, Aegon the Netherlands and Aegon UK’s bond impairment losses and recoveries by issuer for the periods ended December 31, 2013 and December 31, 2012 is presented in the table below. Those issuers with impairments or recoveries above EUR 25 million are specifically noted.
Net (impairments) and recoveries Net impairments during 2013 totaled EUR 71 million, including EUR 66 million (2012: EUR 120 million) of gross impairments related to residential mortgage backed securities in the Americas.
During 2013, Aegon recognized EUR 60 million (2012: EUR 54 million) in recoveries on previously impaired securities. In each case where a recovery was taken on structured securities, improvements in underlying cash flows for the security were documented and modeling results improved significantly. Recoveries on non-structured securities were supported by documented credit events combined with significant market value improvements.
Debt securities - carried at fair value 50 37 14 101 1 63 24 88
These factors typically require significant management judgment. The impairment review process has resulted in EUR 3 million of impairment charges for the period ended December 31, 2013 (2012: EUR 1 million) for Aegon Americas, Aegon the Netherlands and
There are no securities held by Aegon with an unrealized loss above EUR 5 million. The table below represents the unrealized gains and losses on share positions held by Aegon Americas, Aegon the Netherlands and Aegon UK.
Equity market risk and other investments risk Fluctuations in the equity, real estate and capital markets have affected Aegon’s profitability, capital position and sales of equity related products in the past and may continue to do so. Exposure to equity, real estate and capital markets exists in both assets and liabilities. Asset exposure exists through direct equity investment, where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in insurance and investment contracts policyholder accounts where funds are invested in equities, backing variable annuities, unit-linked products and mutual funds. Although most of the risk remains with the policyholder, lower investment returns can reduce the asset management fee earned by Aegon on the asset balance in these products. In addition, some of this business has minimum return or accumulation guarantees. Aegon also operates an Investment and Counterparty Policy that limits the Group’s overall counterparty risk exposure.
The general account equity, real estate and other non-fixed-income portfolio of Aegon is as follows: Equity, real estate and non­fixed income exposure Americas
Holding and other activities Total 2013 1 Common shares in Holding and other activities includes the elimination of treasury shares in the general account for an amount of EUR 10 million.
Aegon holds EUR 28,134 million of general account investments in cash, money market products and sovereign bonds that are readily saleable or redeemable on demand (2012: EUR 34,295 million). The Group expects to meet its obligations, even in a stressed liquidity event, from operating cash flows and the proceeds of maturing assets as well as these highly liquid assets. Further, the Group has access to back up credit facilities, as dislclosed in note 41, amounting to EUR 3,451 million which were unused at the end of the reporting period (2012: EUR 3,268 million).
Investment contracts for account of policyholders 2) 24,770 3,420 - - 31 28,221
Investment contracts for account of policyholders 100 8,095 22,659 22,169 61,272 114,295
Insurance contracts for account of policyholders - 5,029 20,883 19,882 70,891 116,685
Investment contracts for account of policyholders 95 6,417 23,191 20,653 57,291 107,647 1 The liability amount in the consolidated financial statements reflects the discounting for interest as well as adjustments for the timing of other factors as described above. As a result, the sum of the cash benefit payments shown for all years in the table exceeds the corresponding liability amounts included in notes 37, 38, 39 and 40.
Sources of underwriting risk include policy lapses and policy claims (such as mortality and morbidity). In general, Aegon is at risk if policy lapses increase as sometimes Aegon is unable to fully recover up front expenses in selling a product despite the presence of commission recoveries or surrender charges and fees. For mortality and morbidity risk, Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance, and sells certain types of policies that are at risk if mortality decreases (longevity risk) such as annuity products. Aegon is also at risk if expenses are higher than assumed by management.
The sensitivities represent an increase or decrease of mortality and morbidity rates over best estimate. Increases in mortality rates lead to an increase in the level of benefits and claims. The impact on net income and shareholders’ equity of sales transactions of investments required to meet the higher cash outflow is reflected in the sensitivities. A change in actual experience with mortality or morbidity rates may not lead to a change in the assumptions underlying the measurement of the insurance liabilities as management may recognize that the change is temporary. Life insurers are also exposed to longevity risk. Increased life expectation above Aegon’s assumed life expectation at the time of underwriting negatively impacts its results. Refer to note 2.20 for a discussion on how longevity assumptions are accounted for.
On March 1, 2011, the European Court of Justice (ECJ) delivered a judgment in the Test Achats case which relates to the ability of an insurance company to use gender as a rating factor when pricing risk. The ECJ has ruled that using gender as a rating factor when pricing risk is invalid. However, the ECJ has granted a transitional period for relief for implementation. The effect of this is that, as from
December 21, 2012, it is unlawful to use gender-related factors for determining premiums and benefits under insurance policies.
Aegon believes the non-IFRS measures shown herein, when read together with Aegon’s reported IFRS financial statements, provide meaningful supplemental information for the investing public to evaluate Aegon’s business after eliminating the impact of current
Underlying earnings Certain assets held by Aegon Americas, Aegon the Netherlands and Aegon United Kingdom are carried at fair value and managed on a total return basis, with no offsetting changes in the valuation of related liabilities. These include assets such as investments in hedge funds, private equities, real estate (limited partnerships), convertible bonds and structured products. Underlying earnings exclude any over- or underperformance compared to management’s long-term expected return on assets.
In addition, certain products offered by Aegon Americas contain guarantees and are reported on a fair value basis, including the segregated funds offered by Aegon Canada and the total return annuities and guarantees on variable annuities of Aegon USA.
Holding and other activities include certain issued bonds that are held at fair value through profit or loss (FVTPL). The interest rate risk on these bonds is hedged using swaps. The fair value movement resulting from changes in Aegon’s credit spread used in the valuation of these bonds are excluded from underlying earnings and reported under fair value items.
Run­off businesses Includes underlying results of business units where management has decided to exit the market and to run off the existing block of business. This line includes the run-off of the institutional spread-based business, structured settlements blocks of business, Bank-
Owned and Corporate-Owned Life Insurance (BOLI/COLI) business and life reinsurance business in Aegon Americas. Aegon has other blocks of business for which sales have been discontinued and of which the earnings are included in underlying earnings.
Realized gains / (losses) on investments 111 342 48 - - - 502 - 502
Realized gains / (losses) on investments 175 138 84 10 - - 407 3 410
Income/(loss) before tax 971 1,918 938 1 Including a fair value adjusment of EUR 10 million (2012: EUR (1) million; 2011: EUR (85) million).
Amortization of deferred expenses, VOBA and future servicing rights 689 59 282 154 - 1,183
Impairment charges/(reversals) on non- financial assets and receivables (1) 71 5 2 - 77
Of which Aegon's share of employees in joint ventures and associates 441 - - 1,021 - 1,462
Of which Aegon's share of employees in joint ventures and associates 1) 430 - - 643 - 1,073 1 As described in note 2 of the consolidated financial statements, IFRS 10 and IFRS 11 are only applicable form 2012 onwards.
Investments for account of policyholders 75,224 25,646 57,813 6,357 ­ (8) 165,032
Off balance sheet investments third parties 112,611 994 287 60,951 - - 174,843
Notes to the consolidated financial statements of Aegon N.V. Note 6
Investments for account of policyholders 65,970 25,094 55,886 6,024 ­ (6) 152,968
Off balance sheet investments third parties 100,725 1,052 10 59,301 - - 161,088
Financial assets at fair value through profit or loss 70,482 25,331 54,925 6,053 740 (8) 157,523
Total investments on balance sheet 152,429 68,153 67,224 9,432 759 (8) 297,989 6 Premium income and premiums to reinsurers
EUR 5,437 million (2012: EUR 5,633 million; 2011: EUR: 5,540 million).
Investment income from financial assets held for general account: 2013 2012 2011
Financial assets designated at fair value through profit or loss 123 139 125 8 Fee and commission income
Included in fee and commission income is EUR 40 million of fees on trust and fiduciary activities (2012: EUR 34 million; 2011: EUR 76 million).
Notes to the consolidated financial statements of Aegon N.V. Note 9 9 Income from reinsurance ceded
Recovered claims and benefits in 2012 included higher reinsurance income following the divestment of the life reinsurance business,
Transamerica Reinsurance, to SCOR. The divestment was completed August 9, 2011, but most of the associated transfers took place in 2012. As a result of novations of policies to SCOR, the 2013 Income from reinsurance ceded declined compared to 2012.
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives 370 409 44
Gains and (losses) on investments in real estate (49) (9) (49)
Net fair value change on investments in real estate for account of policyholders (12) (46) 20
Net fair value change on borrowings and other financial liabilities 16 (48) (24)
Included in the results from financial transactions is an amount of EUR 825 million (2012: EUR 93 million) of cash paid from total return swaps.
Net fair value change of general account financial investments at fair value through profit or loss, other than derivatives comprise: 2013 2012 2011
Realized gains and losses on financial investments comprise: 2013 2012 2011
Net fair value change on free standing derivatives (1,231) 457 2,334
Ineffective portion of hedge transactions to which hedge accounting is applied 9 11 13
Fair value change on hedging instruments in a fair value hedge 225 (64) (99)
Net fair value change on for account of policyholder financial assets at fair value through profit or loss comprise: 2013 2012 2011
Other income in 2012 mainly included the gain on the sale of Aegon's interest in Prisma Capital Partners LP (“Prisma”) of
EUR 100 million and the gain following the ending of the life, health and pension partnership with Banca Cívica of EUR 35 million.
For more details on these two transactions refer to note 25 and 26 respectively. In 2011 other income primarily included a benefit related to the settlement of legal claims of EUR 37 million.
Change in valuation of liabilities for insurance and investment contracts 7,411 7,866 4,014
Notes to the consolidated financial statements of Aegon N.V. Note 13
The change in valuation of liabilities for insurance and investment contracts include a loss of EUR 200 million (2012: gains of
(2012: net losses of EUR 230 million, 2011: net gains of EUR 41 million) related to policyholder tax and other income / charges that are classified for segment reporting purposes as non underlying earnings.
In 2012, Aegon decided to bring forward the measures, as Aegon committed to the 'best of class' principles of the Dutch Ministry of
Included in administration expenses is an amount of EUR 82 million of depreciation that relates to equipment, software and real estate held for own use (2012: EUR 87 million; 2011: EUR 78 million). Minimum lease payments recognized as expense amounted to
EUR 12 million (2012: EUR 15 million; 2011: EUR 7 million).
EUR 25 million) that is classified as non-underlying earnings for segment reporting purposes.
As per 2011 the structure of Long Term Incentives scheme changed. Senior managers within Aegon, not classified as ‘Identified
Supervisors (CEBS) and the 2011 Decree on Sound Remuneration Policy by De Nederlandsche Bank (Regeling beheerst beloningsbeleid
Variable compensation is paid in both cash and in Aegon N.V. shares. The shares were conditionally granted at the beginning of the year at the average share price on the NYSE Euronext stock exchange in Amsterdam during the period between December 15 preceding a plan year and January 15 of the plan year. The performance indicators apply over a performance period of one year and consist of Group and / or Reporting Unit targets (both financial and non-financial) set by the Supervisory Board or the local remuneration committees and personal/strategic targets. For Members of the Executive Board and the Management Board all variable compensation has vested after three years following the performance period. At vesting the variable compensation is transferred to the individual employees. Additional holding periods may apply for vested shares. Members of the Executive Board and the members of the Management Board who are based in the Netherlands are not entitled to execute any transactions regarding the shares for a period of three years following vesting (with the exception of shares sold to meet income tax obligations).
Notes to the consolidated financial statements of Aegon N.V. Note 14
In 2010, 4,266,107 shares were conditionally granted to participants in the 2010 Long Term Incentive Plan. The shares were granted using the share price of EUR 4.851. Following the performance period 5,408,521 shares were allocated. These shares vested on
May 2, 2013 on the basis of realized performance and became unconditional. Holding periods of two years apply for vested shares awarded to Members of the Executive Board and Management Board at the time of the conditional grant.
December 31, 2013 659,232 shares had vested. Additional holding periods of up to 3 years may apply. 12,676,414 shares are unvested and will vest in future years.
Share appreciation rights and share options Senior executives of Aegon companies, as well as other Aegon employees, have been offered both share appreciation rights and share options. These share appreciation rights and share options have been granted at an exercise price equal to the market price of the shares at the date of the grant. The rights and options granted in 2006 - 2008 vest after three years and can only be exercised during the four years after the vesting date. Vesting and exercisability depend on continuing employment of the individual employee to whom the rights and options have been granted. Option plans are settled in equity, whilst stock appreciation rights are settled in cash or provide the employee with the choice of settlement.
After 2008 no share option or share appreciation rights were granted.
The volatility is derived from quotations from external market sources and the expected dividend yield is derived from quotations from external market sources and the binomial option pricing model.
The costs related to the share options amount to EUR (1) million (2012: EUR (2) million and 2011: EUR (1) million) and are recognized in the income statement as part of “Commissions and expenses”.
Share appreciation rights and share options No SARs and share options were granted after 2008. With regard to the SARs and options granted before 2009, no share options were exercised and no SARs were paid during 2011, 2012 and 2013. Similarly, no cash is received from exercise of share options during
Notes to the consolidated financial statements of Aegon N.V. Note 15 15 Impairment charges / (reversals)
Impairment charges and reversals on non-financial assets and receivables 2) 167 26 77 1 Impairment charges/(reversals) on financial assets, excluding receivables, are excluded from underlying earnings before tax for segment reporting (refer to note 5). 2 Of impairment charges on non-financial assets and receivables EUR 170 million is excluded from underlying earnings before tax for segment reporting (refer to note 5) (2012: EUR 0 million and 2011: EUR 75 million)
Included in impairment charges on non-financial assets and receivables is the impairment on goodwill and future servicing rights on the Polish pension business totaling EUR 163 million. Refer to note 21 for more details.
Impairment reversals on financial assets, excluding receivables, from: 2013 2012 2011
Life Insurance contract in the United States and a charge of EUR 16 million related to the annual bank tax by the Hungarian
Deferred tax 45 Origination / (reversal) of temporary differences (229) 161 239
Difference due to the effects of: Non-taxable income (124) (81) (66)
Changes in deferred tax assets as a result of recognition/write off of previously not recognized/ recognized tax losses, tax credits and deductible temporary differences 1 (3) (31)
Tax effect of (profit) / losses from joint ventures and associates (5) (7) -
The weighted average applicable statutory tax rate for 2013 is 32.0% (2012: 31.2%; 2011: 30.5%). The marginal increase in weighted average applicable statutory tax rate compared to prior years is caused by an increase in losses in lower taxed countries which is partly offset by the decreased contribution to the overall profit of the higher taxed countries.
The following table presents income tax related to components of other comprehensive income.
Items that will not be reclassified to profit and loss: Changes in revaluation reserve real estate held for own use 1 1 (1)
19 Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the net income attributable to equity holders, after deduction of preferred dividends declared, coupons on perpetual securities and non-cumulative subordinated notes, and coupons and premium on convertible core capital securities by the weighted average number of common shares, excluding common shares purchased by the company and held as treasury shares (refer to note 32.1 and 32.3 respectively).
Coupons and premium on convertible core capital securities - - (750)
Net income / (loss) attributable to equity holders for basic earnings per share calculation 596 1,328 (99)
Net income / (loss) attributable to common shareholders 593 1,328 (99)
Net income / (loss) attributable to common shareholders B 3 - -
Weighted average number of common shares outstanding (in million) 2,035 1,907 1,852
The diluted earnings per share equaled the basic earnings per share for the year 2013 since there were no share options excercised as mentioned above.
EUR 0.11 per common share and of EUR 0.00275 per common share B.
The interim dividend 2013 on common shares was paid in cash or stock at the election of the shareholder. Stock dividend amounts to one new Aegon common share for every 50 common shares held. The stock dividend and cash dividend are approximately equal in value. The interim dividend was payable as of September 13, 2013. The interim dividend 2013 for common shares B was fully paid in cash.
Approximately 55% of holders of common shares have elected to receive the cash dividend. The remaining 45% have opted for stock dividend. Aegon repurchased common shares to neutralize the dilutive effect of the 2013 interim dividend paid in shares. Between
The Annual General Meeting of Shareholders on May 15, 2013, approved a final dividend of EUR 0.21 per common share over 2012, payable in either cash or stock. Related to the second half of 2012, paid in the first half of 2013, a cash dividend amounted
EUR 0.11 per common share, and the stock dividend amounts to one new Aegon common share for every 47 common shares held.
The stock dividend and cash dividend are approximately equal in value. Aegon did not have common shares B during 2012.
The dividend per common share paid in 2011 (final dividend 2010 and interim dividend 2011) was nil. As part of the European
Notes to the consolidated financial statements of Aegon N.V. Note 21 21 Intangible assets
Amortization / depreciation through income statement - 142 20 11 4 177
Amortization and depreciation through income statement is included in “Commissions and expenses”. None of the intangible assets have titles that are restricted or have been pledged as security for liabilities.
With the exception of goodwill, all intangible assets have a finite useful life and are amortized accordingly. VOBA and future servicing rights are amortized over the term of the related insurance contracts, which can vary significantly depending on the maturity of the acquired portfolio. VOBA currently recognized is amortized over an average period of 24 years, with an average remaining amortization period of 11 years (2012: 13 years). Future servicing rights are amortized over an average period up to 30 years, of which 9 remains at December 31, 2013 (2012: 14 years). Software is generally depreciated over an average period of 5 years. At
A geographical summary of the cash-generating units to which the goodwill is allocated is as follows: Americas
Goodwill in Aegon USA is allocated to its divisions. Value in use calculations of Aegon USA have been actuarially determined based on business plans covering a period of typically five years and pre-tax risk adjusted discount rates. The value in use test in the USA for the Individual Savings & Retirement cash generating unit (EUR 106 million; 2012: EUR 111 million) assumes business plans covering a period of five years further extrapolated to ten years where the new business levels for years 6-10 assumed a 5% growth rate
(2012: 5%) and pre-tax risk adjusted discount rate of 17% (2012: 17%).
Notes to the consolidated financial statements of Aegon N.V. Note 22
Financial assets at fair value through profit or loss (FVTPL) 1) 4,833 5,563
Money market and other short-term investments 5,524 449 - 5,974 5,974
Money market and other short-term investments 8,687 1,084 - 9,771 9,771
Other Movement on the loan allowance account during the year were as follows: Addition charged to income statement (67) (79)
Notes to the consolidated financial statements of Aegon N.V. Note 22 22.2 Investments in real estate
In 2013, 77% of the value of Aegon’s properties, both for general account and for account of policyholders, were appraised
(2012: 89%), of which 99% was performed by independent external appraisers (2012: 99%).
Rental income of EUR 52 million (2012: EUR 48 million; 2011: EUR 93 million) is reported as part of investment income in the income statement. Direct operating expenses (including repairs and maintenance) arising from investment property that generated rental income during the period amounted to EUR 80 million (2012: EUR 74 million; 2011: EUR 78 million). In 2013, none of direct operating expenses is related to investment properties that did not generate rental income during the period (2012: EUR 6 million; 2011: EUR 7 million).
Total investments for account of policyholders at fair value through profit or loss, excluding derivatives 1) 164,037 151,960
Total investments for account of policyholders 165,032 152,968 1 Refer to note 50 for a summary of all financial assets and financial liabilities at fair value through profit or loss.
Rental income of EUR 59 million (2012: EUR 65 million; 2011: EUR 73 million) is reported as part of investment income in the income statement. Direct operating expenses relating to investments in real estate for account of policyholder amounted to EUR 8 million in 2013 (2012: EUR 7 million, 2011: EUR 14 million). There are no restrictions on the realizability of investment property or the remittance of income and proceeds of disposal.
Derivatives for general account Derivatives not designated in a hedge 12,413 19,038 11,092 16,967
Of these derivatives EUR 540 million net asset is current (2012: EUR 606 million net asset).
Embedded derivatives that are not closely related to the host contracts have been bifurcated and recorded at fair value in the statement of financial position. These bifurcated embedded derivatives are embedded in various institutional products, modified coinsurance and unit-linked insurance contracts in the form of guarantees for minimum benefits. Please refer to note 48 for more disclosures about these guarantees.
Certain derivatives are used to add risk by selling protection in the form of single name and index based credit default swaps and tranches of synthetic collateralized debt obligations. Another strategy used is to synthetically replicate corporate and sovereign credit exposures with credit derivatives. This involves the purchase of high quality low risk assets and the sale of credit derivatives. The table above provides a breakdown to credit quality of these credit derivatives.
Derivatives designated as cash flow hedges Aegon has entered primarily into interest rate swap agreements that effectively convert certain variable-rate assets and liabilities to a fixed-rate basis in order to match the cash flows of the assets and liabilities within Aegon’s portfolio more closely. These agreements involve the payment or receipt of variable-rate interest amounts in exchange for fixed-rate interest amounts over the life of the agreement without the exchange of the underlying principal amounts. Aegon is hedging its exposure to the variability of future cash flows from the interest rate movements for terms up to 30 years for hedges converting existing floating-rate assets and liabilities to fixed-rate assets.
Fair value adjustments for these interest rate swaps are deferred and recorded in equity until the occurrence of the forecasted transaction at which time the interest rate swaps will be terminated. The accumulated gain or loss in equity will be amortized into investment income as the acquired asset affects income. Aegon is hedging its exposure to the variability of future cash flows from interest rate movements for terms up to 30 years. The cash flows from these hedging instruments are expected to affect the profit and loss for approximately the next 39 years. For the year ended December 31, 2013, the contracts for which cash flow hedge accounting was terminated resulted in deferred gains of EUR 181 million (2012: EUR 225 million) that are recognized directly in equity to be reclassified into net income during the period when the cash flows occur of the underlying hedged items. For the same year, none of
Other reflects a decrease of an earn out provision relating to Caja Cantabria.
Unnim On May 7, 2013, Aegon has finalized exiting its life, health and pension joint venture with Unnim and sold its 50% stake to Unnim.
Strategic partnership with Santander On June 3, 2013, Aegon completed an exclusive 25-year strategic partnership with Banco Santander, Spain’s largest financial group, first announced in December 2012. Under the terms of the agreement, Aegon acquired a 51% stake in both a life insurance company as well as in a non-life insurance company for a cash consideration of EUR 220 million. In addition, there is also a contingent consideration which will be paid depending on future performance of the joint ventures. The joint ventures will distribute life and general insurance products through Banco Santander’s extensive branch network. Aegon Spain will provide the back-office services to the joint venture companies.
Banca Cívica Following the announced merger between Banca Cívica and CaixaBank in Spain, Aegon reached an agreement, on August 3, 2012, with CaixaBank to end the life, health and pension partnership with Banca Cívica and sell its 50% interest in the joint ventures to
Current financial liabilities excluding trade payables and other provisions - 10
Non-current financial liabilities excluding trade payables and other provisions 504 510
The summarized financial information of other joint ventures presented above is based on the Group’s relative holding.
Such restrictions can affect the ability of these associates to transfer funds in the form of cash dividends, or repayment of loans or advances, and therefore, there can be no assurance that these restrictions will not become a limitation in the future. There are no unrecognized shares of losses in associates. The financial statements of all associates have the same reporting date as the Group.
CAM On July 19, 2013, the sale of Aegon’s 50% stake in its life insurance partnership originally established with Caja de Ahorros del
Mediterráneo (CAM) was closed. The consideration amounted to EUR 449.5 million and resulted in a book gain of EUR 74 million.
The disposal amounting to EUR 327 million included a release of a negative revaluation reserve EUR 44 million, which is recycled from equity through profit and loss account. Related sales expenses amounted to EUR 5 million.
Prisma On October 1, 2012, Aegon closed the sale of its interest in Prisma Capital Partners LP (“Prisma”). Prisma, which was accounted for as an associate, served as an investment manager for certain of Aegon’s hedge fund investments as well as for other third parties.
Summarized financial information of material associates The summarized financial information presented above are the amounts included in the IFRS financial statements of La Mondiale adjusted for fair value adjustments made at the time of acquisition.
Group share of net assets of associate, excluding fair value adjustments 306 275
Investments of the statement of financial position. Aegon did not recognize other interests in unconsolidated structured entities such as commitments, guarantees, provisions, derivative instruments or other liabilities.
General account real estate held for own use are mainly held by Aegon USA and Aegon the Netherlands, with relatively smaller holdings at Aegon Hungary and Aegon Spain. The carrying value under a historical cost model amounts to EUR 310 million
The movements in the provision for doubtful debts during the year were as follows: Additions charged to earnings (7) (16)
EUR 10.7 billion (2012: EUR 12.3 billion) of cash collateral is received of which EUR 116 million (2012: EUR 258 million) is included in cash and cash equivalents. This collateral relates to securities lending and repurchase agreements and margins on derivatives transactions. A corresponding liability to repay the cash is recognized in other liabilities (note 46). Refer to note 52 for details on collateral received and paid. Investment of cash collateral received is restricted through limitations on credit worthiness,
Notes to the consolidated financial statements of Aegon N.V. Note 31 duration, approved investment categories and borrower limits. Aegon earns a share of the spread between the collateral earnings and the rebate paid to the borrower of the securities. Income from securities lending programs was approximately EUR 8 million
The weighted effective interest rate on short-term deposits was 0.28 % (2012: 0.07%) and these deposits have an average maturity of
For the purposes of the cash flow statement, cash and cash equivalents comprise the following: Cash and cash equivalents 5,691 9,590
The interest rate is approximately 0.25% (2012: 0.75%). The average minimum required balance on deposit by the Dutch Central Bank was EUR 35 million (2012: EUR 44 million). These deposits are therefore not freely available.
Analysis of IFRS cash flows 2013 compared to 2012 Net cash flows from operating activities
Civica, partly offset by the acquisition of Liberbank and purchases of software.
Total net cash flows from operating activities decreased by EUR 3,263 million to a EUR 997 million outflow (2011: EUR 2,266 million inflow). The change from inflow in 2011 to outflow in 2012 is driven by lower net general account investments, lower disposals of derivatives and lower net change in cash collateral. These reductions are partly offset by higher net investments for account of policyholders and income before tax.
Net cash flows from financing activities improved by EUR 2,885 million to EUR 2,511 million inflow (2011: EUR 374 million outflow).
On February 15, 2013, Aegon N.V. and Vereniging Aegon entered into an agreement to simplify the capital structure of Aegon and to cancel all of Aegon’s preferred shares, of which Vereniging Aegon was the sole owner. The execution of this agreement was subject to the approval of the General Meeting of Shareholders of Aegon N.V. This approval was granted at the Annual General Meeting of
The simplified capital structure entailed, but was not limited to, the amendment of the articles of association of Aegon N.V., including the conversion of all outstanding 329,773,000 preferred shares a and B, with a nominal value of EUR 0.25 each, into 120,713,389 common shares and 566,313,694 common shares B, with a nominal value of EUR 0.12 each. The financial rights attached to a common share B were determined at 1/40th of the financial rights attached to a common share.
In 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 8,021,000 class B preferred shares at par value to mitigate the dilution caused by the issuance of shares as a result of distribution of dividend in the form of stock.
EUR 0.25 (total proceeds of EUR 10 million) in order to mitigate dilution of its voting rights following the issuance of 10% new common shares completed on March 1, 2011.
In the years 2003 through 2010, 69,030,000 class B preferred shares were issued under these option rights. In March 2011,
Vereniging Aegon exercised its option rights to purchase in aggregate 41,042,000 class B preferred shares at par value. It did this to correct dilution caused by Aegon’s issuance of shares conducted under Aegon’s US Shelf Registration, which comprised the sale of 173,604,912 common shares of Aegon N.V. at a price of EUR 5.20 per share in March 2011. In August 2012 and October 2012,
Aegon exercised its option rights to purchase in aggregate 12,691,745 common shares B at market value. It did this to prevent dilution caused by Aegon’s issuance of shares on May 1, 2013, May 16, 2013, in connection with the Long Term Incentive Plans for senior management and the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock-dividend.
With regard to granted share appreciation rights and option rights and their valuation refer to note 14.
The share premium account reflects the balance of paid-in amounts above par value at issuance of new shares less the amounts charged for share dividends and the repayment of share premium to preferred shareholders. Upon the conversion of the preferred shares, share premium on preferred shares have been allocated to share premium relating to common shares.
32.3 Treasury shares On the balance sheet date Aegon N.V. and its subsidiaries held 41,307,910 (2012: 28,713,730) of its own common shares with a par value of EUR 0.12 each.
Transactions in 2012: Transactions in 2011: As part of their insurance and investment operations, subsidiaries within the Group also hold Aegon N.V. common shares, both for their own account and for account of policyholders. These shares have been treated as treasury shares and are (de)recognized at the consideration paid or received.
Weighted average number of treasury shares, including treasury shares held by subsidiaries (thousands)
Foreign currency translation differences 101 1 60 162 1 Amounts for 2012 and 2011 have been restated for the changes in accounting policies IFRS 10, 11 and IAS 19. Refer to note 2 for details about these changes.
The amounts are recognized in the income statement at the moment of realization of the hedged position to offset the gain or loss from the net foreign investment.
33 Convertible core capital securities In 2011, Aegon repurchased 375 million convertible core capital securities. The total payment to the Dutch State amounted to
Shares vested / Share options forfeited - - (4) - (4)
1 Share options and incentive plans include the shares and options granted to personnel which are not yet vested
USD 250 million floating LIBOR rate 1) Quarterly, December 15 2014 212 212 212
USD 500 million floating CMS rate 3) Quarterly, July 15 2014 402 402 402 1 The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. 2 The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. 3 The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%.
On February 10, 2014, Aegon called for the redemption of the USD 550 million in junior perpetual capital securities with a coupon of 6.875% issued in 2006. The redemption is effective March 15, 2014, when the principal amount of USD 550 million was repaid with accrued interest.
Notes to the consolidated financial statements of Aegon N.V. Note 35
Non­cumulative subordinated notes Coupon rate Coupon date Year of next call 2013 2012 2011
On February 7, 2012, Aegon issued USD 525 million in aggregate principal amount of 8.00% non-cumulative subordinated notes, due 2042, in an underwritten public offering in the United States registered with the U.S. Securities and Exchange Commission.
These notes are recognized as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into an equity component and a liability component. At December 31, 2013 the equity component amount to
Refer to note 36 for details of the component classified as subordinated borrowings.
Coupon rate Coupon rate Year of issue Year of maturity Year of next call 2013 2012
USD 18 million 1) Floating Quarterly, July 23 2004 2034 2014 14 15
USD 225 million 2) 7.65% Semi-annually, December 1 1996 2026 n.a. 85 102
Trust pass-through securities are securities through which the holder participates in a trust. The assets of these trusts consist of junior subordinated deferrable interest debentures issued by Transamerica Corporation and Clark Consulting Inc. The trust pass-through securities carry provisions with regard to deferral of distributions for extension periods up to a maximum of ten consecutive semiannual periods. The trust pass-through securities are subordinated to all other unsubordinated borrowings and liabilities. There were no defaults or breaches of conditions during the period.
The fair value of these loans amount to EUR 122 million (2012: EUR 129 million).
For further information on the non-cumulative subordinated notes and its subordination refer to note 34.
Gross premium and deposits – existing and new business 1,385 1,816
Gross premium and deposits – existing and new business 5,541 5,307 10,848
Debentures and other loans During 2013, residential mortgage backed securities (RMBSs) were issued under the Dutch SAECURE program for a total amount of
EUR 750 million, while an amount of EUR 1,168 million was repaid. In addition, Aegon redeemed USD 750 million senior notes which matured.
During 2012, RMBSs were issued under the Dutch SAECURE program for a total amount of EUR 2,050 million. Also, EUR 1,500 million was borrowed from the European Central Bank (ECB), under its Long Term Refinancing Operation (LTRO) program. The net proceeds of these borrowings were used to finance a part of the Dutch mortgage portfolio of Aegon the Netherlands.
A detailed composition of the debentures and other loans is included in the following table: Debentures and other loans
Revolving Loan Facility Warehouse Mortgage Loans 2) Floating Monthly - / 2014-16 510 249
GBP 35 million Note issue agreement 2), 5), 6) Floating Quarterly 2010 / 15 15 25
EUR 212 / USD 600 "SAECURE 11" RMBS Note 2), 7) Floating Quarterly 2012 / 15 600 649
EUR 1,500 million ECB LTRO 2) Floating At Maturity 2012 / 15 1,500 1,500
EUR 1,500 million “SAECURE 10” RMBS Note 2), 8) Floating Quarterly 2011 / 16 1,269 1,378
EUR 750 million 'SAECURE 13' RMBS Note 2), 11) Floating Quarterly 2013 / 18 738 -
EUR 75 million Medium-Term Notes 1), 12), 15) 4.625% December 9 2004 / 19 85 82
USD 292 million Senior Secured Note2) Floating Quarterly 2012 / 23 207 216
USD 1.54 billion Variable Funding Surplus Note 5), 13) Floating Quarterly 2006 / 36 1,089 1,091
USD 550 million Floating Rate Guaranteed Note 5), 14) Floating Quarterly 2007 / 37 345 360
4 The first optional redemption date is August 2015; the legal maturity date is August 2093. Notes are fully collateralized by mortgage loans which are part of
8 The first optional redemption date is February 2016; the legal maturity date is February 2094. Notes are fully collateralized by mortgage loans which are part of
Aegon N.V. - refer to note 51 (commitments and contingencies). 14 This debenture is issued by a wholly owned captive that is consolidated in the Aegon N.V. consolidated financial statements. 15 These loans are considered senior debt in calculating financial leverage in the capital and solvency note as disclosed in note 49.
Included in debentures and other loans is EUR 1,017 million (2012: EUR 1,050 million) relating to borrowings measured at fair value.
The cumulative negative impact of Aegon’s credit spread, based on observable market data, on income before tax amounted to
The difference between the contractually required payment at maturity date and the carrying amount of the borrowings amount to
EUR 33 million (2012: EUR 33 million) and litigation provisions of EUR 23 million (2012: EUR 10 milion).
The contingent consideration relating to joint ventures reflects earn out payments, which will be payable if specific targets, as set out in the purchase agreements, are met in the future. The expected timing of resulting outflows vary between 2014 and 2017.
Present value of wholly or partly funded obligations 3,376 - 3,376 3,617 - 3,617
Aegon included in plan assets was nil in both 2013 and 2012.
Net interest on the net defined benefit liability (asset) 125 12 137
Remeasurements of the defined benefit obligations: - Actuarial gains and losses arising from changes in demographic assumptions 5 31 - Actuarial gains and losses arising from changes in financial assumptions (286) 312
Aegon USA. The Board of Managers has the full power and discretion to administer the plan and to apply all of its provisions, including such responsibilities as, but not limited to, developing the investment policy and managing assets for the plan, maintaining required funding levels for the plan, deciding questions related to eligibility and benefit amounts, resolving disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. The benefits are based on years of service and the employee’s eligible annual compensation. The plans provide benefits based on a traditional final average formula or a cash balance formula (which defines the accrued benefit in terms of a stated account balance), depending on the age and service of the plan participant. The defined benefit plans were unfunded by EUR 207 million at December 31, 2013
Investment strategies are established based on asset/liability studies by actuaries which are updated as they consider appropriate.
Aegon USA maintains minimum required funding levels as set forth by the Internal Revenue Code. If contributions are required, the funding would be provided from the Company’s general account assets. Pension plan contributions were not required for Aegon
Aegon USA provides health care benefits to retired employees, which are unfunded plans. The post-retirement health care plans are administered by Aegon USA, LLC, which has delegated the claims administration to third party administrators. Aegon USA, LLC
(“Company”) maintains two plans which provide retiree medical benefits. For each plan, the Company has the fiduciary responsibility to administer the plan in accordance with its terms, and decides questions related to eligibility and determines plan provisions and benefit amounts. Under the Employee Retirement Income Security Act (ERISA), the Company has the fiduciary responsibility to monitor the third party claims administrator to ensure it is doing its job properly and to remove the third party administrator if it is not properly doing its job. In addition, the Company has the fiduciary obligation to interpret the provisions of the plans, and to comply with any statutory reporting and disclosure requirements. Finally, the Company reviews the terms of the plans and make changes to the plans if and when appropriate. The Company funds the benefit payments of the post-retirement health care plans from its general account assets. The post-retirement health benefit liability amounted to EUR 191 million (2012: EUR 198 million).
The weighted average duration of the defined benefit obligation is 12.7 years (2012: 14.2 years).
The principal actuarial assumptions have an effect on the amounts reported for the defined benefit obligation. A change as indicated in The table below in the principal actuarial assumptions would have the following effects on the defined benefit obligation per year-end: Estimated approximate effects on the defined benefit obligation Demographic actuarial assumptions 10% increase in mortality rates (49)
100 basis points decrease in discount rate 350 100 basis points increase in salary increase rate 29 100 basis points decrease in salary increase rate (25)
100 basis points increase in health care trend rate 15 100 basis points decrease in health care trend rate (13)
Target allocation of plan assets for retirement benefit plans for the next annual period is: Aegon the Netherlands Aegon the Netherlands has a number of defined benefit plans and a small number of defined contribution plans. The defined benefit plans are governed by the Management Board of Aegon the Netherlands. The Management Board has the full power and discretion to administer the plan including developing investment policy and managing assets for the plans (although these assets do not qualify as ‘plan assets’ as defined by IFRS), deciding questions related to eligibility and benefit amounts, and any disputes that may arise from plan participants and for complying with the plan provisions, and legal requirements related to the plan and its operation. Aegon the Netherlands runs, in principle, full actuarial and investment risk regarding the defined benefit plans. A part of this risk can be attributed to plan participants by lowering indexation or by increasing employee contributions.
The liability related to this plan amounted to EUR 42 million at December 31, 2013 (2012: EUR 44 million).
The weighted average duration of the defined benefit obligation is 15.9 years (2012: 17.5 years).
Price inflation 2.00% 2.00% 1 Based on prospective mortality table of the Dutch Actuarial Society with minor methodology adjustments
Financial actuarial assumptions 100 basis points increase in discount rate (331)
The investment strategy for the scheme is determined by the Trustees in consultation with Aegon UK. Currently 40% of assets are invested in growth assets (i.e. primarily equities) and 60% are Liability Driven Investments where the investments are a portfolio of fixed interest and inflation linked bonds and related derivatives, selected to broadly match the interest rate and inflation profile of liabilities.
Under the scheme rules pensions in payment increase in line with the UK Retail Price Index, and deferred benefits increase in line with the UK Consumer Price Index. The pension scheme is therefore exposed to UK inflation changes as well as interest rate risks, investment returns and changes in the life expectancy of pensioners.
Price inflation 3.40% 3.00% 1 SAPS S1NA light -2 years CMI 2012 1.25% p.a. 2 SAPS S1NA light -2 years CMI 2011 1.25% p.a.
100 basis points decrease in discount rate 344 100 basis points increase in price inflation 132 100 basis points decrease in price inflation (204)
The above sensitivity analysis is based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied as when calculating the pension liability recognized within the statement of financial position.
Other, in 2012, includes the tax asset in respect of the winding up of some entities.
The decrease of deferred corporate income tax liabilities primarily relates to a decrease of unrealized profits in 2013 in respect of financial assets due to an increase in market interest rates partially offset by tightening of credit spreads. Prior year adjustments
Deferred corporate income tax assets are recognized for tax losses carried forward to the extent that the realization of the related tax benefit through future taxable profits is probable. For an amount of gross EUR 358 million; tax EUR 71 million (2012: gross
Deferred corporate income tax asset dependent on retaining bonds and similar investments until the earlier of market recovery or maturity 1,201 890 420 311
The following table provides information on the liabilities for financial guarantees for minimum benefits, net of present value of the expected future premiums that are received to cover these guarantees: United States 1) Canada 1)
The decrease of incurred guarantee benefits mainly relates to fair value movements due to increasing interest rates and equity markets, partly offset by tightening own credit spread. Financial guarantees in the United States and New Markets became an asset during 2013, mainly due to net presentation of expected discounted cash outflow to customers and the expected discounted cash inflow from premiums. Due to increasing returns on investments, driven by favorable capital markets, the expected pay out on financial guarantees for minimum benefits decreased.
Aegon Americas reinsures the elective guaranteed minimum withdrawal benefit rider issued with a ceding company’s variable annuity contracts. The rider is essentially a return of premium guarantee, which is payable over a period of at least fourteen years from the date that the policyholder elects to start withdrawals. At contract inception, the guaranteed remaining balance is equal to the premium payment. The periodic withdrawal is paid by the ceding company until the account value is insufficient to cover additional withdrawals.
Once the account value is exhausted, Aegon pays the periodic withdrawals until the guaranteed remaining balance is exhausted. At
December 31, 2013, the reinsured account value was EUR 2.7 billion (2012: EUR 3.0 billion) and the guaranteed remaining balance was
December 31, 2013, the contract had a value of EUR 22 million (2012: EUR 90 million). Aegon entered into a derivative program to mitigate the overall exposure to equity market and interest rate risks associated with the reinsurance contract. This program involves selling equity futures contracts (S&P 500, Nasdaq, FTSE100 and NKY225 in accordance with Aegon’s exposure) to mitigate the effect of equity market movement on the reinsurance contract and the purchase of over-the-counter interest rate swaps to mitigate the effect of movements in interest rates on the reinsurance contracts.
b. Total return annuities Total Return Annuity (TRA) is an annuity product in the United States which provides customers with a pass-through of the total return on an underlying portfolio of investment securities (typically a mix of corporate and convertible bonds) subject to a cumulative minimum guarantee. Both the assets and liabilities are carried at fair value, however, due to the minimum guarantee not all of the changes in the market value of the asset will be offset in the valuation of the liability. This product exists in both the fixed annuity and life reinsurance lines of business and in both cases represents closed blocks. The product excluding the guarantees is fully reinsured in the form of modified coinsurance, so only the liability for the minimum guarantee is recorded on Aegon’s books.
Product balances as of December 31, 2013 were EUR 372 million in fixed annuities (2012: EUR 432 million) and EUR 104 million in life reinsurance (2012: EUR 112 million).
The GMIB feature provides for minimum payments if the contractholder elects to convert to an immediate pay-out annuity.
Average attained age of contractholders 68 68 67 67 1 Guaranteed minimum death benefit in the United States.
4 Balances are included in the insurance liabilities on the face of the statement of financial position; refer to note 37. 5 Incurred guarantee benefits mainly comprise the effect of guarantees from new contracts, releases related to expired out-of-the-money guarantees and value changes as a consequence of interest movements during the reporting year. 6 Account value reflects the actual fund value for the policyholders. 7 The net amount at risk is defined as the present value of the minimum guaranteed annuity payments available to the contract holder determined in accordance with the terms of the contract in excess of the current account balance.
These guarantees are valued at fair value and are included as part of insurance liabilities with the underlying host insurance contracts in note 37.
The following table provides information on the liabilities for guarantees that are included in the valuation of the host contracts, net of the present value of the expected future premiums that are received to cover these guarantees: Incurred guarantee benefits 3) (1,222) 430
Fair value measurement of guarantees in insurance contracts The fair values of guarantees mentioned above (with the exception of life contingent guarantees in the United States) are calculated as the present value of future expected payments to policyholders less the present value of assessed rider fees attributable to the guarantees. For further details refer to note 3.
For equity volatility, Aegon uses a term structure assumption with market-based implied volatility inputs for the first five years and a long-term forward rate assumption of 25% thereafter. The volume of observable option trading from which volatilities are derived generally declines as the contracts’ term increases, therefore, the volatility curve grades from implied volatilities for five years to the ultimate rate. The resulting volatility assumption in year 20 for the S&P 500 index (expressed as a spot rate) was 23.9% at
Had Aegon used a long-term equity implied volatility assumption that was five volatility points higher or lower, the impact on income before tax would have been a decrease of EUR 117 million or an increase of EUR 115 million, respectively, in 2013 IFRS income before tax (2012: EUR 118 million decrease and EUR 104 million increase).
Aegon utilizes different risk management strategies to mitigate the financial impact of the valuation of these guarantees on the results including asset and liability management and derivative hedging strategies to hedge certain aspects of the market risks embedded in these guarantees. Guarantees valued at fair value contributed a net loss before tax of EUR 188 million (2012: gain of
EUR 2,014 million (2012: EUR 714 million loss), EUR 514 million related to an increase in equity markets (2012: EUR 491 million loss), EUR 67 million related to decreases in equity volatilities (2012: EUR 124 million loss) offset by EUR 302 million related to decreasing own credit spread (2012: EUR 465 million loss). Hedges related to these guarantee reserves contributed fair value losses of
Guarantee reserves decreased EUR 2,341 million in 2013 (2012: increase of EUR 381 million).
Additionally, Aegon manages capital adequacy at the level of its country units and their operating companies. The goal is to ensure that Aegon companies maintain their financial strength. Aegon maintains its companies’ capital adequacy levels at which ever is the higher of local regulatory requirements and the relevant local Standard & Poor’s requirements for very strong capitalization, and any additionally self-imposed economic requirements.
The following table shows the composition of the total capitalization and the calculation of the gross financial leverage ratio: Total shareholders’ equity 32 19,966 23,488
Non-controlling interests and share options not yet exercised 34, SOFP 2) 109 115
Gross financial leverage ratio 30.1% 31.9% 1 Other equity instruments that are denominated in foreign currencies are, for purpose of calculating the capital base, revalued to the period-end exchange rate. 2 Non-controlling interests are disclosed in the statement of financial position. 3 Senior debt for financial leverage calculation also contains swaps and other senior debt for an amount of EUR 33 million (2012: EUR 18 million).
Insurance, reinsurance, investment management and banking companies are required to maintain a minimum solvency margin based on applicable local regulations. For managing Aegon’s capital, the life insurance and life reinsurance regulations in the EU and the United
For the insurance and reinsurance undertakings of Aegon in the EU, the European Solvency I directives are applicable, as implemented in the relevant member states. Solvency I allows member states to require solvency standards, exceeding the minimum requirements set by the Solvency I directives. For life insurance companies the Solvency I capital requirement is by and large the sum of 4% of insurance and investment liabilities for general account and 1% of insurance and investment liabilities for account policyholders if no guaranteed investment returns are given. At the end of 2013, Aegon the Netherlands consolidated solvency capital ratio based on IFRS
Markets Act 2000 and sets minimum solvency standards. Companies must manage their solvency positions according to the most stringent of the published Solvency I measure (Pillar 1) and a privately submitted economic capital measure (Pillar 2). For Aegon UK, the published measure continues to be the most stringent requirement. The Pillar I ratio in the United Kingdom, including the With
In case of negative balances for individual reserves legally to be retained, no distributions can be made out of retained earnings to the level of these negative amounts. Total distributable reserves under Dutch law amount to EUR 9,684 million at December 31, 2013
The ability of Aegon's subsidiaries, principly insurance companies, to pay dividends to the holding company is constrained by the need for these subsidiaries to remain adequately capitalized to the levels set by local insurance regulations and governed by local insurance regulatory authorities. Based on the capitalization level of the local subsidiary, local insurance regulators are able to restrict and/or prohibit the transfer of dividends to the holding company. In addition, the ability of subsidiaries to pay dividends to the holding company can be constrained by the need for these subsidiaries to have sufficient shareholders’ equity as determined by law. The capitalization level and shareholders’ equity of the subsidiaries can be impacted by various factors (e.g. general economic conditions, capital markets risks, underwriting risk factors, changes in government regulations, legal and arbitrational proceedings). To mitigate the impact of such factors on the ability of subsidiaries to pay dividends, the subsidiaries hold additional capital in excess of the levels required by local insurance regulations.
The ability of the holding company to meet its cash obligations depends on the amount of liquid assets on its balance sheet and on the ability of the subsidiaries to pay dividends to the holding company. In order to ensure the holding company’s ability to fulfill its cash obligations, it is the company’s policy that, the holding company holds liquid assets in reserve to fund at least 1.5 years of holding company operating and funding expenses, without having to rely on the receipt of dividends from its subsidiaries.
Derivatives with positive values not designated as hedges 12,651 - 19,348 -
Derivatives with negative values not designated as hedges 11,248 - 17,042 -
Total financial liabilities at fair value through profit or loss 11,248 33,645 17,042 30,238
Derivatives With the exception of derivatives designated as a hedging instrument, all derivatives held for general account and held for account of policyholders are included in the table above.
or loss can be summarized as follows: Trading Designated Trading Designated
51 Commitments and contingencies Investments contracted In the normal course of business, the Group has committed itself through purchase and sale transactions of investments, mostly to be executed in the course of 2014. The amounts represent the future outflow and inflow, respectively, of cash related to these investment transactions that are not reflected in the consolidated statement of financial position.
(TRRI), an affiliated captive reinsurer, for the cash payments required fulfilling reinsurance payments to Transamerica Life Insurance
Company, to the extent that the assets in the captive (TRRI) are not sufficient to cover reinsurance obligations. As at December 31, 2013, this amounted to EUR 1,333 million (2012 EUR: 1,267 million).
Corporation. At December 31, 2013, the letter of credit arrangements utilized by captives to provide collateral to affiliates amounted to EUR 2,392 million (2012: EUR 3,260 million); as at that date no amounts had been drawn, or were due under these facilities. Other letter of credit arrangements amount to EUR 158 million (2012: EUR 346 million); as at that date no amounts had been drawn, or were due under these facilities; �� Due and punctual payment of payables due under letter of credit agreements applied for by captive insurance companies that are subsidiaries of Transamerica Corporation. At December 31, 2013, the letter of credit agreements amount to EUR 2,633 million
(2012: 2,642 million); as at that date no amounts had been drawn, or were due under these facilities; �� Due and punctual payment of payables due in relation to debt that was issued by a captive insurance company that is a subsidiary of
Transamerica Corporation. As at December 31, 2013, this debt amounted to EUR 1,089 million and is included in the 'debentures and other loans' table in note 41 (Borrowings) of the consolidated financial statements of the Group in the line USD 1.54 billion
Aegon has, from time to time, received claims from certain current and former customers, and groups representing customers, in respect of certain products. Aegon has in the past agreed to make payments, in some cases substantial, or adjustments to policy terms to settle those claims or disputes if we believed it was appropriate to do so.
Aegon refers to the unclaimed property examinations that unclaimed property administrators and state insurance regulators performed of the life insurance industry in the United States, including certain of Aegon’s subsidiaries. Among these were multi-state examinations that included the collective action of many states. Additionally, some states conducted separate examinations or instituted separate enforcement actions in regard to unclaimed property laws and related claims settlement practices. As other insurers in the United States have done, Aegon Americas identified certain additional internal processes that it has implemented or is in the process of implementing. Aegon Americas originally established reserves related to this matter of approximately EUR 117 million since 2011. Like various other major insurers in the United States, Aegon subsidiaries in the United States entered into settlements with insurance regulators regarding claims settlement practices. Certain examinations are still ongoing. While Aegon believes the reserves it has established for these unclaimed property-related matters are adequate to cover expected obligations, there can be no assurances that actual exposures may not exceed reserve amounts or that additional sources of liability related to those examinations or other unclaimed property-related matters will not arise in the future.
Aegon subsidiaries have received inquiries from local authorities and policyholder advocate groups in various jurisdictions including the United States, the United Kingdom and the Netherlands. In the normal course of business, reviews of processes and procedures are undertaken to ensure that customers have been treated fairly, and to respond to matters raised by policyholders and their
representatives. There is a risk that the Group is not able to resolve some or all such matters in the manner that it expects. In certain instances, Aegon subsidiaries modified business practices in response to such inquiries or the findings thereof. Aegon has also sought and intends to continue to seek to settle certain claims, including via policy modifications, in appropriate circumstances. Aegon refers to the settlement Aegon reached in 2009 with Stichting Verliespolis and Stichting Woekerpolis in the Netherlands, two major customer interest groups. In 2012, Aegon accelerated certain product improvements that reduce future costs and that increase policy value for its customers with unit-linked insurance policies. With these measures, Aegon committed to the ‘best of class’ principles of the Dutch Ministry of Finance for certain existing unit-linked products. These principles were the result of an industry-wide review by the Ministry of the various agreements reached between individual insurance companies and customer interest groups in relation to unit-linked insurance policies. The Ministry made a strong appeal to all industry participants to apply its principles. As a result of this acceleration, Aegon took a one-off charge of EUR 265 million before tax in 2012. In addition, Aegon decided to reduce future policy costs for the large majority of its unit-linked portfolio. This is expected to decrease income before tax over the remaining duration of the policies by approximately EUR 125 million in aggregate, based on the present value at the time of the decision. While parties such as the Ombudsman Financiële Dienstverlening (The Netherlands financial services industry ombudsman) supported the arrangements, it is uncertain whether public debate over the adequacy generally of the arrangements reached with customer interest groups, as well as ongoing discussion in the Dutch Parliament, will not continue in the future and lead to re-examination and adjustment of the settlements made. It is not yet possible to determine the direction or outcome of any further debate, including what actions, if any, Aegon may take in response thereto, or the impact that any such actions may have on Aegon’s business, results of operations and financial position. In addition to the above, certain Aegon subsidiaries have been informed that relevant local regulators may seek fines or other monetary penalties or changes in the way Aegon conducts its business.
EUR 25 million in Q2 2013. It is possible that holders of KoersPlan-products that were not plaintiffs in the litigation also expect or demand a form of compensation. It is not yet possible to determine what actions, if any, Aegon may take in connection with any such expectations or demands due to commercial necessity or future rulings, or the impact that any such actions may have on Aegon’s business, results of operations and financial position.
Generally speaking, individual customers as well as policyholder advocate groups and their representatives, continue to focus on the fees and charges included in products, as well as transparency aspects. Aegon expects this to remain an industry issue for the foreseeable future. Recently, a group of policyholders filed a claim against Aegon in Poland over the fees payable by a customer in case of early surrender of the policy contract. In September 2013, the Klachteninstituut Financiële Dienstverlening (KIFID), rendered an interim decision against another insurance company in the Netherlands. KIFID is an independent body that offers an alternative forum for customers to file complaints or claims over financial services. Its decisions may be appealed to the courts. In its interim decision,
Aegon and other US industry participants have been named in lawsuits alleging, among other things, that asset-based fees charged for investment products offered on 401(k) platforms were higher than those generally available in the market. Matters like these are being defended vigorously; however, at this time, due to its nature and the type of claims, it is not practicable for Aegon to quantify a range or maximum liability or the timing of the financial impact, if any. There can be no assurance that such claims may not have a material adverse effect on Aegon’s results of operations or financial position.
The transferred assets are not derecognized. The obligation to repay the cash collateral is recognized as a liability.
The non-cash collateral is not recognized on the balance sheet; �� repurchase activities; whereby Aegon receives cash for the transferred assets. The financial assets are legally (but not economically) transferred, but are not derecognized. The obligation to repay the cash received is recognized as a liability.
�� Transferred financial assets that are derecognized in their entirety and Aegon does not have a continuing involvement (normal sale). �� Transferred financial assets that are derecognized in their entirety, but where Aegon has a continuing involvement: �� securitizations whereby mortgage loans are transferred to a securitization vehicle which is not part of the Group and where
52.2 Transferred financial assets that are derecognized in their entirety, but where Aegon has continuing involvement Aegon has no transferred financial assets with continuing involvement that are derecognized in their entirely as per year-end 2012 and 2013.
Non-cash collateral that can be sold or repledged in the absence of default 1,517 1,802
In addition, Aegon can receive collateral related to derivative transactions that it enters into. The credit support agreement will normally dictate the threshold over which collateral needs to be pledged by Aegon or its counterparty. Transactions requiring Aegon or its counterparty to post collateral are typically the result of over-the-counter derivative trades, comprised mostly of interest rate swaps, currency swaps and credit swaps. Refer to the credit risk section in note 4 for details on collateral received for derivative transactions.
52.4 Assets pledged Aegon pledges assets that are on its statement of financial position in securities borrowing transactions, in repurchase transactions, and against long-term borrowings. In addition, in order to trade derivatives on the various exchanges, Aegon posts margin as collateral.
To the extent that cash collateral is paid, a receivable is recognized for the corresponding amount. If other non-cash financial assets are given as collateral, these are not derecognized.
On February 8, 2013, Aegon closed the acquisition of 100% of Fidem Life, a life insurance company in Ukraine. Fidem Life is rebranded
‘Aegon Ukraine’ and is integrated into the governance and management structure of Aegon CEE.
EUR 6 million and resulted in a book loss of EUR 7 million.
Underlying earnings before tax for Guardian life and pension totaled GBP 23 million in 2010. Gross written premiums for 2010 was GBP
The business residing in Transamerica International Reinsurance, Bermuda (TIRe) has been retroceded to SCOR. TIRe will continue to provide reserve credit security for redundant reserves to Aegon USA’s ceding companies. Aegon will maintain approximately half of the collateral requirements needed for reinsurance reserve financing. This obligation provides reserve credit security and will run off over approximately 15 years. Refer to note 28 and 29 for details on the reinsurance treatment of this divestment.
Americas �� Aegon USA, LLC, Cedar Rapids, Iowa (United States) �� Transamerica Advisors Life Insurance Company, Little Rock, Arkansas (United States) �� Transamerica Advisors Life Insurance Company of New York, New York, New York (United States) �� Monumental Life Insurance Company, Cedar Rapids, Iowa (United States) �� Stonebridge Casualty Insurance Company, Columbus, Ohio (United States) �� Stonebridge Life Insurance Company, Rutland, Vermont (United States) �� Transamerica Financial Life Insurance Company, Inc., Albany, New York (United States) �� Transamerica Life Insurance Company, Cedar Rapids, Iowa (United States) �� Western Reserve Life Assurance Co. of Ohio, Columbus, Ohio (United States) �� Transamerica Life Canada, Toronto, Ontario (Canada)
The Netherlands �� Aegon Bank N.V., Utrecht �� Aegon Levensverzekering N.V., The Hague �� Aegon Schadeverzekering N.V., The Hague �� Optas Pensioenen N.V., Rotterdam �� Aegon Spaarkas N.V., The Hague �� Unirobe Meeùs Groep B.V., The Hague �� TKP Pensioen B.V., Groningen �� Aegon Hypotheken B.V., The Hague
Investments in associates The principal investments in associates are listed by geographical segment.
The Netherlands �� N.V. Levensverzekering-Maatschappij “De Hoop”, The Hague, life reinsurance company (33.3%)
United Kingdom �� Tenet Group Limited, Leeds, independent financial advisers (22%) �� 7IM, London, investment management company (25,1%)
Notes to the consolidated financial statements of Aegon N.V. Note 56 56 Related party transactions Related party transactions include, among others, transactions between Aegon N.V. and Vereniging Aegon.
On May 29, 2013, the Articles of Association of Aegon N.V. were amended, which included the conversion of all outstanding 329,773,000 preferred shares a and B with a nominal value of EUR 0.25 each, all owned by Vereniging Aegon, into 120,713,389 common shares and 566,313,694 common shares B with a nominal value of EUR 0.12 each. The financial rights attached to a common share B was determined at 1/40th of the financial rights attached to a common share.
B. Vereniging Aegon may exercise its call option on common shares B to keep or restore its total stake at 32.6% irrespective of the circumstances which caused the total shareholding to be or become lower than 32.6% (see also the section “Major Shareholders”).
On May 29, 2013, Aegon N.V. and Vereniging Aegon entered into a Voting Rights Agreement, which ensures that under normal circumstances, i.e. except in the event of a Special Cause, Vereniging Aegon will no longer be allowed to exercise more votes than is proportionate to the financial rights represented by its shares. This means that in absence of a ‘Special Cause”, Vereniging Aegon may cast 1 vote for every common share it holds and only 1 vote for every 40 common shares B it holds. (see also the section
On February 15, 2013, Aegon N.V. and Vereniging Aegon reached an agreement to simplify the capital structure of Aegon N.V. and to exchange all of Aegon’s preferred shares for cash and common shares , subject to approval by the Annual General Meeting of
On August 15, 2012, Vereniging Aegon exercised its option rights to purchase in aggregate 4,114,000 class B preferred shares at par value to mitigate dilution caused by Aegon’s issuance of shares on June 15, 2012, being the final dividend 2011 in the form of stock-dividend.
On March 15, 2011, Vereniging Aegon exercised its option rights to purchase in aggregate 41,042,000 class B preferred shares at par value to mitigate dilution caused by Aegon’s issuance of shares conducted under Aegon’s US Shelf Registration through the sale of 173,604,912 common shares of Aegon N.V. at a price of EUR 5.20 per share in March 2011.
Board, the CEO’s of Aegon USA, Aegon the Netherlands, Aegon UK and Aegon Central & Eastern Europe and Aegon’s Chief Risk
Officer. The total remuneration for the members of the Management Board over 2013 was EUR 15.2 million (2012: EUR 13.8 million), consisting of EUR 5.0 million (2012: EUR 4.1 million) fixed compensation, EUR 6.3 million variable compensation awards
Remuneration of active members of the Executive Board The information below reflect the compensation and various related expenses for members of the Executive Board. Under the current remuneration structure, introduced in 2011, rewards are paid out over a number years, or in the case of shares, vest over a number of years. This remuneration-structure has made it more relevant to present rewards earned during a certain performance year instead of what was received in a certain year.
Mr. Button has been part of the Executive Board. 2 Mr. Nooitgedagt’s conditional variable compensation is reflective of his time with Aegon till retirement as per August 1, 2013.
Mr. Button has been part of the Executive Board amount to EUR 500.
Expenses recognized in the income statement for Mr. Nooitgedagt amount to EUR 836 (2012: 736). Under IFRS, expenses related to conditional variable compensation awards are recognized in full at retirement date. Therefore, expenses under IFRS in 2013 for
Mr. Nooitgedagt relate to the conditional variable compensation awards for the performance year 2013 as well as for previous performance years. The vesting conditions and applicable holding periods for the awards of Mr. Nooitgedagt remain nevertheless unchanged.
During the performance year 2013 Mr. Wynaendts was awarded EUR 1,032 in total conditional variable compensation. Mr. Button was awarded EUR 468 for the period he served as member of the Executive Board.
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2013 40% is payable in 2014. Accordingly, Mr. Wynaendts and Mr. Button will receive a cash payment of
Variable compensation is split 50/50 in a cash payment and an allocation of shares. Of the variable compensation related to performance year 2012 40% was payable in 2013. Accordingly, Mr. Wynaendts and Mr. Nooitgedagt received a cash payment of
Jan J. Nooitgedagt 1 The number of shares is based on the share price at grant of EUR 4.727.
2 The number of shares is based on the share price at grant of EUR 3.126. 3 The number of shares is based on the share price at grant of EUR 4.917.
5 These shares vested in 2012 and are subject to an additional two year holding period. 6 These shares vested in 2013 on basis of actual realized performance and are subject to an additional two year holding period. 7 The performance related cash remuneration granted over 2011, payable in 2012, of EUR 163,591 was waived by Mr. Wynaendts. 8 The performance related cash remuneration granted over 2011, payable in 2012, of EUR 106,359 was waived by Mr. Nooitgedagt.
Total The Dutch Government introduced a special tax-levy for Dutch employers: the ‘crisis tax’ (16% payable on salary expenses above
for Darryl D. Button EUR 54 and Jan J. Nooitgedagt EUR 190 (2012: EUR 173). For Darryl D. Button ‘crisis tax’ is disclosed for the period that Mr. Button has been part of the Executive Board. The resulting total amount of remuneration for Alexander R. Wynaendts related to 2013 is EUR 3,282 (2012: EUR 3,717), for Darryl D. Button EUR 1,619 and for Jan J. Nooitgedagt EUR 1,203 (2012: EUR 2,152).
Shares held in Aegon at December 31, 2013 by Alexander R. Wynaendts and Darryl D. Button amount to respectively 56,582 and 72,872. For each of the members of the Executive Board, the shares held in Aegon mentioned above do not exceed 1% of total outstanding share capital at the balance sheet date.
and 4.4%. In 2013 Mr. Wynaendts made repayments totaling to EUR 750,000 relating to his mortgage loans.
Aegon’s Supervisory Board members are entitled to the following: �� A base fee for membership of the Supervisory Board itself. No attendance fees are paid to members for the attendance of the regular Supervisory Board meetings (2013: 7 meetings, 2012: 7 meetings); �� An attendance fee of EUR 3,000 for each Supervisory Board meeting, attended in person or by video- or telephone conference, other than one of the regular Supervisory Board meetings; �� A committee fee for members on each of the Supervisory Board’s Committees; �� An attendance fee for each Committee meeting attended in person or through video- and telephone conferencing facilities.
Independent auditor’s report Report on the consolidated financial statements We have audited the accompanying consolidated financial statements 2013 of Aegon N.V., The Hague (as set out on pages 122 to 288), which comprise the consolidated statement of financial position as at December 31, 2013, the consolidated income statement and statements of comprehensive income, changes in equity and cash flow for the year then ended and notes, comprising a summary of the significant accounting policies and other explanatory information.
Management’s responsibility Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.
Further we report that the Report of the Executive Board, to the extent we can assess, is consistent with the consolidated financial statements as required by Section 2:391 sub 4 of the Dutch Civil Code.
With regard to the income statement of Aegon N.V., article 402, Part 9 of Book 2 of the Netherlands Civil Code has been applied, allowing a simplified format.
Exchange differences on monetary items are recognized in the income statement when they arise, except when they are deferred in equity as a result of a qualifying cash flow or net investment hedge. Exchange differences on non-monetary items carried at fair value are recognized in equity or the income statement, consistently with other gains and losses on these items.
The fair value of an asset is the amount for which it could be exchanged between knowledgeable, willing parties in an arm’s length transaction. For quoted financial assets for which there is an active market, the fair value is the bid price at the balance sheet date. In the absence of an active market, fair value is estimated by using present value based or other valuation techniques. Where discounting techniques are applied, the discount rate is based on current market rates applicable to financial instruments with similar characteristics.
The valuation techniques that include non-market observable inputs can result in a different outcome than the actual transaction price at which the asset was acquired. Such differences are not recognized in the income statement immediately but are deferred. They are released over time to the income statement in line with the change in factors (including time) that market participants would consider in setting a price for the asset. Interest accrued to date is not included in the fair value of the financial asset.
With the exception of cash collateral, assets received as collateral are not separately recognized as an asset until the financial asset they secure is foreclosed. When cash collateral is recognized, a liability is recorded for the same amount.
Borrowings are initially recognized at their fair value including directly attributable transaction costs and are subsequently carried at amortized cost using the effective interest rate method, with the exception of specific borrowings that are designated as at fair value through profit or loss to eliminate, or significantly reduce, an accounting mismatch, or specific borrowings which are carried as at fair value through the profit and loss as part of a fair value hedge relationship. The liability is derecognized when the company’s obligation under the contract expires or is discharged or cancelled.
For a list of names and locations of the most important group companies, refer to note 55 of the consolidated financial statements of the Group. The legally required list of participations as set forth in article 379 of Book 2 of the Netherlands Civil Code has been registered with the Commercial Register of The Hague.
Changes in accounting policies relating to IAS 19 1) - - - (979) - - - - 15 (964)
On the balance sheet date Aegon N.V. and its subsidiaries held 41,307,910 of its own common shares with a face value of EUR 0.12 each. Most of the shares have been purchased to neutralize the dilution effect of issued share dividend and to hedge share based payment plans for executives and employees. Movements in the number of repurchased own shares held by Aegon N.V. were as follows: Transactions in 2013: Sale: 1 transaction, price EUR 5.02 (5,408,521) -
Notes to the financial statements of Aegon N.V. Note 10 10 Other equity instruments
Junior perpetual capital securities Coupon rate Coupon date, as of Year of next call 2013 2012
EUR 950 million floating DSL rate 2) Quarterly, July 15 2014 950 950
USD 500 million floating CMS rate 3) Quarterly, July 15 2014 402 402 1 The coupon of the USD 250 million junior perpetual capital securities is reset each quarter based on the then prevailing three-month LIBOR yield plus a spread of 87.5 basis points, with a minimum of 4%. 2 The coupon of the EUR 950 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year Dutch government bond yield plus a spread of ten basis points, with a maximum of 8%. 3 The coupon of the USD 500 million junior perpetual capital securities is reset each quarter based on the then prevailing ten-year US dollar interest rate swap yield plus a spread of ten basis points, with a maximum of 8.5%.
Perpetual cumulative subordinated bonds Coupon rate Coupon date, as of Year of next call 2013 2012 1 The coupon of the EUR 114 million bonds was originally set at 8% until June 8, 2005. Subsequently, the coupon has been reset at 4.156% until 2015. 2 The coupon of the EUR 136 million bonds was originally set at 7.25% until October 14, 2008. Subsequently, the coupon has been reset at 5.185% until
Non-cumulative subordinated notes Coupon rate Coupon date, as of Year of next call 2013 2012
Refer to note 11 for details of the component classified as subordinated borrowings.
11 Subordinated borrowings Subordinated borrowings include the liability component of the non-cumulative subordinated notes. The liability component for the non-cumulative subordinated notes is related to the redemption amount. For further information on the non-cumulative subordinated notes refer to note 10.
Commitments and contingencies Aegon N.V. entered into a contingent capital letter for an amount of JPY 7.5 billion (EUR 52 million) to support its joint venture Aegon
LLC, Commonwealth General Corporation and Transamerica Finance Corp. with respect to bonds, capital trust pass-through securities and notes issued under commercial paper programs amount to EUR 485 million (2012: EUR 507 million); �� Due and punctual payment of any amounts owed to third parties by the consolidated group company Aegon Derivatives N.V. in connection with derivative transactions. Aegon Derivatives N.V. only enters into derivative transactions with counterparties with which ISDA master netting agreements including collateral support annex agreements have been agreed; net (credit) exposure on derivative transactions with these counterparties was therefore limited as at December 31, 2013.
Management’s responsibility Management is responsible for the preparation and fair presentation of these company financial statements and for the preparation of the Report of the Executive Board, both in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore management is responsible for such internal control as it determines is necessary to enable the preparation of the company financial statements that are free from material misstatement, whether due to fraud or error.
6. The Executive Board may, subject to the approval of the Supervisory Board, decide that a distribution on common shares and common shares B shall not take place as a cash payment but as a payment in common shares, or decide that holders of common shares and common shares B shall have the option to receive a distribution as a cash payment and/or as a payment in common shares, out of the profit and/or at the expense of reserves, provided that the Executive Board is designated by the General Meeting to issue shares. Subject to the approval of the Supervisory Board, the Executive Board shall also determine the conditions applicable to the aforementioned choices.
At the Annual General Meeting of shareholders on May 21, 2014, the Executive Board will, absent unforeseen circumstances, propose a final dividend for 2013 of EUR 0.11 per Common Share and EUR 0.00275 per 40 Common Shares B. The final dividend will be paid in cash or stocks at the election of the shareholder. The value of the stock dividend will be approximately equal to the cash dividend.
In order to reflect the prevailing market price of Aegon N.V. common shares fully within the indication provided, the number of dividend coupons that give entitlement to a new common share of EUR 0.12 will be determined on June 13, 2014 after 5.30 pm, based on the average share price on NYSE Euronext Amsterdam in the five trading days from June 9, 2014 up to and including June 13, 2014.
Net income attributable to equity holders of Aegon N.V. 846 1,581
Major shareholders General As of December 31, 2013, Aegon’s total authorized share capital consisted of 6,000,000,000 common shares with a par value of EUR
Ennia N.V. merged into Aegon N.V. Vereniging AGO initially received approximately 49% of the common shares (reduced gradually to less than 40%) and all of the preferred shares in Aegon N.V., giving it voting majority in Aegon N.V. At that time Vereniging AGO
Meeting of Shareholders of Aegon N.V. In September 2002, Aegon N.V. effected a capital restructuring whereby Vereniging Aegon, among others, sold 206,400,000 common shares to Aegon N.V. for the amount of EUR 2,064,000,000; Vereniging Aegon contributed these as additional paid-in capital on the then existing Aegon N.V. preferred shares. As a result of this capital restructuring, Vereniging
Aegon’s beneficial ownership interest in Aegon N.V.’s common shares decreased from approximately 37% to approximately 12% and its beneficial ownership interest in Aegon N.V.’s voting shares decreased from approximately 52% to approximately 33%.
On May 9, 2003, Aegon’s shareholders approved certain changes to Aegon’s corporate governance structure. Preferred shares with a nominal value of EUR 0.12 were converted into 211,680,000 new class A preferred shares with a nominal value of EUR 0.25, and class
B preferred shares were created with a nominal value of EUR 0.25 each. No class B preferred shares were issued at that time. The voting rights pertaining to the preferred shares were adjusted accordingly to 25/12 vote per preferred share. However, in May 2003,
In May 2003, Aegon N.V. and Vereniging Aegon amended the option arrangements under the 1983 Merger Agreement so that, in the event of an issuance of shares by Aegon N.V., Vereniging Aegon could purchase as many class B preferred shares as would enable
The simplified capital structure entailed, but was not limited to, the amendment of the articles of association of Aegon N.V., including the conversion of all outstanding 329,773,000 preferred shares A and B, with a nominal value of EUR 0.25 each, into 120,713,389 common shares and 566,313,695 common shares B, with a nominal value of EUR 0.12 each. The financial rights attached to a common share B were determined at 1/40th of the financial rights attached to a common share.
The simplified capital structure also entailed the amendment of the Voting Rights Agreement between Aegon N.V. and Vereniging
“Special Cause” qualifies the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the
The simplified capital structure also included an amendment to the Amended 1983 Merger Agreement between Aegon N.V. and
Plans for senior management, the issuance of shares on June 14, 2013, being the final dividend 2012 in the form of stock-dividend.
Exchange of Preferred A and B shares 120,713,389 566,313,695 (211,680,000) (118,093,000)
Accordingly, at December 31, 2013, the voting power of Vereniging Aegon under normal circumstances amounts to approximately 14.58%, based on the number of outstanding and voting shares (excluding issued common shares held in treasury by Aegon N.V.). In the event of a Special Cause, Vereniging Aegon’s voting rights will increase, currently to 32.6%, for up to six months.
General Meeting of Members of Vereniging Aegon from the Executive Board of Aegon N.V.
Vereniging Aegon has an Executive Committee consisting of 7 members, 5 of whom are not, nor have ever been, related to Aegon, including the chairman and the vice chairman. The other two members are also members of the Executive Board of Aegon N.V.
Schedules to the financial statements Schedule I Summary of investments other than investments in related parties
Real estate: Investments in real estate 1,532 1,532 1 Cost is defined as original cost for available-for-sale shares and amortized cost for available-for-sale and held-to-maturity bonds
Condensed cash flow statement of Aegon N.V. For the year ended December 31
Issuance, repurchase and coupons of non-cumulative subordinated notes (28) 241 -
Additional information �� Supervision 318 �� Risk factors 318 �� Property, plants and equipment 334 �� Employees and labor relations 334 �� Dividend policy 335 �� The offer and listing 336 �� Additional company information 337 �� Memorandum and Articles of Association 337 �� Material contracts 339 �� Exchange controls 339 �� Taxation 339 �� Principal accountant fees and services 346 �� Purchases of equity securities by the issuer and affiliated purchasers 347 �� Quarterly results – unaudited 348 �� Glossary 349 �� Disclaimer 354
European Union legislation (EU Directive 98/79/EC, the Insurance Group Directive) adopted in 1998, EU supervisors, such as De
Aegon is required to submit reports to its supervisors twice a year setting out supplemental capital adequacy calculations of the insurance companies, risk concentrations and significant transactions and positions between insurance and non-insurance companies in the Aegon Group.
Aegon’s results of operations and financial condition may be materially affected from time to time by general economic conditions, such as levels of employment, consumer lending or inflation in the countries in which we operate. Global financial markets have experienced extreme and unprecedented volatility and disruption in recent years and uncertainty remains today. These developments have created an unfavorable environment for banking activity generally. Bank lending has been lower than pre-financial crisis levels for some time, and housing markets in Europe and North America remain under pressure.
In addition to the risks described in this section, these conditions may result in reduced demand for Aegon’s products as well as impairments and reductions in the value of the assets in Aegon’s general account, separate account, and company pension schemes, among other assets. Aegon may also experience a higher incidence of claims and lapses or surrenders of policies. Aegon’s policyholders may choose to defer or stop paying insurance premiums, which may impact Aegon’s businesses, results of operations, cash flows and financial condition, and Aegon cannot predict definitively whether or when such actions may occur.
In Europe, countries such as Greece, Ireland, Italy, Portugal, Spain and Cyprus have been particularly affected by financial and economic conditions, creating a heightened perceived risk of default on the sovereign debt of those countries. Recovery has taken place but downside risk remains. There has also been concern about its effect on other European Union economies, the euro currency and the
European Monetary Union. Aegon also cannot predict with certainty the effect a sovereign default may have on Aegon’s businesses, results of operations, cash flows and financial condition, although the effect of such events may be material and adverse.
Credit risk is the risk of loss resulting from the default by, or failure to meet contractual obligations of issuers and counterparties. For general account products, Aegon typically bears the risk for investment performance equaling the return of principal and interest.
Exposure to equity markets exists in both assets and liabilities. Asset exposure exists through direct equity investment where Aegon bears all or most of the volatility in returns and investment performance risk. Equity market exposure is also present in insurance and investment contracts for account of policyholders where funds are invested in equities (such as variable annuities, unit-linked products and mutual funds). Although most of the risk remains with the policyholder, lower investment returns can reduce the asset
management fee that Aegon earns on the asset balance in these products and prolonged investment under-performance may cause existing customers to withdraw funds and potential customers not to grant investment mandates.
Interest rate risk Interest rate volatility or sustained low interest rate levels may adversely affect Aegon’s profitability and shareholders´ equity.
During periods of sustained low interest rates, as experienced in recent years, Aegon may not be able to preserve margins as a result of minimum interest rate guarantees and minimum guaranteed crediting rates provided in policies. Also, investment earnings may be lower because the interest earnings on new fixed-income investments are likely to have declined with the market interest rates. A prolonged low interest rate environment may result in a lengthening of maturities of the policyholder liabilities from initial estimates, primarily due to lower policy lapses.
Life insurance and annuity products may be relatively more attractive to consumers, resulting in increased premium payments on products with flexible premium features and a higher percentage of insurance policies remaining in force year-to-year. The majority of assets backing the insurance liabilities are invested in fixed income securities. Aegon manages its investments and derivative portfolio, considering a variety of factors, including the relationship between the expected duration of its assets and liabilities. However, as interest rates remain at low levels, Aegon may have to reinvest the cash it receives as interest or proceeds from investments that mature or are sold at lower yields. Reinvestment at lower yields may reduce the spread between interest earned on investments and interest credited to some of our products and accordingly net income may decline. In addition, borrowers may prepay or redeem fixed maturity investments or mortgage loans in our investment portfolio in order to borrow at lower rates. Aegon can lower crediting rates on certain products to offset the decrease in spread. However, its ability to lower these rates may be limited by contractually guaranteed minimum rates or competition.
Base interest rates set by central banks and government treasuries remained at the historically low levels initiated in response to the worldwide recession and attempts to stimulate growth.
respectively. The value of the related general account fixed income investment portfolio at the end of the years 2011, 2012 and 2013 was EUR 139 billion, EUR 142 billion and EUR 132 billion, respectively.
As an international group, Aegon is subject to foreign currency translation risk. Foreign currency exposure also exists when policies are denominated in currencies other than Aegon’s functional currency. Currency risk in the investment portfolios backing insurance and investment liabilities are managed using asset liability matching principles. Assets allocated to equity are kept in local currencies to the extent shareholders´ equity is required to satisfy regulatory and Aegon’s self-imposed capital requirements. Therefore, currency exchange rate fluctuations may affect the level of Aegon’s consolidated shareholders´ equity as a result of translation of the equity of
In 2013, the US dollar ranged by 7% against the euro, finishing around 4% down from 2012. The UK pound fluctuated by around 9%
against the euro ending the year with a 3% reduction from 2012.
It is possible that the euro may be abandoned as a currency in the future by countries that have already adopted its use. This may lead to the re-introduction of individual currencies in one or more European Monetary Union member states, or in more extreme circumstances, the dissolution of the European Monetary Union. It is not possible to predict with certainty the effect on the European and global economies of a potential dissolution of the European Monetary Union or the exit of one or more European Union member states from the European Monetary Union. Any such event may have a materially adverse effect on Aegon's future financial condition and results of operations.
Aegon’s earnings depend significantly upon the extent to which actual claims experience is consistent with the assumptions used in setting the prices for Aegon’s products and establishing the technical liabilities for expected claims. If actual claims experience is less favorable than the underlying assumptions used in establishing such liabilities, Aegon’s income would be reduced. Furthermore, if less favorable claims experience became sustained, Aegon may be required to increase liabilities for other related products, which may reduce Aegon’s income. In addition, certain acquisition costs related to the sale of new policies and the purchase of policies already in force have been recorded as assets on the balance sheet and are being amortized into income over time. If the assumptions relating to the future profitability of these policies (such as future claims, investment income and expenses) are not realized, the amortization of these costs may be accelerated and may require write-offs due to an expectation of unrecoverability. This may have a materially adverse effect on Aegon's results of operations and financial condition.
Sources of underwriting risk include policy lapses, policy claims (such as mortality and morbidity) and expenses. In general, Aegon is at risk if policy lapses increase, as sometimes Aegon is unable to fully recover up-front sales expenses despite the presence of commission recoveries or surrender charges and fees. In addition, some policies have embedded options which at times are more valuable to the client if they stay (lower lapses) or leave (higher lapses), which may result in losses to Aegon's businesses. Aegon sells certain types of policies that are at risk if mortality or morbidity increases, such as term life insurance and accident insurance. Aegon also sells certain other types of policies, such as annuity products, that are at risk if mortality decreases (longevity risk). For example, certain current products as well as products sold in previous years based on standard longevity assumptions have become less profitable or unprofitable as longevity assumptions increase, which may result in Aegon incurring losses. If the trend toward increased longevity persists, Aegon’s annuity products may continue to experience adverse effects because the period of time over which benefit payments are made becomes longer as life expectancies increase. Aegon is also at risk if expenses are higher than assumed.
Aegon may be required to increase its statutory reserves and/or hold higher amounts of statutory capital for some of its products, which will decrease Aegon’s returns on these products unless Aegon increases its prices.
The European Commission´s Solvency II directive, effective date pending, is expected to impose, among other things, substantially greater quantitative and qualitative capital requirements on some of Aegon’s businesses and at Group level, as well as supervisory and disclosure requirements, and may impact the structure, business strategies, and profitability of Aegon’s insurance subsidiaries and of the Group. Some of Aegon’s competitors who are headquartered outside the European Economic Area may not be subject to Solvency II
commonly known as Regulation XXX, requires insurers in the United States to establish additional statutory reserves for term life insurance policies with long-term premium guarantees. In addition, Actuarial Guideline 38, The Application of the Valuation of Life
Aegon utilizes affiliated captives to manage risks related to universal life with secondary guarantees and level term life insurance policies. Through these structures, Aegon finances certain regulatory required reserves at a lower cost. To the extent that state insurance departments restrict Aegon's use of captives and regulatory reserve requirements remain unchanged this could increase its cost, limit its ability to write these products in the future or lead to increased prices to consumers on those products. The NAIC
Aegon has experienced downgrades and negative changes to its outlook in the past, and may experience downgrades and negative changes in the future. For example, during 2012, Fitch put a negative outlook on its long-term issuer default rating for Aegon N.V. and its insurer financial strength ratings for Aegon USA. Since 2012, Standard and Poor´s put a negative outlook on its insurer financial strength rating for Scottish Equitable (Aegon UK). A downgrade or potential downgrade, including changes in outlook, may result in higher funding costs and/or affect the availability of funding in the capital markets. In addition, a downgrade may adversely affect relationships with broker-dealers, banks, agents, wholesalers and other distributors of Aegon’s products and services, which may negatively impact new sales and adversely affect Aegon’s ability to compete. This would have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
Aegon’s regulated businesses, such as insurance, banking and asset management, are subject to comprehensive regulation and supervision. The primary purpose of such regulation is to protect clients (i.e. policyholders), not holders of Aegon securities. Changes in existing laws and regulations may affect the way in which Aegon conducts business and the products offered. Additionally, the laws or regulations adopted or amended from time to time may be more restrictive or may result in higher costs than current requirements. The recent financial markets dislocation has resulted in, and may continue to result in further, extensive changes to existing laws, regulations and regulatory frameworks applicable to Aegon’s businesses in the countries in which it operates.
For example, in July 2010, the US Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), which provides for comprehensive changes to the regulation of financial services in the United States by granting existing government agencies and newly created government agencies and bodies (for example the Financial Stability Oversight, Federal Reserve Board,
In the United States, the Patient Protection and Affordable Care Act (PPACA) was enacted in 2011 and upheld by the US Supreme
For information relating to the European Commission´s Solvency II directive, see page 11. Aegon may be required to increase its statutory reserves and/or hold higher amounts of statutory capital for some of its products, which will decrease Aegon’s returns on these products unless Aegon increases its prices. Other initiatives, such as by the International Association of Insurance Supervisors, may create regulations that would increase capital and other requirements that would not be applicable to all carriers and create an uneven competitive playing field.
United Kingdom. Any actual changes would not take effect until after independence day, which based on Scottish Government indications would not be until March 2016 at the earliest. The details of any changes are impossible to predict with certainty at present, and will depend on post-referendum negotiations and agreements between the Scottish Government and other organizations at UK and EU level. Independence could result in inter alia changes in the monetary system, currency, taxation, regulatory and legal framework, and membership of the EU. Some possible outcomes of independence could have an adverse effect on Aegon UK's business, financial condition and results of operations in the future.
Aegon faces significant risks of litigation and regulatory investigations and actions in connection with Aegon’s activities as an insurer, securities issuer, employer, investment adviser, investor and taxpayer, among others.
In addition, insurance companies are generally the subject of litigation, investigations and regulatory activity concerning common industry practices such as the disclosure of costs, both costs incurred upon inception of the policy as well as over the duration thereof, commissions, premiums and other issues relating to the transparency concerning certain products and services. In particular when these costs and charges apply for or take effect over a longer duration, as is the case for many of Aegon´s products. In addition, many of Aegon´s products offer returns that are affected by, among other things, fluctuations in equity markets as well as interest rate movements. As a result, such returns may prove to be volatile and occasionally disappointing. From time to time this results in disputes that lead to litigation and complaints to regulatory bodies. Complaints like these may lead to inquiries or investigations, regardless of their merit.
Aegon cannot predict at this time the effect that litigation, investigations, and actions will have on the insurance industry or Aegon’s business. Lawsuits, including class actions and regulatory actions, may be difficult to assess or quantify, and may seek recovery of very large and/or indeterminable amounts, including bad faith, punitive and treble damages, and their existence and magnitude may remain unknown for substantial periods of time. Claimants may allege damages that are not quantifiable or supportable and may bear little relationship to their actual economic losses, or amounts they ultimately receive, if any.
Aegon has defended and Aegon intends to continue defending itself vigorously when Aegon believes claims are without merit. Aegon has also sought and will continue to seek to settle certain claims, including via policy modifications in appropriate circumstances.
Aegon refers to the settlement Aegon reached in 2009 with two major customer interest groups in the Netherlands, Stichting
Verliespolis and Stichting Woekerpolis Claim. In 2012, Aegon accelerated certain product improvements that reduce future costs and increase policy value for its customers with unit-linked insurance policies. With these measures, Aegon committed to an appeal by the
Aegon took a one-off charge of EUR 265 million before tax. In addition, Aegon decided to reduce future policy costs from 2013 onward for the large majority of its unit-linked portfolio. This is expected to decrease income before tax over the remaining duration of the policies by approximately EUR 125 million in aggregate, based on the present value at the time of the decision. While parties such as
Ombudsman Financiële Dienstverlening (the Netherlands financial services industry ombudsman) supported the arrangements, it is uncertain whether public debate over the general adequacy of the arrangements reached with customer interest groups, as well as ongoing discussions in the Dutch Parliament, will not continue in the future and lead to re-examination and adjustment of the settlements made. It is not yet possible to determine the direction or outcome of any further debate, including what actions, if any,
Aegon may take in response thereto, or the impact that any such actions may have on Aegon’s business, results of operations and financial position. Any such actions, whether triggered by legal requirements or commercial necessity, any substantial legal liability or a significant regulatory action, may have a materially adverse effect on Aegon’s businesses, results of operations and financial condition.
In June, 2013, the Dutch Supreme Court denied Aegon’s appeal from a ruling of the Court of Appeal with respect to a specific Aegon unit-linked product, the “Koersplan”-product. In 2011, the Court of Appeal had ruled that Aegon should have more clearly informed its customers about the amount of premium which the company charged in relation to the death benefit embedded in the product, sold during the period 1989-1998. Prior to the ruling Aegon had already taken steps to improve its communications with customers as well as adjusting the amounts charged to Koersplan-customers. As a result of the Dutch Supreme Court’s denial of appeal, Aegon will compensate the approximately 35,000 holders of KoersPlan-products who were plaintiffs in the litigation and took a charge of
Furthermore, recently a group of policyholders filed a claim against Aegon in Poland over the fees payable by a customer in case of early surrender of the policy contract. In September 2013, the Klachteninstituut Financiële Dienstverlening (KIFID), rendered an interim decision against another insurance company in The Netherlands. KIFID is an independent body that offers an alternative forum for customers to file complaints or claims over financial services. Its decisions may be appealed to the courts. In its interim decision, KIFID
found that the consumer had not been adequately informed of the so-called initial costs embedded within its unit linked policy, nor of the leverage component thereof, and challenged the contractual basis for the charges. There are claims pending with KIFID that were filed over Aegon products and that arguably include similar allegations. If KIFID were to finally decide unfavorably and that decision were to be upheld by a court, there can be no assurances that ultimately the aggregate exposure to Aegon of such adverse decisions would not have a material adverse effect on Aegon’s results of operations or financial position if the principles underlying any such decision were to be applied also to Aegon products.
Aegon has, from time to time, received claims from certain current and former customers, and groups representing customers, in respect of certain products. Certain claims remain under review and may lead to disputes in the future. Aegon has in the past agreed to make payments, in some cases substantial, or adjustments to policy terms to settle those claims or disputes if Aegon believed it was appropriate to do so. While Aegon intends to defend itself vigorously against any claims that Aegon does not believe have merit, there
European Commission, which provide for a new framework of regulation of OTC derivatives markets. These new regulations, including the regulation of OTC transactions, central counterparties and trade repositories (EMIR) that was published by the Official Journal of the European Union on July 27, 2012, as well as the new regulation on markets in financial instruments (MIFIR) proposed by the
European Commission on October 20, 2011, expected to be adopted in 2014, may require Aegon to mandatorily trade certain types of
OTC derivative transactions on regulated trading venues and clear certain types of transactions currently traded in the OTC derivative markets through a central clearing organization. This may limit Aegon’s ability to customize derivative transactions for its needs. As a result, Aegon may experience additional collateral requirements and costs associated with derivative transactions.
Since 2005, Aegon’s financial statements have been prepared and presented in accordance with IFRS. Any future changes in these accounting principles may have a significant impact on Aegon’s reported results, financial condition and shareholders´ equity. This includes the level and volatility of reported results and shareholders´ equity. One of the standards that will be revised in the near future is IFRS 4 – Insurance Contracts. The IASB is currently deliberating on the comment letters received by its constituents with regard to the Exposure Draft that was published by the IASB in June 2013. The proposed changes in the accounting for insurance contracts will have a significant impact on Aegon’s financial position, however, it is not yet clear when the final standard will be issued.
Another standard that will be revised in the near future is IFRS 9 – Financial Instruments. The changes proposed by the IASB will have a significant impact on Aegon’s financial position. Recently the IASB has tentatively decided to require an entity to apply IFRS 9 for annual periods beginning on or after January 1, 2018. Details on IFRS 9 are provided in note 2.1.3 of the financial statements.
conditions and within certain limits. Taxes on this inside build-up of earnings may not be payable at all and, if payable, generally are due only when the earnings are actually paid.
The adverse market and economic conditions that began in the second half of 2007 and significantly worsened in 2008 and into 2009, with recovery beginning in late 2009 and in 2010, followed in 2011, 2012 and 2013 by further periods of volatility and weakness, particularly in the Eurozone, can be expected to result in changes in the competitive landscape. For example, the financial distress experienced by some financial services industry participants as a result of weak economic conditions and newly imposed regulation may lead to acquisition opportunities. Aegon’s ability or that of Aegon’s competitors to pursue such opportunities may be limited due to lower earnings, reserve increases, capital requirements or a lack of access to debt capital markets and other sources of financing. Such conditions may also lead to changes by Aegon or Aegon’s competitors in product offerings and product pricing that may affect Aegon and Aegon’s relative sales volumes, market shares and profitability. Additionally, the competitive landscape in which Aegon operates may be further affected by government-sponsored programs or actions taken in response to the severe dislocations in financial markets which occurred in 2008 and 2009, as well as the European sovereign debt crisis.
The failure of a sufficiently large and influential financial institution may disrupt securities markets or clearance and settlement systems in Aegon’s markets. This may cause market declines or volatility. Such a failure may lead to a chain of defaults that may adversely affect Aegon and Aegon’s contract counterparties. In addition, such a failure may impact future product sales as a potential result of reduced confidence in the insurance industry.
Aegon’s insurance subsidiaries cede premiums to other insurers under various agreements that cover individual risks, group risks or defined blocks of business, on a co-insurance, yearly renewable term, excess or catastrophe excess basis. The purpose of these reinsurance agreements is to spread the risk and minimize the effect of losses. The amount of each risk retained depends on an evaluation of the specific risk, which is subject, in certain circumstances, to maximum limits based on the characteristics of coverage.
Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse for the ceded amount in the event a covered claim is paid. However, Aegon’s insurance subsidiaries remain liable to their policyholders for ceded insurance if any reinsurer fails to meet the obligations assumed by it. A bankruptcy or insolvency or inability of Aegon’s reinsurance counterparties to satisfy its obligations may have a materially adverse effect on Aegon’s financial position and results of operations. Refer to Schedule IV of this Annual Report for a table showing life insurance in force amounts on a direct, assumed and ceded basis for 2011, 2012 and 2013.
In accordance with industry practices, Aegon reinsures a portion of its life insurance exposure with unaffiliated insurance companies under traditional indemnity reinsurance arrangements. In 2013, approximately 60% of Aegon's total direct and assumed (for which
Aegon acts as a reinsurer for others) life insurance in force was ceded to other insurers. The major reinsurers of Aegon USA and Aegon
Canada are SCOR SE (‘SCOR’), Munich Re, RGA and Swiss Re. The major reinsurers of Aegon UK are Swiss Re, Munich Re, Pacific Re and
XL Re. The non-life reinsurance for Aegon the Netherlands is diversified across several providers including Lloyds market syndicates.
RGA. Aegon Spain´s major reinsurers are General Re, RGA, National Re and SCOR. Aegon China´s major reinsurers are Hannover Re,
As part of Aegon’s overall risk and capacity management strategy, Aegon purchases reinsurance for certain risks underwritten by
In recent years, Aegon has made a number of acquisitions and divestitures around the world and it is possible that Aegon may make further acquisitions and divestitures in the future. Growth by acquisition involves risks that may adversely affect Aegon’s operating results and financial condition. These include: the potential diversion of financial and management resources from existing operations; difficulties in assimilating the operations, technologies, products and personnel of the acquired company; significant delays in completing the integration of acquired companies; the potential loss of key employees or customers of the acquired company; potential losses from unanticipated litigation; and tax and accounting issues. In addition, expansion into new and emerging markets may involve heightened political, legal and regulatory risks, such as discriminatory regulation, nationalization or expropriation of assets, price controls and exchange controls.
candidates or that Aegon will properly value acquisitions made. Aegon is unable to predict whether or when any prospective acquisition candidate will become available, or the likelihood that any acquisition will be completed once negotiations have commenced.
Aegon’s operations and result in significant loss of property, key personnel and information about Aegon and its clients. If its business continuity plans have not included effective contingencies for such events, Aegon may experience business disruption and damage to corporate reputation and financial condition for a substantial period of time.
Aegon may not be able to protect its intellectual property and may be subject to infringement claims.
Operational risk is inherent in Aegon’s businesses and may manifest itself in many ways, including business interruption, poor vendor performance, information systems malfunctions or failures, regulatory breaches, processing errors, modeling errors, and/or internal and external fraud. These events may result in financial loss, harm Aegon’s reputation, or hinder Aegon’s operational effectiveness. Aegon’s management maintains a well-controlled environment and sound policies and practices to control these risks and keep operational risk at appropriate levels. Notwithstanding these control measures, however, operational risk is part of the business environment in which
Aegon operates, and is inherent in Aegon’s size and complexity, as well as Aegon’s geographic diversity, and the scope of the businesses Aegon operates. Aegon’s risk management activities cannot anticipate every economic and financial outcome, or the specifics and timing of such outcomes. Furthermore, if the contractual arrangements put in place with any third party service providers are terminated, including contractual arrangements with providers of information technology, administrative or investment management services, Aegon may not be able to find an alternative provider on a timely basis or on equivalent terms. Aegon may incur losses from time to time due to these types of risks.
Aegon’s operations support complex transactions and are highly dependent on the proper functioning of information technology and communication systems. Any failure of Aegon’s information technology or communications systems may result in a materially adverse effect on Aegon’s results of operations and corporate reputation.
Aegon uses computer systems to store, retrieve, evaluate and utilize customer and company data and information. Aegon’s businesses are highly dependent on its ability to access these systems to perform necessary business functions such as providing customer support, administering variable products, making changes to existing policies, filing and paying claims, managing Aegon's investment portfolios and producing financial statements. While Aegon has policies, procedures, automation and backup plans designed to prevent or limit the effect of failure, Aegon’s computer systems may be vulnerable to disruptions or breaches as a result of natural disasters, man-made disasters, criminal activity, pandemics or other events beyond Aegon’s control. The failure of Aegon’s computer systems for any reason may disrupt Aegon’s operations, result in the loss of customers and may adversely affect Aegon’s businesses, results of operations and financial condition.
Any compromise to the security of Aegon’s computer systems that results in the disclosure of personally identifiable customer information may damage Argon's reputation, expose Aegon to litigation, increase regulatory scrutiny, and require Aegon to incur significant technical, legal and other expenses.
II - Risks relating to Aegon’s common shares Aegon’s share price may be volatile and may drop unexpectedly, making it difficult for investors to resell Aegon’s common shares at or above the price paid.
In connection with its refinancing in September 2002, Vereniging Aegon entered into an equity repurchase facility and a back-up credit facility. On February 9, 2010, both facilities were replaced by a three year term and revolving facilities agreement with a consortium of banks. In 2013, Vereniging Aegon entered into a new three year term and revolving facilities agreement with the same consortium of banks, replacing the three year term and revolving facilities agreement entered into in 2010. Under this agreement, Aegon's common shares in the possession of Vereniging Aegon are pledged to the consortium of banks. If Vereniging Aegon were to default under the facilities agreement in force at that time, the lenders may dispose of Aegon's common shares held by them as collateral in order to satisfy amounts outstanding.
Agreement, resulting in a right for Vereniging Aegon, upon issuance of shares by Aegon, to purchase as many class B preferred shares existing at that time as would enable it to prevent or offset a dilution to below its actual voting power percentage of 33%. In 2013,
Meeting of Shareholders of Aegon N.V. on May 15, 2013. For details on the simplification of the corporate structure, please see the section Major Shareholders at page 307 to 309.
The simplified capital structure included an amendment to the Amended 1983 Merger Agreement between Aegon N.V. and Vereniging
Aegon N.V.). In the event of a Special Cause, Vereniging Aegon’s voting rights will increase to 32.64% for up to six months.
Euronext New York are quoted in US dollars, fluctuations in exchange rates between the euro and the US dollar may affect the value of
York registry in US dollars based on an exchange rate set the business day following the shareholder meeting approving the dividend.
As a result, fluctuations in exchange rates may affect the US dollar value of any cash dividends paid.
Any market that develops for convertible securities or other securities that permit or require Aegon to satisfy obligations by issuing common shares that Aegon has issued or may issue in the future would be likely to influence, and be influenced by, the market for
Property, plants and equipment In the United States, Aegon owns many of the buildings that the company uses in the normal course of its business, primarily as offices.
Employees and labor relations At the end of 2013, Aegon had 26,981 employees of which were 4,753 agent-employees. Approximately 46% are employed in the
The number of employees per geographical area was: Of which agent 4,753 4,402 5,948
Of which Aegon's share of employees in joint ventures and associates 1,462 1,546 1,073
See Note 14 of the notes to the consolidated financial statements of this Annual Report for a description of share-based payments to employees.
Holders of common shares historically have been permitted to elect to receive dividends, if any, in cash or in common shares, except for the final dividend for 2002, as distributed in May 2003, which was made in common shares only. For dividends, which holders may elect to receive in either cash or common shares, the value of the stock alternative may differ slightly from the value of the cash option. We pay cash dividends on shares of New York registry in US dollars through Citibank, N.A., Aegon’s NYSE paying agent, based on the foreign exchange reference rate (as published each working day at 14:15 hours by the European Central Bank) on the business day following the announcement of the interim dividend or on the second business day following the shareholder meeting approving the relevant final dividend.
Description of Aegon’s capital stock Aegon has two types of shares: Common shares (par value EUR 0.12) and Common shares B (par value EUR 0.12).
“Special Cause” qualifies the acquisition of a 15% interest in Aegon N.V., a tender offer for Aegon N.V. shares or a proposed business combination by any person or group of persons, whether individually or as a group, other than in a transaction approved by the Executive Board and the Supervisory Board. If, in its sole discretion, Vereniging Aegon determines that a Special Cause has occurred, Vereniging Aegon will notify the General Meeting of Shareholders and retain its right to exercise the full voting power of one vote per common share B for a limited period of six months �� All shares have the right to participate in Aegon’s net profits. Net profits is the amount of profits after contributions, if any, to a reserve account.
�� There are no sinking fund provisions. �� All issued shares are fully paid-up; so there is no liability for further capital calls. �� There are no provisions discriminating against any existing or prospective holder of shares as a result of such shareholder owning a substantial number of shares.
Differences between common shares and common shares B �� The common shares are listed; the common shares B are not listed. �� The financial rights attaching to a Common Share B are one-fortieth (1/40th) of the financial rights attaching to a Common Share. �� A repayment on common shares B needs approval of the holders of common shares B.
Actions necessary to change the rights of shareholders A change to the rights of shareholders would require an amendment to the Articles of Association. The General Meeting of
Shareholders (annual General Meeting or extraordinary General Meeting) may only pass a resolution to amend the Articles of
Conditions under which meetings are held Annual General Meetings and extraordinary General Meetings of Shareholders shall be convened by public notice. Notice must be given no later than forty-two days prior to the date of the meeting. The notice must contain a summary agenda and indicate the place where the complete agenda together with the documents pertaining to the agenda may be obtained. The agenda is also sent to shareholders registered with the Company Register. New York Registry shareholders or their brokers receive a proxy solicitation notice.
Dutch law determines that the record date is twenty-eight days prior to the General Meeting of Shareholders. Shareholders must notify
Material differences between Dutch law and US law with respect to the items above Reference is made to the paragraph “Differences in company law practices for domestic companies” included in the Corporate
Aegon’s common shares may be officially transferred from the Netherlands and converted into any other convertible currency.
Taxation I Certain Netherlands tax consequences for holders of shares The following section outlines certain material Netherlands tax consequences of the acquisition, holding, redemption and disposal of
This section does not address the Netherlands tax consequences for: i. Investment institutions (fiscale beleggingsinstellingen); ii. pension funds, exempt investment institutions (vrijgestelde beleggingsinstellingen) or other entities that are exempt from
Where this section refers to the Netherlands, such reference is restricted to the part of the Kingdom of the Netherlands that is situated in Europe and the legislation applicable in that part of the Kingdom.
Dividend tax Withholding requirement Aegon is required to withhold 15% Netherlands dividend tax in respect of dividends paid on its common shares. In the Netherlands
Netherlands dividend tax purposes; and iv. partial repayments of paid-in capital recognised for Netherlands dividend tax purposes, if and to the extent there are qualifying profits (zuivere winst), unless Aegon’s general meeting of the shareholders has resolved in advance to make such repayment and provided that the nominal value of Aegon common shares concerned has been reduced by an equal amount by way of an amendment of the articles of association.
Netherlands dividend tax may be available to entities resident in other countries, under the additional condition that (i) the Aegon common shares are considered portfolio investments and (ii) the Netherlands can exchange information with this other country in line with the international standards for the exchange of information.
US-residents Residents of the United States that qualify for, and comply with the procedures for claiming benefits under, the Convention between the Kingdom of the Netherlands and the United States of America for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income 1992 (the US/NL Income Tax Treaty) may, under various specified conditions, be eligible for a reduction of Netherlands dividend withholding tax rate from 15% to 5% if the resident of the United States is a company which holds directly at least 10% voting power in Aegon. The US/NL Income Tax Treaty provides, subject to certain conditions, for a complete exemption from, or refund of, Netherlands dividend withholding tax for dividends received by exempt pension trusts and exempt organizations, as defined therein.
If an individual is a resident or deemed to be a resident of the Netherlands for Netherlands individual income tax purposes (including an individual who has opted to be taxed as a resident of the Netherlands), income derived from Aegon common shares and gains realised upon the redemption or disposal of Aegon common shares are taxable at the progressive rates (at up to a maximum rate of 52%) under the Netherlands income tax act 2001 (Wet inkomstenbelasting 2001) if: i. the individual is an entrepreneur (ondernemer) and has an enterprise to which Aegon common shares are attributable or the individual has, other than as a shareholder, a co-entitlement to the net worth of an enterprise (medegerechtigde), to which enterprise Aegon common shares are attributable; or ii. such income or gains qualify as income from miscellaneous activities (resultaat uit overige werkzaamheden), which include but are not limited to the performance of activities with respect to Aegon common shares that exceed regular, active portfolio management
Aegon common shares, except if: i. the person is not an individual and (1) has an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands to which permanent establishment or a permanent representative Aegon common shares are attributable, or (2) is (other than by way of securities) entitled to a share in the profits of an enterprise or a co-entitlement to the net worth of an enterprise, which is effectively managed in the Netherlands and to which enterprise
Aegon common shares are attributable. This income and these gains are subject to Netherlands corporate income tax at up to a maximum rate of 25%.
II Taxation in the United States This section describes certain US Federal income tax consequences to beneficial holders of common shares that are held as capital assets. This section does not address all US Federal income tax matters that may be relevant to a particular holder. Each investor should consult their tax advisor with respect to the tax consequences of an investment in the common shares. This section does not address tax considerations for holders of common shares subject to special tax rules including, without limitation, the following: �� Financial institutions; �� Insurance companies; �� Dealers or traders in securities or currencies; �� Tax-exempt entities; �� Regulated investment companies; �� Persons that will hold the common shares as part of a “hedging” or “conversion” transaction or as a position in a “straddle” or as part of a “synthetic security” or other integrated transaction for US Federal income tax purposes; �� Holders that own (or are deemed to own for US Federal income tax purposes) 10% or more of the voting shares of Aegon; �� Partnerships or pass-through entities or persons who hold common shares through partnerships or other pass-through entities; and �� Holders that have a “functional currency” other than the US dollar.
For the purposes of this section, a “US holder” is a beneficial owner of common shares that is, for US Federal income tax purposes: �� a citizen or individual resident of the United States; �� a corporation created or organized in or under the laws of the United States or any state of the United States (including the District of Columbia); �� an estate, the income of which is subject to US Federal income taxation regardless of its source; or �� a trust, if a court within the United States is able to exercise primary supervision over its administration and one or more US persons have the authority to control all of the substantial decisions of such trust.
dollars. If the foreign currency is converted into US dollars on the date of receipt, a US holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend. If the foreign currency received in the distribution is not converted into US dollars on the date of receipt, a US holder will have a basis in the foreign currency equal to its US dollar value on the date of receipt. Any gain or loss on a subsequent conversion or other disposition of the foreign currency will be treated as ordinary income or loss.
Dividends received by a US holder with respect to common shares will be treated as foreign source income for foreign tax credit limitation purposes. Subject to certain conditions and limitations, any Dutch income tax withheld on dividends may be deducted from taxable income or credited against a US holder’s Federal income tax liability. The limitation on foreign taxes eligible for the US foreign tax credit is calculated separately with respect to “passive category income” and “general category income”. Dividends distributed by
Passive foreign investment company considerations Based on the nature of Aegon’s gross income, the average value of Aegon’s gross assets, and the active conduct of Aegon’s insurance business, Aegon does not believe that it could be classified as a Passive Foreign Investment Company (“PFIC”). If Aegon were treated as a PFIC in any year during which a US holder owns common shares, certain adverse tax consequences could apply. Investors should consult their tax advisors with respect to any PFIC considerations.
Backup withholding and information reporting Backup withholding and information reporting requirements may apply to certain payments on the common shares and to proceeds of a sale or redemption of the common shares to US holders made within the United States. Aegon, its agent, a broker, or any paying agent, as the case may be, may be required to withhold tax from any payment that is subject to backup withholding if a US holder fails to furnish the US holder’s taxpayer identification number, fails to certify that such US holder is not subject to backup withholding, or fails to otherwise comply with the applicable requirements of the backup withholding rules. Certain US holders are not subject to the backup withholding and information reporting requirements.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a US holder or a non-US holder generally may be claimed as a credit against such holder’s US Federal income tax liability provided that the required information is furnished to the US Internal Revenue Service. Investors should consult their tax advisors as to their qualification for exemption from backup withholding and the procedure for obtaining an exemption. Non-US holders should consult their tax advisors concerning the applicability of the information reporting and backup withholding rules.
Audit Committee Pre-approval Policies and procedures Aegon’s Audit Committee is responsible, among other matters, for the oversight of the external auditor. The Audit Committee has adopted a policy regarding pre-approval of audit and permissible non-audit services provided by Aegon’s independent auditors (the
For the period 2011 to 2013, all services provided to Aegon by Ernst & Young Accountants were pre-approved by the Audit Committee in accordance with the Pre-approval Policy.
The reports of Ernst & Young Accountants LLP on the Company’s financial statements for the past two fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the Company’s financial statements for each of the two fiscal years ended, there were no disagreements with Ernst & Young Accountants LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope and procedures which, if not resolved to the satisfaction of Ernst & Young Accountants LLP would have caused Ernst & Young Accountants LLP to make reference to the matter in their report.
Maximum number of shares that may yet be purchased under the plans or programs at end of month2)
1 The shares have been purchased as part of a share purchase program, to neutralize the dilution effect of issued stock dividends and agent related incentive programs. Excluding Aegon shares purchased by index funds controlled by Aegon. Such purchases are made to the extent necessary to maintain a basket of securities within the relevant fund reflecting the underlying index.
Individual savings and retirement products 120 129 134 123 507 125 116 105 144 490
Share in underlying earnings before tax of associates 6 9 6 3 24 14 8 7 5 34
Gross deposits (on and off balance sheet) 10,004 12,670 11,024 10,632 44,330 11,043 9,757 9,426 9,246 39,472
Net deposits (on and off balance sheet) 591 2,912 2,933 1,876 8,312 1,079 811 1,325 390 3,605
New premium production general insurance 14 14 16 18 61 14 13 12 16 55
Alt-A mortgages relates to a type of US residential mortgage which are securitized home equity loans. Typical Alt-A borrower has a credit score high enough to obtain an: ”A” standing. Alt- A
(directly or through the use of an allowance account) for impairment or uncollectability.
Asset Backed Securities (ABS) are securities whose value and income payments are derived from and collateralized (or
Assets held by long-term employee benefit funds are part of plan assets. These are assets (other than non-transferable financial instruments issued by the reporting entity) that: �� Are held by an entity that is legally separate from the reporting entity and exists solely to pay or fund employee benefits; and �� Are available to be used only to pay or fund employee benefits and are not available to the reporting entity’s own creditors.
Cash generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Liability adequacy testing is an assessment of whether the carrying amount of an insurance liability needs to be increased (or the carrying amount of related deferred policy acquisition costs or related intangible assets decreased) based on a review of future cash flows.
Realizable value is the amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly disposal.
Security lending involves a loan of a security from one party to another.
Settlement date is the date that a financial asset is delivered to the entity that purchased it.
Value of Business Acquired (VOBA) the difference between the fair value and the carrying amount of the insurance liabilities recognized when a portfolio of insurance contracts is acquired
Aegon believes that its non-IFRS measures, together with the IFRS information, provide meaningful information about the underlying operating results of Aegon’s business including insight into the financial measures that senior management uses in managing the business.
�� Regulatory changes relating to the insurance industry in the jurisdictions in which Aegon operates. �� Changes in customer behavior and public opinion in general related to, among other things, the type of products also Aegon sells, including legal, regulatory or commercial necessity to meet changing customer expectations.
�� Acts of God, acts of terrorism, acts of war and pandemics. �� Changes in the policies of central banks and/or governments.
is required to maintain. �� Litigation or regulatory action that could require Aegon to pay significant damages or change the way Aegon does business. �� As Aegon’s operations support complex transactions and are highly dependent on the proper functioning of information technology, a computer system failure or security breach may disrupt Aegon’s business, damage its reputation and adversely affect its results of operations, financial condition and cash flows.