December 31, 2016. It presents the consolidated financial statements of Aegon pages 133-302 and the stand-alone financial statements of Aegon N.V. pages 304-318, both prepared in accordance with the International Financial Reporting
Commission. Aegon uses ‘EUR’ and ‘euro’ when referring to the lawful currency of the member states of the European
‘UK pound’ and ‘pound sterling’ when referring to the lawful currency of the United Kingdom; ‘CAD’ and ‘Canadian dollar’
The environment in which we operate is changing fast, and over the course of the year we continued to demonstrate how we are adapting to the new landscape. In the UK, we divested our annuity book and acquired Cofunds and BlackRock’s defined contribution recordkeeping business. This successfully completed the transformation of our UK business from a largely traditional pension business into a market-leading, cost efficient and scalable platform business, with over 3 million customers and approximately 100 billion pounds of assets under administration.
By transforming Aegon’s US operations from distinct business lines into one, functionally-organized business, we identified potential for cost savings. These savings constituted the bulk of the group’s original 2018 expense savings target of
EUR 200 million, announced in January 2016. Meeting these expense reductions was a key priority for our business throughout the year as we continued to focus on becoming more efficient, more profitable, raising our returns, investing in new digital solutions, and deploying our capital in the best way for our company and stakeholders. By accelerating the execution of our strategy, we were able to exceed our expense savings target for the year, achieving a total of EUR 110 million in run-rate savings. As a result, this enabled us to announce that our group 2018 run-rate expense savings target would rise to
Our communities Although this Annual Report focusses primarily on Aegon’s financial performance, we also choose to publish an integrated annual review. This outlines our company’s wider impact on all the communities on which we have an impact, and how Aegon creates and shares value for stakeholders by letting customers, investors, business partners, local communities and employees tell their story.
2016 was a year of significant change for our company, and it would have been impossible to continue to provide the very best service to our millions of customers around the world without their extraordinary professionalism, ingenuity and dedication.
I would also like to thank our many shareholders around the world. We value your continued interest, and are grateful for the trust you place in our company. Aegon achieved much over the last twelve months, and I am confident that by successfully executing our strategy we will continue to become a more efficient and customer-centric organization. By doing so we will be able to secure long-term, sustainable growth, and thereby meet our commitments to all our valued stakeholders.
since May 2016. Mr. Wynaendts has held no other external board memberships in the past five years.
Darryl Button (1969, Canadian) CFO and member of the Executive and Management Boards of Aegon N.V. (until December 1, 2016)‍1
Composition of the Management Board Alex Wynaendts: see above Darryl Button: see above
Mark Bloom (1964, American) Global Chief Technology Officer and member of the Management Board, Aegon N.V. Mark Bloom has over 30 years’ experience in information technology. He joined Aegon from Citi in February 2016, where he served as Global Head of Consumer Digital and Operations
Prior to that, he held a number of technology leadership positions in financial services and the aerospace industry. At Aegon, as
Global Chief Technology Officer, Mr. Bloom is responsible for leading the Company’s technology and innovation activities, including leadership of Aegon’s digital initiatives, leveraging technology to drive efficiency and focus on improving the customer experience. Mr. Bloom was appointed as a member of
Adrian Grace (1963, British) CEO of Aegon UK and member of the Management Board Aegon N.V. Adrian held various roles within GE capital, Sage Group Inc. and joined Barclays Bank in 2004 as Chief Executive of the Insurance
Business. In 2007 he joined HBOS after which he started with
and a member of the Group Executive Risk Committee, as well as the PUSL Board (within the Prudential plc group).
She was appointed Chief Risk Officer of Aegon N.V. and a member of Aegon’s Management Board in January 2016.
Ms. Van Hövell-Patrizi has held no other external board memberships in the past five years.
Marco Keim (1962, Dutch) CEO of Aegon the Netherlands and member of the Management Board Aegon N.V. Marco Keim began his career with accountancy firm Coopers &
Lybrand / Van Dien. He has also worked at aircraft manufacturer
Fokker Aircraft and NS Reizigers, part of the Dutch railway company,
NS Group. In 1999, he joined Swiss Life in the Netherlands as a member of the Board, and was appointed CEO three years later.
B.V. until June 2013, and is a member of the Supervisory Board of
Gábor Kepecs (1954, Hungarian) CEO of Aegon Central & Eastern Europe and member of the Management Board Aegon N.V. Gábor Kepecs began his career with the Hungarian government before joining former state-owned insurance company Állami
Állami Biztosító was privatized and acquired by Aegon. Mr. Kepecs was the CEO of Aegon Hungary from 1992 to 2009, during which time he headed the expansion of Aegon’s businesses in Hungary and across the wider Central & Eastern European region.
Onno van Klinken (1969, Dutch) General Counsel and member of the Management Board, Aegon N.V. Onno van Klinken has over 20 years’ experience providing legal advice to a range of companies and leading Executive Board offices. Mr. Van Klinken started his career at Allen & Overy, and previously worked for Aegon between 2002 and 2006. He then served as Corporate Secretary for Royal Numico, the Dutch baby food company, before it was acquired by Groupe Danone. His next position was as General Counsel for the Dutch global mail and express group TNT, where he served from 2008 until the legal demerger of the group in 2011. This was followed by General
Executive Board Office and Supervisor Relations. Mr. Van Klinken has been a member of Aegon’s Management Board since
Resources, Communications and Corporate Strategy. Following several years as a consultant – during which time she worked for
Spencer Stuart, among other companies – Ms. Mahieu was appointed Senior Vice President Corporate Human Resource
School of Finance and has been a member of the non-executive
Board of the Royal BAM Group since 2011. Ms. Mahieu has held no other external board memberships in the past five years.
Mark Mullin (1963, American) CEO of Aegon Americas and member of the Management Board Aegon N.V. Mark Mullin has spent more than 20 years with Aegon in various management positions in both the United States and Europe.
subsidiaries, Diversified Investment Advisors, and as head of the Company’s US annuity and mutual fund businesses. He was named President of Aegon Americas in 2009, and became
Sarah Russell (1962, Australian) CEO of Aegon Asset Management and member of the Management Committee Sarah Russell has 25 years’ experience in international finance and asset management. Ms. Russell began her career at Toronto
She moved to the Netherlands in 2000, where she held a number of various roles, leading to her appointment as CEO of ABN AMRO’s asset management operations. Ms. Russell joined Aegon Asset
In summary, it is Aegon’s ambition to be regarded as a trusted partner for financial solutions at every stage of life in all its markets. That means: being recognized by its customers, business partners, and society as a company that puts the interests of its customers first in all that it does; and being regarded as an employer of choice by employees, engaging and enabling them to succeed. In addition, the Company will strive to generate the returns, earnings, and dividends that fulfil shareholders’
Aegon’s strategic objectives Aegon believes that it will achieve its ambition of becoming a trusted partner for financial solutions at every stage of life if it realizes the following strategic objectives: �� Serving customers’ need for financial security throughout their lifetimes by providing digitally- enabled, omni-channel, accessible solutions and superior customer experience
Acquisitions & divestments Acquisitions can accelerate the implementation of Aegon’s strategy, provide it with access to new technologies and provide the scale needed in markets in which it is already active. Aegon is selective when determining which businesses it would like to acquire, generally targeting acquisitions that fit the Company's mission of securing the financial future of its customers, and that are aligned with its four strategic objectives. The Company uses several financial criteria for determining the attractiveness of acquisitions including: return on capital, internal rate of return, capital generation, and capital fungibility. Similar strategic and financial criteria are applied when considering the potential divestment of existing activities.
Aegon is an international life insurance, pensions and asset management group. Its listed holding company, Aegon N.V., is a public limited liability company with its corporate seat and head office in the Netherlands.
Aegon exists to help people achieve a lifetime of financial security. It uses a multi-brand, multichannel distribution approach to meet its customers’ needs, and fosters an entrepreneurial spirit within its businesses, encouraging the development of innovative products and services.
Aegon has the following operating segments: the Americas, which includes the United States, Mexico and Brazil; the Netherlands; the United Kingdom; Central & Eastern Europe; Spain & Portugal; Asia and Aegon Asset Management.
Selected consolidated income statement information In EUR million (except per share amount) 2016 2015 1) 2014 1) 2013 1) 2012 1)
1 Amounts have been restated to reflect the voluntary changes in accounting policies for deferred cost of reinsurance that was adopted by Aegon effective
Selected consolidated balance sheet information In million EUR (except per share amount) 2016 2015 1) 2014 1) 2013 1) 2012 1)
Borrowings including subordinated and trust pass-through securities 14,076 13,361 15,049 12,009 13,416 1 Amounts have been restated to reflect the voluntary changes in accounting policies for deferred cost of reinsurance that was adopted by Aegon effective
EUR 0.13 per common share. The interim dividend was paid in cash or stock at the election of the shareholder. The interim dividend was payable as of September 16, 2016. At the General
In addition, Aegon paid a 2013 interim dividend on the preferred shares of EUR 24 million, covering the period from January 1, 2013 until the cancellation of all preferred shares in May 2013.
Exchange rates Fluctuations in the exchange rate between the euro and the US dollar will affect the dollar equivalent of the euro price of Aegon’s common shares traded on Euronext Amsterdam and, as a result, are likely to impact the market price of Aegon’s common shares in the United States. Such fluctuations will also affect any US dollar amounts received by holders of common shares upon conversion of any cash dividends paid in euros on Aegon’s common shares.
The high and low exchange rates for the US dollar per euro for each of the last six months through February 2017 are set forth below: Closing rates Sept. 2016 Oct. 2016 Nov. 2016 Dec. 2016 Jan. 2017 Feb. 2017
1 The US dollar exchange rates are the noon buying rates in New York City for cable transfers in euros as certified for customs purposes by the Federal Reserve Bank of New York.
Retirement plans Comprehensive and customized retirement plan services to employers across the entire spectrum of defined benefit, defined contribution and non-qualified deferred compensation plans.
Variable annuities Variable annuities allow the holder to accumulate assets for retirement on a tax-deferred basis and to participate in equity or bond market performance, in addition to receiving one of many payout options designed to provide income in retirement.
Fixed annuities Fixed annuities allow customers to make a lump-sum payment or a series of payments and receive income in the form of periodic payments that can begin immediately or after a period of time.
Europe The Netherlands �� Life: Products with mortality, morbidity, and longevity risks, including traditional and universal life, in addition to employer, endowment, term, whole life insurance products; mortgages; annuity products; and banking products, including saving deposits.
United Kingdom �� Life: Individual protection products, such as annuities, term insurance, critical illness, income protection and international/
offshore bonds. �� Pensions: Individual pensions, including self-invested personal pensions and drawdown products, such as guaranteed income drawdown products; group pensions, sponsored by, or obtained via, an employer. Also includes the tied-agent distribution business.
Spain & Portugal Distribution partnerships with Santander in Spain & Portugal and with Liberbank in Spain. This business line includes life insurance, accident and health insurance, general insurance and investment products.
Aegon Insights Full range of direct insurance solutions from product design, customer analytics insights, marketing campaign design and multi-channel product distribution to policy administration and claims management.
Strategic partnerships Joint ventures in China and India offering (term) life insurance and savings products, and in Japan offering variable annuities.
The Netherlands Investment products covering third-party customers, insurancelinked solutions, and Aegon’s own insurance companies in addition to manager selection and tailored advice on balance sheet solutions for the pension market.
United Kingdom Fixed income, equities, real estate and multi-asset solutions to Aegon’s own insurance companies as well as external UK
�� In France, Aegon Asset Management has a strategic asset management partnership with La Banque Postale, through a 25% equity stake in La Banque Postale Asset Management.
Results of operations This Annual Report includes the non-IFRS-EU financial measure: underlying earnings before tax. The reconciliation of this measure to the most comparable IFRS-EU measure is presented in the table below in addition to note 5 Segment information of the consolidated financial statements. This non-IFRS-EU measure is calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s joint ventures in the Netherlands,
Results 2016 worldwide Underlying earnings geographically Amounts in EUR millions 2016 2015 %
Run-off businesses 54 88 (39%) Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 836 (601) -
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 31 33 (6%)
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (31) (33) 6%
Gross deposits (on and off balance) Amounts in EUR millions 2016 2015 %
Underlying earnings before tax by line of business Amounts in EUR millions 2016 2015 %
Underlying earnings before tax Aegon’s underlying earnings before tax increased compared with 2015 to EUR 1,913 million in 2016. This was mainly driven by lower amortization of deferred policy acquisition costs (DPAC)
Worth business. This was partly offset by lower underlying earnings before tax from Strategic partnerships compared with 2015 mainly a result of the increase in ownership from 26% to 49% in India, which is currently loss-making.
EUR 149 million. This decline was mainly driven by lower underlying earnings before tax from Aegon’s Chinese asset management joint venture AIFMC due to the normalization of performance fees.
�� Total holding costs remained stable compared with 2015 at EUR 162 million in 2016.
Included in the loss on hedging programs in the United States is the loss on fair value hedges without accounting match in the Americas (EUR 322 million). This was mainly driven by the loss on equity hedges, which were set up to protect Aegon’s capital position. Underperformance of fair value investments of
Realized gains on investments Realized gains on investments amounted to EUR 340 million in 2016 and were primarily related to a rebalancing of the investment portfolio in the United Kingdom and gains resulting from asset-liability management adjustments in the Netherlands.
Income tax Income tax amounted to EUR 250 million in 2016, and included one-time tax benefits in the United States and the United Kingdom.
The effective tax rate on underlying earnings before tax and total income for 2016 was 22% and 30%, respectively.
Commissions and expenses Commissions and expenses decreased by 3% in 2016 compared with 2015 to EUR 6.7 billion, mainly driven by lower amortization of deferred policy acquisition costs in the United Kingdom.
Production In 2016, compared with 2015, gross deposits were up 21%
On December 31, 2016, Aegon’s estimated Solvency II ratio amounted to 157%. The RBC ratio in the United States decreased from 460% at year-end 2015 to ~440% on December 31, 2016 which primarily reflects dividends upstreamed to the holding.
Aegon’s estimates, are not final until filed with the regulator and subject to supervisory review. Solvency II capital ratios are still subject to final interpretations of Solvency II regulations including the assumptions underlying Aegon’s factor for the loss absorbing capacity of deferred taxes in the Netherlands of 75%.
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (33) (10) -
Results 2015 worldwide Aegon’s net loss in 2015 amounted to EUR 523 million. Underlying earnings before tax declined compared with 2014 to EUR 1,867 million in 2015, primarily impacted by lower underlying earnings before tax in the United Kingdom from the write down of deferred policy acquisition costs related to the restructuring of the organization. Results in 2015 were impacted by a loss of EUR 771 million on fair value items, which was driven by accounting losses on hedging programs. Realized gains of EUR 346 million in 2015 mainly related to normal trading in the investment portfolio. Other charges amounted to EUR 2,180 million in 2015, mainly driven by the write down of deferred policy acquisition costs in the United Kingdom related to the restructuring of the organization, and the loss on the divestment of the Canadian life insurance activities.
The impact of the stronger US dollar offset adverse claims experience and the impact on recurring underlying earnings before tax of the actuarial assumption changes and model updates implemented in the third quarters of 2014 and 2015. �� In Europe, underlying earnings before tax declined compared with 2014 to EUR 559 million in 2015, as a result of the write down of deferred policy acquisition costs in the United Kingdom related to upgrading customers to the retirement platform.
�� Underlying earnings before tax from Asia increased compared with 2014 to EUR 20 million in 2015 as one-time charges in 2014 did not recur.
�� Asset Management underlying earnings before tax were up 48% compared with 2014 to EUR 170 million in 2015, driven by the positive impact of higher performance fees and third-party assets under management.
EUR 771 million in 2015, and were mainly driven by fair value losses in the United States in 2015. EUR 691 million fair value losses in the United States were driven by the loss on hedging programs and the underperformance of alternative investments.
Impairment charges Net recoveries totaled to EUR 49 million in 2015. In the United
States, gross impairments were more than offset by recoveries mostly related to investments in previously impaired subprime residential mortgage-backed securities.
These were mostly caused by the write down of deferred policy acquisition costs in the United Kingdom related to the restructuring of the organization (EUR 1,274 million), the loss on the divestment of the Canadian life insurance activities (EUR 751 million) and the negative impact of assumption changes and model updates (EUR 131 million).
Income tax Income tax amounted to EUR 78 million benefit in 2015.
Adverse currency movements and higher defined benefit expenses in the Netherlands compared with 2014 more than offset lower project and transformation costs in the UK and the positive impact of the divestment of the Canadian life insurance activities.
Capital management During 2015, shareholders’ equity decreased by EUR 1.5 billion to EUR 22.7 billion, as favorable currency exchange rates were more than offset by the book loss on the sale of the Canadian life insurance activities and higher interest rates, which resulted in lower revaluation reserves. During the year, the revaluation reserves decreased by EUR 1.8 billion to EUR 6.5 billion. Aegon’s shareholders’ equity, excluding revaluation reserves and defined benefit plan remeasurements, amounted to EUR 17.8 billion on
December 31, 2015, or 8.38 per common share. The gross leverage ratio improved to 28.4% on December 31, 2015, compared with the end of 2014, which was mostly as a result of earnings generated during the year. The negative impact on the gross leverage ratio of the book loss on the sale of the
EUR 1.2 billion at the end of 2014 to EUR 1.4 billion on
December 31, 2015, as dividends from business units and proceeds from divestments were partly offset by the impact of cash used for deleveraging, dividends to shareholders, interest payments and operating expenses.
On March 3, 2015, Aegon completed the sale of its 35% share in
Furthermore, on July 31, 2015, Aegon completed the sale of its Canadian operations to Wilton Re for CAD 600 million
(EUR 428 million). The capital in excess of the S&P AA threshold in the United States decreased from USD 1.1 billion at the end of 2014 to USD 0.2 billion on December 31, 2015, as dividends paid to the holding were offset by earnings, while the RBC ratio in the
The Pillar I ratio in the United Kingdom, including the with-profit fund, increased from 140% at the end of 2014 to ~165% at the end of 2015 due to earnings and changes to longevity assumptions in the fourth quarter.
The placement enabled Aegon to further diversify its funding sources and to attract new external long-term funding. The net proceeds were used to refinance part of the existing Dutch mortgage portfolio of Aegon.
Results 2016 Americas Amounts in USD millions Amounts in EUR millions
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 706 (268) - 638 (241) -
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (3) (5) 32% (3) (5) 32%
New premium production accident and health insurance 895 1,003 (11%) 808 904 (11%)
Gross deposits (on and off balance) 2016 2015 % 2016 2015 %
Net income The net income amounted to USD 618 million in 2016, as underlying earnings before tax were partly offset by losses from fair value items. Underlying earnings before tax in 2016 were stable compared with 2015 at USD 1.4 billion. Results on fair value items amounted to a loss of USD 577 million in 2016, which was primarily related to underperformance of hedge fund investments and the impact on hedging programs as a result of higher equity markets. Income before tax from run-off businesses in 2016 amounted to USD 60 million, while realized losses on investments in 2016 amounted to USD 14 million.
USD 111 million in 2016 mainly related to the net impact of assumption changes and model updates. These charges were mainly driven by the assumption changes and model updates in the US from long-term care, primarily resulting from experience updates for morbidity, termination rates and utilization assumptions. For the other business lines, assumption and model changes largely offset each other.
USD 174 million in 2016 compared with USD 207 million in 2015. Expense savings were more than offset by unfavorable mortality, the impact of lower interest rates compared with 2015 and the impact on recurring underlying earnings before tax of the actuarial assumption changes and model updates implemented in the third quarter of 2015.
USD 218 million in 2016 compared with USD 165 million in 2015, as an improvement in long-term care morbidity experience and expense savings more than offset the negative impact on underlying earnings before tax of product exits. �� Underlying earnings before tax from Mutual Funds were stable in 2016 compared with 2015 at USD 50 million. �� Retirement Plans underlying earnings before tax were up to
USD 503 million in 2015 as a result of lower underlying earnings before tax from the declining closed block, lower margins on new business and adverse claims experience. �� Fixed Annuity underlying earnings before tax increased by 31% in 2016 compared with 2015 to USD 172 million, as an increase in the result from adjustments to intangible assets more than offset the continued balance reduction. �� Underlying earnings before tax from Stable Value Solutions amounted to USD 96 million in 2016 compared with
Commissions and expenses Commissions and expenses increased by 1% compared with 2015 in 2016 to USD 4.5 billion. Operating expenses decreased by 1%
USD 45.3 billion. Higher gross deposits in Retirement Plans more than offset a decline in variable annuity deposits compared with 2015. Increased retirement plan gross deposits were mostly driven by the acquisition of the defined contribution business acquired from Mercer. Variable annuity gross deposits were down by 44% in 2016 compared with 2015 to USD 4.4 billion, mainly driven by product adjustments implemented last year in response to the low interest rate environment and lower market demand as a result of the upcoming implementation of the Department of
New life sales declined by 10% in 2016 to USD 600 million compared with 2015, as a result of lower universal life and term life sales. Lower universal life sales resulted from a decline in the recruitment of new agents. Sales of term life products declined as Aegon did not lower its pricing in line with a number of its competitors. New premium production for accident & health insurance was down 11% to USD 0.9 billion in 2016 compared with 2015, mainly resulting from a lower contribution from portfolio acquisitions and several product exits.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 5 4 39% 5 3 66%
Net income The net loss amounted to USD 261 million in 2015, primarily as the result of the book loss on the divestment of Aegon’s
compared with 2014 to USD 1.4 billion. This was mainly driven by adverse claims experience and the impact on recurring underlying earnings before tax of the actuarial assumption changes and model updates implemented in the third quarters of
USD 207 million in 2015 compared with USD 347 million in 2014. This is due to unfavorable mortality, the impact of lower interest rates and the impact on recurring underlying earnings before tax of the actuarial assumption changes and model updates implemented in the third quarters of
�� Retirement Plans underlying earnings before tax were down 4% to USD 261 million in 2015 compared with 2014, primarily driven by lower general account pension liabilities and margin pressure arising from the competitive environment on fees.
�� Underlying earnings before tax from Stable Value Solutions amounted to USD 101 million in 2015 compared with
in 2015 to USD 27.8 billion compared with 2014 due to higher recurring deposits. Variable annuity gross deposits were down by 23% in 2015 to USD 7.9 billion compared with 2014, mainly driven by product adjustments implemented in the first quarter of 2015 in response to the low interest rate environment.
1 Source: A.M. Best’s Rating Report dated June 24, 2016 Webpage visited November 21, 2016.
Aegon in the US Transamerica is one of the leading1 life insurance organizations in the United States, and the largest of Aegon’s operating units worldwide. Its businesses in the US serve customers in all fifty states and employs approximately 11,000 people. Most Aegon companies in the United States operate under the Transamerica brand. Its companies have existed since the mid-19th century, and its main offices are in Cedar Rapids, Iowa, and Baltimore,
Through its subsidiaries and affiliated companies, Aegon provides a wide range of life insurance, supplemental health insurance, retirement plans, long-term savings and investment products.
Seguradora de Vida e Previdência, a new life insurance and pensions company dedicated to providing life insurance and pension products to the Sicoob system on August 12, 2016.
Sicoob is the largest cooperative financial system in the country, with over 3.2 million associates and 2,340 points of service.
Bancoob is a private commercial bank owned by the credit cooperative entities affiliated with the Sicoob system. This agreement represents a key expansion of distribution for
Organizational structure Aegon USA Aegon USA was founded in 1989, when Aegon brought all of its operating companies in the United States together under a single financial services holding company: Aegon USA, LLC. As of
In 2016, Aegon USA made the strategic decision to bring all of its businesses together, restructuring into a functionally organized firm aimed at better meeting customers’ needs and creating a consistent, positive experience for customers, business partners and employees. The new simplified structure is designed to provide relevant customer solutions that are easy to understand, and that address the full range of customers’ financial protection and savings needs at every stage of life. The further aim is to better leverage Transamerica’s brand strength, expertise and capabilities in order to fulfill Aegon’s purpose of helping people achieve a lifetime of financial security.
Overview of sales and distribution channels Aegon USA’s product lines are now organized by distribution channel in order to ensure that they are aligned with customers’
needs. Each channel has primary target market segments on which it is focused. The distribution channels fall into four main categories: brokerage, partner, institutional/worksite, and wholesale.
(universal life, whole life and term life), supplemental health products (critical illness, cancer, hospital indemnity, supplemental medical expense, short-term disability, vision, and dental policies), accident products, and Stable Value Solutions in this channel.
The channel focuses on the sale of products to consumers through the employer segment, also known as the worksite.
1 A small amount of variable universal life insurance is sold in the Brokerage channel by registered advisors through a broker dealer.
On December 7, 2016, Aegon announced its intention to exit the Affinity, Direct TV and Direct Mail channels, which were part of the Accident & health line of business in the United States.
Term life insurance Term life insurance provides protection for a stated period of time. Benefits are paid to policy beneficiaries in the event of the death of the insured during a specified period.
Universal life insurance Universal life insurance is flexible permanent life insurance that offers death benefit protection together with the potential for cash value accumulation. The frequency and amount of premiums, in addition to the death benefit, can be adjusted by a policyholder when a policyholder's circumstances change.
In determining the monthly deductions, Aegon USA takes a wide number of factors into account, including but not limited to: interest rates, mortality, taxes and expenses associated with the policy. Any changes in the monthly deductions reflect
Aegon USA’s current expectations with respect to future policy performance. At any time, the policy owner is able to see the maximum rate that can be charged. A version of this product has ‘secondary guarantees', which guarantee continuation of the life insurance if the customer consistently pays an agreed minimum amount of premium each year.
includes ‘sub-accounts,’ which function like mutual funds and can provide exposure to stocks and bonds. This exposure offers the possibility of an increased (or decreased) rate of return over a universal life or permanent insurance policy.
‘manager of managers’ mutual fund platform. Sub-advisors can include both those affiliated and not affiliated with Aegon USA.
Variable annuities Variable annuities allow the holder to accumulate assets for retirement on a tax-deferred basis and to participate in equity or bond market performance. The standalone variable annuity is often referred to in the market as an investment-only variable annuity (IOVA). Additional guarantees, also referred to as riders, can be added to variable annuities, including guaranteed minimum death benefits (GMDBs) and guaranteed living benefits
(GLBs). GMDBs provide a guaranteed benefit in the event of death. GLBs are intended to provide a measure of protection against market risk while the annuitant is alive. Different forms of GLBs are offered, such as guaranteeing an income stream for life and/or guaranteeing principal protection.
Aegon USA actively offers a fixed-indexed annuity that may credit interest based, in part, on the percentage change in the value of the selected index account option(s) at the start and end of the crediting period. A fixed account option is also available.
Retirement plans Comprehensive and customized retirement plan services are offered to employers across the entire spectrum of defined benefit, defined contribution and non-qualified deferred compensation plans. Services are also offered to individuals rolling over funds from other qualified retirement funds or
Retirement plan services, including administration, recordkeeping and related services are offered to employers of all sizes and to plans across all market segments. Aegon USA also partners with plan advisors and third-party administrators to serve their customers. On December 31, 2015, Aegon USA closed the acquisition of Mercer's US defined contribution administration business. As a result of the acquisition, Transamerica Retirement
Solutions is now a top ten defined contribution record-keeper in the United States based on plan participants and assets1.
For individual plan participants in transition due to a job loss or change or planned retirement, services are offered through the
plans and other retirement plans. A synthetic GIC ‘wrapper’ is offered around fixed-income invested assets, which are owned by the plan and managed by the plan or a third-party money manager hired by the plan. A synthetic GIC is typically issued with an evergreen maturity and may be terminated under certain conditions. Such a contract helps to reduce fluctuations in the value of the wrapped assets for plan participants, and provides book value benefit-responsiveness.
Latin America Aegon’s businesses in Latin America comprise of a 50% interest in Mongeral Aegon Seguros e Previdência S.A., a Brazilian independent life insurer; a 50% interest in Akaan-Aegon S.A.P.I.
pension product distribution, individual and group life insurance products, mutual fund management, and administrative services.
Run-off businesses Institutional spread-based business This business was put into run-off in 2009. The primary products included Guaranteed Investment Contracts (GICs), funding agreements, and medium-term notes (MTNs). GICs were generally issued to tax qualified plans, while funding agreements and
Bank- and corporate-owned life insurance Aegon USA services life insurance products sold to the bankand corporate-owned life insurance (BOLI/COLI) market in the
United States. BOLI/COLI helps bank and corporate customers fund long-term employee benefits such as executive compensation and post-retirement medical plans. The bank or corporation insures key employees, and is the owner and beneficiary of the policies. New sales of BOLI/COLI were discontinued in 2010.
Life reinsurance In August 2011, Aegon completed the effective divestment of its life reinsurance business with the exception of select blocks of business. The retained businesses comprise primarily variable annuity guarantee business.
Hancock. Genworth is a primary competitor for sales of individual long-term care insurance through the brokerage channel.
Competitors for supplemental health include a wide range of companies and company types based on the nature of the coverage including Aflac, Allstate, MetLife, and Unum.
Aegon USA's primary competitors in the variable annuity market are AIG, Jackson National, Lincoln National, MetLife, Nationwide and Prudential Financial.
State regulators have the authority to impose a variety of punitive measures, including revoking licenses, for failure to comply with applicable regulations. All state insurance regulators are members of the National Association of Insurance
Guideline 49 added new rules for illustrations of index universal life insurance, with changes to the maximum illustration rate effective as of September 1, 2015, and other sections effective as of March 1, 2016.
Emerging state issues that may impact Aegon USA include consideration of changes to accounting and actuarial requirements for variable annuities (VA), which may reduce insurers’ needs and abilities to use variable annuity captives.
Although the proposals related to VA captive reinsurance arrangements are still being formulated, their possible impact of the current proposals on Aegon USA’s operations is not expected to be material.
The FIO is authorized to review the insurance market in the US
and make recommendations to Congress, and the OFR conducts research in financial services, including insurance, in support of such oversight. In addition, the FIO is authorized to establish US
PPACA, driving an expectation of continued federal regulation of certain health insurance products, it is also expected that sweeping changes will be proposed or, possibly, a partial or full repeal of PPACA based on the stated policy positions of the
Solvency II As of January 1, 2016, under the new Solvency II requirements, the activities of Aegon Americas have been consolidated into the Aegon Group Solvency II results through deduction and aggregation using available and required capital as per the local capital regimes. The US regulatory regimes have been granted provisional equivalence. The US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements. Aegon uses 250%
equivalent. The non-regulated US entities and the US holding companies are included in Aegon’s group Solvency II results through application of the Accounting Consolidation method under Solvency II, using Solvency II valuation and capital requirement calculations for these local balance sheets.
(mutual funds) offered by Aegon USA are subject to regulation under the federal securities laws administered by the SEC and aspects of states’ securities laws. Certain separate accounts of
In accordance with Dodd-Frank Act requirements, in January 2011 the SEC studied and recommended a harmonized standard of care for broker-dealers, investment advisors and persons associated with firms that provide personalized investment advice. Broker-dealers are currently subject to requirements to make suitable recommendations, while investment advisors are regulated as fiduciaries, required to put customer interests above their own. The SEC intends to propose regulations imposing a harmonized standard of care, and has announced that the proposed regulations will be published in the spring of 2017.
‘institutional’ and ‘retail’ funds and by requiring institutional funds to price and transact their shares at a market value floating net asset value per share (NAV) and requiring retail funds to verify the non-institutional, ‘natural person’ status of investors in those funds. The new regulations also allow for funds to operate as ‘government’ money market funds, provided a fund invests at least 99.5% of its assets in US government securities, cash, and/or repurchase agreements that are fully collateralized by
US government securities or cash. The SEC has also provided institutional and retail money market fund boards with the discretion to stem heavy redemptions by, among other tools, imposing liquidity fees and gates, if determined to be in the fund's best interests. Government money market funds may, but are not required to, impose liquidity fees and gates.
The impact of these requirements and any future regulations regarding investment advisors or other investment products, including proposed liquidity management rules and rules designed to enhance the regulation of the use of derivatives by registered investment companies, is still under review and cannot be predicted at this time.
USA also provides plans used to administer benefits distributed on termination of defined benefit plans. These products and services are subject to the Employee Retirement Income Security
Act (ERISA) and the federal Internal Revenue Code of 1986, as amended (the ‘Code’) for which the US Department of Labor
(the ‘DOL Rule’) that significantly expands the scope of retirement investment advice and imposes a fiduciary standard on providers in many contexts. The DOL Rule impacts the delivery of products, such as variable annuities, and services to workforce retirement plans and participants in those plans and in IRAs, and is subject to interpretation and guidance from the DOL. Legislation is also being considered that would facilitate the use of multiple employer plans
Tax Treatment of Insurance Companies and their Products and Plans Although the insurance business is regulated at state level, the US federal tax treatment of life insurers, life insurance, pension and annuity products is governed by the US federal tax code. Provisions that increase the taxation of life insurers, as well as remove or decrease the value of tax incentives for life insurance, pensions and annuity products – considered alone and relative to other investment vehicles – have been proposed in prior Administrations’ federal budget and by the US Congress.
The key investment strategy for traditional general account insurance is asset liability management (ALM), whereby predominately high-quality investment assets are matched in an optimal way to the corresponding insurance liability. This strategy takes into account currency, yield and maturity characteristics.
Results from the economic framework and scenario testing are analyzed on an ongoing basis and portfolios are adjusted accordingly. Decisions are made based on minimizing the amount of interest rate risk capital, while maximizing expected returns.
Reinsurance ceded Reinsurance agreements within Aegon USA are designed to achieve multiple company objectives. Agreements are used to manage or diversify risk, limit volatility, improve the company’s capital position, limit maximum losses and enter into Strategic partnerships. The amount and type of reinsurance depend on the objective and availability of appropriate reinsurance in the market.
USA regularly monitors the creditworthiness of its reinsurers, and where appropriate, arranges additional protection through letters of credit, trust agreements and over collateralization. For certain agreements, funds are withheld for investment by Aegon USA
rather than relying on the reinsurer to meet investment expectations. Default exposure is further reduced by the use of multiple reinsurers within certain reinsurance agreements. Aegon
Managing life insurance exposure requires various types of agreements with third-party reinsurers. Aegon USA relies heavily on quota-share and excess-of-loss reinsurance arrangements.
This segment reporting is based on the businesses as presented in internal reports that are regularly reviewed by the Executive
For Europe, the underlying businesses are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details will be provided for these operating segments in this section. Management is of the opinion that presenting the information for the entire European area is beneficial to the users of the financial information as it aligns to how Aegon management is looking at the information following convergence in Europe from a regulatory standpoint (introduction of Solvency II
Underlying earnings before tax by product segment 537 (27) 37 12 559
Income / (loss) before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 658 209 9 28 904
The results of operations Europe for 2016 and 2015 that are based on the figures of the separate operating segments are further disclosed on the following pages.
Other income / (charges) (658) (1,205) 45% Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 288 (275) -
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 7 6 19%
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (7) (6) (19%)
Net income Net income amounted to EUR 127 million in 2016 compared with a loss of EUR 221 million in 2015. Drivers of the improvement were higher underlying earnings before tax, and lower losses from other charges. Other charges in 2015 included a write down of deferred policy acquisition costs in the United Kingdom.
EUR 33 million in 2016 as the impact of credit spreads movements, declining interest rates as a result of a mismatch on an IFRS basis between the valuation of interest rate hedges and liabilities more than offset positive real estate revaluations.
Realized gains of EUR 189 million in 2016 were the result of asset-liability management adjustments and normal trading activity in the investment portfolio. Impairments amounted to
Net income for the United Kingdom Net income from Aegon’s businesses in the United Kingdom amounted to a loss of EUR 456 million in 2016. The sale of the annuity portfolio which resulted in a loss of EUR 678 million recorded in other charges, was the main driver behind this loss.
Losses from fair value items of EUR 7 million were driven by losses on equity hedging programs which were only partly offset by fair value gains related to Aegon’s European variable annuities business. Positive components were realized gains which amounted to EUR 153 million in 2016 and were driven by rebalancing of the investment portfolio following the sale of the annuity portfolio, and underlying earnings before tax which amounted to EUR 59 million.
(CEE) amounted to EUR 19 million in 2016. Underlying earnings before tax of EUR 55 million were partly offset by other charges which amounted to EUR 23 million in 2016 as a result of additions to a legal claims provision. Impairment reversals amounted to EUR 1 million in 2016.
EUR 1 million and losses on investments of EUR 1 million.
�� Underlying earnings before tax from the Distribution business increased compared with 2015 to EUR 27 million in 2016.
Commissions and expenses for the Netherlands Commissions and expenses decreased compared with 2015 to
EUR 975 million in 2016. Operating expenses were down compared with 2015 to EUR 821 million in 2016 as the non-recurrence of one-time charges in 2015 and expense savings were partly offset by investments in new business initiatives,
Commissions and expenses for the United Kingdom Commissions and expenses decreased by 27% in 2016 to
EUR 667 million compared with 2015. Operating expenses decreased by 1% in 2016 to EUR 394 million compared with 2015, mainly due to favorable currency movements, partly offset by expenses related to the acquisitions of Cofunds and
EUR 299 million in 2016. The decline compared with 2015 was mainly the result of the absence of large pension buyouts in the Netherlands. New premium production for general and accident & health insurance increased compared with 2015 to EUR 129 million in 2016.
EUR 6.7 billion in 2016, mainly driven by the growth of Knab,
Aegon’s online bank. New life sales declined compared with 2015 to EUR 111 million in 2016, which was a result of the absence of large pension buyouts. Premium production for accident & health increased compared with 2015 to EUR 14 million in 2016, while general insurance production decreased compared with 2015 to
Turkey was more than offset by lower sales in Poland resulting from changes in the product offering. For general insurance business there were higher sales compared with 2015 amounting to EUR 43 million in 2016.
Production for Spain & Portugal New life sales in Spain & Portugal in 2016 remained stable compared with 2015 and amounted to EUR 39 million as increasing sales through the joint venture with Banco Santander were offset by declines in other channels. General insurance and accident & health insurance sales increased compared with 2015 to EUR 50 million in 2016, also as a result of higher sales from the joint ventures with Santander.
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (6) (2) -
of which operating expenses 1,442 1,401 3% 1 Underlying Earnings before tax in 2014 include EUR 19 million of Aegon’s stake in La Mondiale Participations (France).
Results 2015 Europe The net loss in 2015 was EUR 221 million, primarily due to a charge of EUR 1,274 million related to the write down of deferred policy acquisition costs in the United Kingdom related to the restructuring of the organization. Underlying earnings before tax decreased to EUR 559 million in 2015, mainly driven by the United Kingdom, compared with a profit of EUR 771 million in 2014. Gross deposits increased compared with 2014 to EUR 11.5 billion in 2015 primarily as a result of higher bank deposits in the Netherlands. New life sales declined compared with 2014 to EUR 332 million in 2015 mainly due to the absence of large pension buyouts in the Netherlands. New premium production for general and accident & health insurance increased compared with 2014 to EUR 112 million in 2015.
Net income The net loss in 2015 was EUR 221 million, primarily due to other charges of EUR 1,205 million mainly related to the write down of deferred policy acquisition costs in the United Kingdom related to the restructuring of the organization. Underlying earnings before tax decreased to EUR 559 million in 2015, mainly driven by the United Kingdom, compared with a profit of EUR 771 million in 2014. Results on fair value items improved compared with 2014 to a loss of EUR 18 million in 2015 driven mainly by positive revaluations on real estate and results of interest rate hedging in the Netherlands. Realized gains on investments amounted to EUR 411 million in 2015, and were mainly related to normal trading in the investment portfolio in the Netherlands.
Net income for the United Kingdom Net income in 2015 from Aegon’s business in the United Kingdom amounted to a loss of GBP 674 million in 2015. This loss was primarily driven by a charge of GBP 924 million related to the write down of deferred policy acquisition costs related to the restructuring of the organization. Underlying earnings before tax amounted to a loss of GBP 20 million in 2015. Realized gains on investments totaled GBP 75 million in 2015, and were mainly the result of selective de-risking of the asset portfolio to improve
Underlying earnings before tax for the Netherlands Underlying earnings before tax for the Netherlands in 2015 decreased by 4% compared with 2014 to EUR 537 million, as 2014 included an employee pension-related reserve release of EUR 45 million. On a comparable basis, underlying earnings before tax in 2015 increased by 5% compared with 2014, as lower funding costs, higher underlying earnings before tax from mortgages and a mortality provision release more than offset lower non-life results.
�� Underlying earnings before tax from Pensions amounted to a loss of GBP 78 million in 2015. This was mainly driven by the write down of deferred policy acquisition costs in the United Kingdom related to upgrading customers to the retirement platform.
Commissions and expenses for the Netherlands Commissions and expenses increased compared with 2014 to EUR 1,053 million in 2015. Operating expenses were up to
EUR 831 million in 2015 compared with 2014 due to a charge related to the non-life business, the release of the employee benefit reserve booked in 2014, and higher employee benefit expenses.
GBP 658 million compared with 2014. Operating expenses decreased by 25% in 2015 to GBP 289 million compared with 2014, mainly due to lower business transformation costs and the non-recurrence of a provision for the implementation of the pension fee cap.
The increase compared with 2014 was primarily driven by the growth of Knab, Aegon’s online bank and by the defined contribution pension business (PPI) in the Netherlands.
New life sales declined by 30% in 2015 to EUR 332 million.
The decline compared with 2014 was mainly the result of the absence of large pension buyouts in the Netherlands.
New life sales amounted to EUR 130 million in 2015, which was a result of the absence of large pension buyouts. Individual life sales remained stable compared with 2014 at EUR 32 million in 2015, while pension sales decreased compared with 2014 to
EUR 98 million in 2015. Premium production for accident & health was stable in 2015 compared with 2014 at EUR 9 million.
Production for Central & Eastern Europe In Central & Eastern Europe, new life sales in 2015 declined by 15% compared with 2014 to EUR 91 million in 2015.
Sales growth in Turkey was more than offset by lower sales in Poland resulting from changes in the product offering.
Production for Spain & Portugal New life sales in Spain & Portugal declined by 20% in 2015 compared with 2014 to EUR 39 million due to a lower sales contribution from bancassurance joint ventures in Spain. For accident & health and general insurance business there were higher sales in Spain & Portugal in 2015 compared with 2014 totaling EUR 19 million for general insurance and EUR 19 million for accident & health.
Overview of the Netherlands Aegon has operated in the Netherlands for more than 170 years, and is a leading provider of life insurance and pensions1, with approximately 4,500 employees. Aegon the Netherlands is headquartered in The Hague, and its other main offices are in Hoofddorp, Leeuwarden and Groningen. Aegon the Netherlands owns the Unirobe Meeùs Group, one of the largest intermediaries in the Netherlands2.
Aegon the Netherlands’ primary subsidiaries are: �� Aegon Bank N.V.; �� Aegon Levensverzekering N.V.; �� Aegon Schadeverzekering N.V.; �� Aegon Spaarkas N.V.; �� Optas Pensioenen N.V.; �� Aegon Hypotheken B.V.; �� TKP Pensioen B.V.; �� Unirobe Meeùs Groep B.V.; �� Aegon PPI B.V.; and �� CAPPITAL Premiepensioeninstelling B.V.
Overview of sales and distribution channels Like other Aegon companies, Aegon the Netherlands uses a variety of distribution channels to help customers access its products and services as suits their needs. In general, all business lines use the intermediary channel, which focuses on independent agents, brokers and retail sales organizations in the Netherlands.
Aegon the Netherlands is making significant investments in its direct online channel, including the proprietary brands Knab,
Kroodle and onna-onna. Aegon will nonetheless continue to distribute the largest part of its portfolio through intermediaries.
accumulation products written, except for universal life products, for which premiums are invested solely in equity funds.
In 1999, the guarantee for new products decreased to 3%; and in 2013, the guarantee on new products was reduced to 0%.
Various profit-sharing mechanisms exist. Bonuses are either paid in cash (usually for a pension, as described below) or used to increase the sum insured. A common form of profit sharing is to set bonus levels by reference to external indexes based on pre-defined portfolios of Dutch government bonds. The bonds included in the portfolios have different remaining maturities and interest rates. Together they are considered an approximation of the long-term rate of return on high-quality
At the end of the year in which the insured dies, the policy balance is distributed to surviving policyholders that belong to the same tontine series, rather than to the policyholder's estate.
At present, Aegon the Netherlands mostly offers ‘annuity mortgages'. Before 2013, Aegon the Netherlands also offered interest-only, unit-linked and savings mortgage loans, and is continuing to do so for existing mortgage loans that are being renegotiated. Mortgage loans are partly funded externally.
Aegon Bank N.V. aims to achieve its vision and ambition through two business units: Aegon Bank and Knab.
Aegon Bank focuses on the ‘income’ and ‘housing’ market, together with seeking to reinforce the Aegon Netherlands-wide pensions offering. Customers are increasingly having to make provision for their current and future income and wealth since the government changed the rules for pension provisions.
The bank offers simple and high quality products. These include both savings products focused on security, and investment products focused on a suitable risk/return profile that fits the customer’s need and risk appetite. Processes are designed in such a way as to provide the maximum benefit to customers, and customer service is based on the principles of easy access, speed, first time right, convenience, insight and understanding.
Aegon Bank’s focus is on customers whose income and wealth is in the middle-market, in line with Aegon the Netherlands’s target group. Products are distributed directly to our customers.
For more complex ‘advice’ products, independent financial advisers continue to be a very important distribution channel for
products’. ‘Banksparen’ is a tax-deferred savings product in which amounts are deposited in a ‘locked’ bank account. The amount saved is available after a certain period of time for specific purposes such as for a supplementary pension or paying off a mortgage.
The contract period for these types of contracts is typically five years and the tariffs, cost loadings and risk premiums are generally fixed over this period.
Aegon the Netherlands also offers products for small and medium-sized companies, both defined benefit and defined contribution products on a subscription basis. These products reduce complexity and enable Aegon to adapt the tariffs, cost loadings and risk premiums annually. Customers also have the opportunity on an annual basis to decide as to whether they wish to continue with their subscription. Larger group of customers are currently becoming more interested in these low cost and flexible solutions which results in a significant flow from separate account and other 5-year contracts to subscription products.
These subscription products include an all-in defined benefit product with guaranteed benefits. The expected profit for the customer and anticipated investment returns are taken into account in the pricing of the product. Customers may contribute funds for future pension increases to a separate account. Next to defined benefit subscriptions Aegon the Netherlands also offers defined contribution products on a subscription basis. Profit sharing is based on investment returns on specified funds. All positive and negative risks, such as investment risk and longevity risk, are attributed to the employees.
On December 22, 2015, legislation was passed that enables companies to set up an ‘Algemeen Pensioen Fonds’ (General
Aegon the Netherlands provides a full range of pension products and services. In addition, TKP Pensioen specializes in pension administration for company and industry pension funds, and also provides defined contribution plans to corporate and institutional clients. Aegon offers defined contribution plans for small and medium-sized companies, and CAPPITAL offers the same plans for large companies. On June 20, 2016, Aegon the Netherlands was the first company to receive approval from the Dutch Central
Sales and distribution Aegon the Netherlands offers its non-life insurance products primarily through direct and intermediary channels. In addition, sales and account management provides products for larger corporations in the Netherlands.
Unirobe Meeùs Group, through which it offers financial advice to customers, including the sale of insurance, pensions, mortgage loans, financing, and savings and investment products.
Aegon the Netherlands faces strong competition in all of its markets from insurers, banks, investment management companies and pension funds. Its main competitors are Achmea,
accounted for almost 90% of total premium income in 2015 in the insurance market. Aegon the Netherlands is one of the main companies in the overall pension market, and has been the market leader in the pension market for insurance companies for several years. Aegon the Netherlands is ranked sixth in the individual life insurance market. It is one of many insurers in the non-life market, where in 2015, sixteen companies accounted for 90% of the total premium income. In terms of premium income, Aegon the Netherlands’ non-life market share is around 4%.
In the mortgage loans market, Aegon the Netherlands held a market share of approximately 9% based on new sales in 2015, making it the fourth largest mortgage loan provider in the market. Rabobank, ING and ABN AMRO are the largest mortgage loan providers in the market, and competition is increasing from foreign competitors and capital from pension funds.
Aegon the Netherlands’ share is growing in the market for Dutch household savings. In 2015, its market share was approximately 2.1%, which is relatively small in comparison to banks such as
Regulation and supervision General Regulation of the financial sector in the Netherlands is included in the Financial Supervision Act (Wet op het financieel toezicht or Wft). The aim of the Wft is to embed the cross-sectorial functional approach within the Dutch supervisory system.
This approach replaced the prior sectorial approach to financial supervision, which was embedded in the previous legislation.
legislation, which, up until December 31, 2015, was set out in the Solvency I framework. Effective as of January 1, 2016,
Rules for Financial Undertakings (Besluit prudentiële regels Wft or Bpr Wft).
Insurance companies in the Netherlands may conduct their activities on a cross-border basis or through a branch office based on the mutual recognition of (prudential) supervision in the EU
Solvency II Aegon the Netherlands uses a Partial Internal Model (PIM) to calculate the solvency position of its insurance activities under
Solvency II. The calculation includes the use of the volatility adjustment, but does not include the use of any transitional measures. The internal model was approved on November 26, 2015, by the supervisor regulator DNB as part of the Internal
is one of the elements of the Banking Union. The ECB may give instructions to DNB in respect of Aegon Bank N.V. or even assume direct supervision over the prudential aspects of the Aegon Bank
Basel III accord for prudential supervision of credit institutions and investment firms. The CRR is binding for all EU member states and became effective on January 1, 2014. CRD IV is an EU directive, and is required to be implemented into local legislation. CRD IV has been implemented in the Netherlands by means of amending the Financial Supervision Act (Wet op het financieel toezicht, the ‘Wft’) on August 1, 2014. The application in full of all measures under CRD IV (including any national implementation thereof in the Netherlands) has to be completed before January 1, 2019.
The CRR has been applied across all EU member states since
January 1, 2014. The CRD IV and CRR frameworks include requirements with respect to capital adequacy, and introduce requirements with respect to increased capital against derivative positions, the introduction of two supplementary buffers
CRD IV. With respect to the percentage, the Dutch government has announced that it wishes to implement a leverage ratio of at least 4% for large Dutch banks, which does not apply to Aegon
Bank N.V. The ultimate aim of Basel III/CRD IV is to reduce leverage in order to bring institutions’ unweighted assets more in line with their Tier-1 capital. The capital requirements include qualitative in addition to quantitative requirements.
Capital of the highest quality, Common Equity Tier 1, forms a substantial part of the capital of a credit institution. Additional
These early intervention measures could pertain, among others, to a change of its legal or operational structure, the removal of
(individuals within) senior management or the management body, or the appointment of a temporary administrator to work together with or replace such (individual within) senior management or management body. The national resolution authority may also under certain circumstances decide to write down or convert relevant capital instruments, including Common Equity Tier 1,
Additional Tier 1 and Tier 2 instruments, in a specific order.
Act, banks are required at all times to meet a minimum amount of own funds and eligible liabilities (MREL), expressed as a percentage of the total liabilities and own funds. The competent resolution authority will set a level of minimum MREL on a bank-by-bank basis based on assessment criteria due to be set out in technical regulatory standards.
Asset liability management Aegon the Netherlands offers products that absorb risks on behalf of its customers, such as market and underwriting risks.
The Company actively manages these risks. It is unlikely that risks taken on from customers will automatically lead to the preferred risk profile, and for this reason, Aegon the Netherlands has a risk strategy in place that provides guidelines regarding Aegon’s overall risk appetite and risk tolerance. Aegon maintains certain risks that are within its risk appetite, but mitigates the remaining risks, for instance through hedging programs and derivatives.
For each portfolio containing derivatives, detailed guidelines have been implemented on the scope of instruments and the purpose of the derivatives.
Netherlands uses a combination of options, total return swaps and variance swaps.
Aegon sees derivatives as a suitable instrument to use in its ALM
(EMIR) and Dodd-Frank Act. Any counterparty risks embedded in such transactions are mitigated by having high quality collateral in place in all its derivatives transactions. The introduction of central clearing for parts of the derivatives markets has increased collateral requirements and reduced counterparty risk. Liquidity risk, which is the direct result of the collateral processes, needs to be carefully managed. Due to market movements Aegon the
Aegon’s automated processes regarding real-time monitoring, automated controls and integrated reporting reduce operational risks and enable it to comply with the increasing demands that result from regulations.
contracts. Reinsurance helps Aegon manage, mitigate and diversify its insurance risks, and limit the maximum loss it may incur.
Since January 1, 2014, Aegon the Netherlands has reinsured its term life assurance through a quota-sharing contract between its subsidiary Aegon Levensverzekering N.V. and Reinsurance
United Kingdom. It was registered as a public limited company at the beginning of December 1998. The leading operating subsidiaries are: �� Scottish Equitable PLC, and �� Aegon Investment Solutions Ltd
Aegon UK's main offices are in Edinburgh and London. The main office of Aegon Ireland PLC (Aegon Ireland) is located in Dublin,
Investment Only capability as well as assets under administration of around GBP 12 billion. This transaction will be finalized in 2017 or 2018, once the legal ownership has been transferred through a so-called Part VII transfer.
Rothesay Life and Legal & General. The divestments are expected to be completed in 2017 upon the Part VII transfers. The transaction was consistent with the company’s ambition to free up capital from non-core businesses. The capital position of the company improved as a result of the transaction. Aegon has approximately
GBP110 billion assets under administration, and provide broad expertise across the savings, investments and pensions markets.
Retail channel Aegon UK offers a comprehensive proposition to intermediaries and strategic partners underpinned by technology that drives efficiency and supports the profitability of advisor’s businesses.
Aegon UK offers two distinct versions of the proposition targeted at distinct market segments: �� A ‘fund supermarket’ service, which includes multiple wrapper choices, fully open architecture fund choice and digital advisor/ customer self-service access; and �� ‘One Retirement’, a standalone pension accumulation and drawdown product, designed to be a single-point solution for customers that do not have a broader set of needs.
UK’s core pension expertise. The modernization of the Cofunds business by migrating it on to Aegon’s market-leading technology will see Aegon UK emerge with a market-leading2 position among intermediary platforms.
Services that Aegon UK offers include: �� ‘Workplace Aegon Retirement Choices’, a comprehensive pension proposition that manages workplace pensions for employers in a seamless and streamlined way, enabling them to offer employees a choice of savings wrappers; �� Employers’ auto-enrolment obligations, which are supported through Aegon’s SmartEnrol capability; �� Support for the governance of the workplace pension scheme, which is offered through the sophisticated analytics of
Answering a few simple questions gives customers a Retiready score out of 100, showing how ready they are for retirement.
Retiready is focused on existing Aegon UK customers that no longer have an advisor. The majority of customers receive the service having been ‘upgraded’ from Aegon UK’s existing business, thereby allowing longstanding customers to benefit from the advantages of a modern digital pension. Retiready customers have access to a number of tools to help them better engage with and manage their retirement savings. In 2016, over 160,000 customers with assets of around GBP 4.3 billion were upgraded to the new proposition.
(guaranteed) contracts through Aegon UK’s retail advisor channel since 2006. In Germany, Aegon Ireland has its own branch office in Frankfurt and has a number of distributors and a customer service team.
Overview of business Lines Reporting for Aegon UK is organized along two business lines: ‘Life’ and ‘Pensions and Investments'. ‘Life’ comprises protection products sold to individuals and small to medium-sized companies (SMEs)’. ‘Pensions’ comprises a broad range of workplace and personal pensions in addition to investment products and variable annuities.
Aegon UK was in 2016 reorganized into ‘Digital Solutions', which oversees the core platforms and protection business lines, and
‘Existing Business’, which oversees the existing life and pensions business. These business lines have separate leadership teams.
Workplace and Direct to Customer channels, together with the protection lines. The majority of new assets going forward will be accumulated in this business. In addition, where appropriate,
The Existing Business is responsible for older products that are no longer actively marketed to new customers. However, new assets are accumulated as customers pay into existing policies, or as new employees join older workplace schemes. These propositions include older style group pensions, individual pensions and with-profits policies.
Products Aegon UK’s main product focus is on savings, investments, pensions and protection products.
Savings, Investments & Pensions Aegon UK provides a full range of personal and corporate pensions and saving-related products. These include: �� Individual Saving Accounts; �� General Investment Account; �� Flexible personal pensions; �� Self-invested personal pensions; �� Group personal pensions; �� Group Self-invested personal pensions; �� Mastertrust; �� Investment Only capability for workplace pension schemes; �� Phased retirement options and income drawdown; �� Secure retirement income (SRI), for which the underlying guarantee is reinsured by Aegon Ireland PLC; �� Off-shore investment bonds.
Protection products Aegon UK offers a range of products for individual customers, including life cover, critical illness and income protection.
The target market is wealthier customers over the age of 40, where Aegon UK's underwriting expertise helps it to provide a customer-centric proposition. This also provides a strong overlap with the target customers for Aegon Retirement Choices, giving opportunities to leverage sales and promotional activity.
In addition, Aegon UK offers a range of protection products for small to medium-sized companies that wish to insure key personnel. This is a key market for Aegon, and the company currently protects 400,000 customers.
Traditional Pensions Traditional Pensions include a variety of individual and corporate pensions, with-profits products and annuity products (via Legal
Aegon UK operates, and market dynamics are continuing to evolve. While competition can be seen partly in terms of product features and benefits, it is also increasingly played out in terms of establishing Aegon UK's proposition as the primary or secondary ‘platform’ used by intermediaries to manage their clients assets, or as a preferred partner for EBCs advising corporate clients.
One of the key drivers for competition is the considerable regulatory and legislative change that is continuing to create new commercial opportunities. For example, automatic enrolment
The UK vote to leave the European Union (EU) on June 23, 2016, has significant implications for the UK. Much financial regulation currently applicable in the UK derives from EU legislation. This regulation will remain in force until any changes are made, which will be a matter for the UK government and the UK parliament.
Aegon Ireland is registered as a life insurance company in Ireland under the European Communities (Life Assurance) Framework
Aegon Ireland operates on an FOE basis in Germany (with a branch office in Frankfurt) and on an FOS basis in the UK, selling life insurance products in Class III (contracts linked to investment funds) and Class I (life insurance and contracts to pay annuities on human life), excluding contracts written in Class II (contracts of insurance to provide a sum on marriage or on the birth of a child).
(SCR), extensive actuarial information, and detailed information regarding the investments of the insurance company. The PRA's regulatory reporting is based on a single entity focus, and is designed to highlight risk assessment and risk management.
The PRA may request additional information it considers necessary and may conduct an audit at any time. The PRA
Solvency II Under Solvency II, life insurance companies are required to maintain certain levels of shareholders’ equity in accordance with
Since the introduction of Solvency II on January 1, 2016, Aegon has been using a PIM to calculate the solvency position of its insurance activities in the United Kingdom. The internal model was approved on December 14, 2015 by the PRA as part of the
In addition, Aegon uses the matching adjustment in the calculation of the technical provisions for its annuities, and uses the volatility adjustment in the calculation of the technical provisions for the With Profits business with investment guarantees. Following the reinsurance of the majority of its annuity business in 2016, Aegon no longer uses the transitional measures on technical provisions.
Asset liability management In the United Kingdom, asset liability management (ALM) is overseen by Aegon UK's Management Investment Committee
(MIC), which meets each month to monitor capital requirements and ensure appropriate matching of assets and liabilities.
For unit-linked business, customers’ money is invested across a range of internally and externally managed funds. Derivative positions are held to protect the value of future fee income.
The MIC monitors the performance of the investment managers against fund benchmarks. For the remaining annuity business, this is invested in corporate bonds and gilts in line with the matching adjustment principles. The Own Funds are invested in line with our Risk Appetite Framework.
Aegon Ireland's main market exposures arise from the guarantees provided on Variable Annuity (guarantee) products. The primary exposure is to changes in equity and interest rates. Aegon Ireland employs a dynamic hedge program to mitigate these financial market risks associated with the guarantees provided. On a daily basis, and if necessary on an intra-day basis, the hedge positions are reviewed and updated. Instruments used for the hedge program include equity futures, total return swaps, variance swaps and interest rate swaps.
Certain policies have a guaranteed minimum rate of return, guaranteed minimum pension, or guaranteed death or other benefits. Guaranteed rates of return only apply if the policy is kept in force as per the dates specified, or according to the events described in the policy conditions. The costs of all guarantees are borne by the with-profits fund, and therefore impact payouts to with-profits policyholders.
Scottish Equitable PLC's with-profits fund, except routine yearly fund management charges, and costs and expenses that the
Guaranteed rates of return on with-profits policies are typically in the range of 0% to 5.5% a year. The funds with the highest rates have, however, been closed to premiums since 1999, and all funds have been closed to new business with investment guarantees since October 2002 (except for a small increase in regular payments). For a number of contracts written mainly in the 1970s and 1980s, Scottish Equitable also offered minimum pension guarantees, including guaranteed annuity options. As life expectancy rates have improved and interest rates have fallen over time, these minimum guarantees are now often valuable.
As the Scottish Equitable with-profits fund is now closed to new business, the free assets are gradually being distributed to with-profits policyholders through the bonus system outlined above. This includes ensuring that any surpluses in the with-profits fund from other (historic) business lines can be distributed to existing with-profits policyholders at a suitable rate, helping to prevent a tontine effect as the number of with-profits policyholders declines.
The protection business is significantly reinsured. A reinsurance panel is in place to provide reinsurance, predominantly on a quota share basis across the range of benefits. A facultative reinsurance panel is also used to assist the placement of the very large cases.
On April 11, 2016 and May 23, 2016, Aegon announced deals with Rothesay Life and Legal & General respectively for the sale of the annuity portfolio. These deals are structured as reinsurance arrangements until the legal Part VII transfer processes are complete, which is due to be mid-2017. The longevity swaps that Aegon is holding to back these annuity portfolios will be transferred as part of the Part VII process in 2017.
While Aegon Ireland does not cede any reinsurance, it does accept reinsurance of certain guarantee lifetime income options on behalf of Aegon UK, including the new guaranteed pension product ‘Secure Retirement Income’.
Życie Spółka Akcyjna); �� Aegon Poland Pension Fund Management Co. (Aegon
Powszechne Towarzystwo Emerytalne Spółka Akcyjna); �� Aegon Turkey (Aegon Emeklilik ve Hayat A.Ş.); �� Aegon Romania Pension Administrator Co. (Aegon Pensii
Societate de Administrare a Fondurilor de Pensii Private S.A); �� Aegon Czech Life (Aegon Pojišťovna, a.s); �� Aegon Slovakia Life (Aegon Životná poisťovňa, a.s.); and �� Aegon Slovakia Pension Management Co. (Aegon, d.s.s., a.s).
Traditional general account life insurance mainly consists of index-life products that are not unit-linked but have guaranteed interest rates, in addition to group life and preferred term life products.
Mortgage loans Aegon Hungary first offered mortgage loans to retail customers in 2006 via Aegon Hungary Mortgage Finance Co., a subsidiary of
Aegon Hungary Composite Insurance Company. After its launch, the mortgage loan business was affected by several legislative changes. On March 17, 2014, Aegon Hungary Mortgage Finance
Company suspended the acceptance of new loan applications for an indefinite period of time.
Aegon Romania Pension Administrator Company took over the management of Eureko's voluntary pension fund, which subsequently merged with Aegon Esential.
Nordea's Pillar 2 pension fund in Poland. The deal, which is subject to regulatory approval, will bring economies of scale and will further improve the quality of services that Aegon provides to its customers. As of December 2016, the pension fund under Aegon PTE S.A.'s management had assets of
As of December 2016, Aegon had over 2.1 million pension fund members in Central & Eastern Europe.
2 Source: MABISZ, Hungarian Insurance Companies’ Yearbook 2015, Webpage visited February 9, 2017.
Webpage visited February 9, 2017. 8 Source: APAPR, Webpage visited February 9, 2017.
Non-life Aegon Hungary offers non-life cover (mainly household and car insurance, in addition to some wealth and liability industrial risk and travel insurance). Aegon is the leading insurance company in the Hungarian household market.2 In recent years, margins on non-life insurance in Hungary have been attractive. Moreover, household insurance provides considerable opportunities for the cross-selling of life insurance.
Competition In 2016, Aegon was the third largest life insurance provider in
November 2016, Aegon was ranked fifth in the Slovakian private pension market6. In December 2016, Aegon ranked tenth in terms of both the number of participants and managed assets in Poland7.
Romanian mandatory private pension market, both in terms of net assets under management and number of participants8.
Regulation and supervision In Central & Eastern Europe, a single insurance company may only be licensed for and conduct either a life insurance business or a non-life insurance business – not both. In Hungary, however, insurance companies established before 1995 are exempt from this rule. This exemption therefore applies to Aegon Hungary.
In addition to legal regulation, insurance companies are members of a number of self-regulatory groups in their respective countries. These self-regulatory groups are the main forums for discussion among insurance companies.
Solvency II As of January 1, 2016, Solvency II, the new insurance solvency regime, became effective in European Economic Area (EEA)
The foundation and operations of voluntary pension funds are regulated in Hungary by the country's Voluntary Mutual Pension
Funds Act (XCVI. 1993). Activity in this area is also supervised by the MNB. Slovakia's pension market is regulated by the Pension
Authority for Financial Supervision (ASF). The mandatory pension system is subject to the Privately Administered Pension Funds Act
(with retention levels for each event indicated in parentheses) are: �� Property catastrophe excess of loss treaty
(EUR 16 million retention); and �� Excess of loss treaties for other risks
Organizational structure Aegon’s main subsidiaries and affiliates in Spain & Portugal are: �� Aegon España S.A.U. de Seguros y Reaseguros; �� Aegon Administracion y Servicios A.I.E.; �� Aegon Activos A.V, S.A.; �� Aegon Santander Generales Seguros y Reaseguros S.A. (51%), in partnership with Banco Santander; �� Aegon Santander Vida Seguros y Reaseguros S.A. (51%), in partnership with Banco Santander; �� Aegon Santander Portugal Vida-Companhia de Seguros de
Aegon Spain and Banco Santander Since June 4, 2013, Aegon Spain and Banco Santander have partnered to distribute a number of insurance products.
Banco Santander is the largest financial institution in Spain, with over 3,000 branches nationwide. Aegon Spain’s agreement with Banco Santander concerns the business lines of pure life risk and general insurance products (accident, home and commercial multi-risk insurance, and critical illness). These are sold through two insurance entities: Aegon Santander Vida for pure life risk products; and Aegon Santander Generales for general insurance products. Aegon’s share in each entity is 51%.
Since December 28, 2016 Aegon Spain and Banco Santander have further extended their partnership agreement to distribute health insurance products.
Totta Seguros, a Portuguese insurance company that is part of the Santander International group, have partnered to distribute a number of insurance products. The partnership concerns the distribution of pure life risk and general insurance products
through its own network of brokers and agents; and 3% through a direct channel. Aegon Spain's sales network is focused on individual life, pensions, general, accident and health insurance in both urban and rural areas.
General insurance Aegon Spain has been offering general insurance products since 2013 through its joint venture with Banco Santander.
The offering focuses mainly on household protection products, distributed through the banking network of partner
Health Health insurance is offered by Aegon in Spain through both its own network of brokers and agents, and direct channels. Medical expense coverage for doctor visits, diagnoses, hospitalization, dental and other health covers are offered through a broad network of medical partners across the country.
Aegon Spain's business lines was 54% for life insurance, 20% for accident and health insurance, and 26% for general insurance.
For Aegon Spain's health and general insurance products, the main competitors are both foreign and local companies.
In the non-life, Fidelidade is also the main player with a market share of 26%, followed by a new company named Seguradoras
Unidas with 15%. Seguradoras Unidas is the result of a merger of several insurance companies, including Tranquilidade and Açoreana.
Regulation and supervision Insurance companies in Spain are required to report on a quarterly basis to the Direccion General de Seguros y Fondos de Pensiones
(ASF). Insurance companies are required to report to the ASF on a monthly basis (issued premiums and claims costs per line of business) and more extensively on a quarterly basis. Portuguese regulations also incorporate all requirements from the relevant
Asset liability management Asset liability management (ALM) is overseen by Aegon Spain
ALM committee (ALCO), which meets each quarter to monitor capital requirements and ensure appropriate matching of assets and liabilities. The ALCO minutes are shared with the Aegon
Scenarios and optimization analyses are conducted for fixed income, equities and real estate asset classes. The result is an asset allocation that represents the desired risk-return profile.
The implementation of Solvency II on January 1, 2016 has had implications for Asset Liability Management, especially in the case of the matching adjustment portfolio.
Reinsurance ceded Aegon Spain has a ‘one Aegon’ reinsurance management policy.
Partner Re, Gen Re, R+V, Nacional de Reaseguros and Mapfre Re.
Aegon’s Group Reinsurance Use Committee is involved in the pre-approval of reinsurers, and the selection of reinsurers where a reinsurer has a rating below ‘A'. In addition, to reduce its exposure to defaults, Aegon Spain has several reinsurers on its panel and regularly monitors the creditworthiness of each.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 2 3 (38%) 2 3 (37%)
New premium production accident and health insurance 19 31 (40%) 17 28 (40%)
USD 23 million in 2016 compared with 2015. �� Underlying earnings before tax from the high net worth businesses in Hong Kong and Singapore increased to
�� Losses from Strategic partnerships increased to USD 39 million in 2016 compared with USD 27 million in 2015 mainly a result of the increase in ownership from 26% to 49% in
Operating expenses increased by 13% in 2016 compared with 2015 to USD 161 million. The increase in operating expenses was mainly driven by the investment made to support future growth, together with the increase in Aegon’s stake in its strategic partnership in India from 26% to 49%. On a comparable basis, operating expenses increased by 5% compared with 2015.
Aegon adhered to its strict pricing policy in the low interest rate environment. �� New life sales in Strategic partnerships were up 31% to
Gross deposits in Asia declined to USD 337 million in 2016 compared with USD 453 million in 2015. This was the result of a pricing change on the Japanese Yen-denominated variable annuity in order to maintain profitability of new sales.
New premium production in Asia's accident & health declined 40% in 2016 compared with 2015 to USD 19 million, driven by the rationalization of unprofitable sales campaigns in Aegon
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) (31) (9) - (27) (7) -
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (3) 3 - (3) 2 -
USD 5 million in 2015 compared with a loss of USD 2 million in 2014 driven by the divestment of its activities in Hong Kong and the restructuring of the Australian business. �� Losses from Strategic partnerships improved to
Commissions and expenses Commissions and expenses increased by 5% in 2015 compared with 2014 to USD 268 million. Operating expenses decreased by 2% in 2015 compared with 2014 to USD 143 million.
The decrease in operating expenses was mainly due to restructuring of Aegon Insights, partly offset by higher expenses in TLB, as a result of higher employee expenses to support growth.
Production New life sales increased by 27% in 2015 to USD 193 million compared with 2014.
�� In the high net worth businesses in Hong Kong and Singapore, new life sales were up 23% to USD 151 million in 2015 compared with 2014. This increase was mainly the result of higher sales of universal life products. �� New life sales in Strategic partnerships were up 68% to
Gross deposits in Asia declined to USD 453 million in 2015 compared with USD 699 million in 2014. This was the result of management actions in Q2 2015 to lower commissions on variable annuities in Japan to maintain profitability of new sales.
Overview of Asia Aegon Asia operates through three major joint ventures in India, Japan and the People's Republic of China (hereafter referred to as ‘China’), in addition to several wholly-owned subsidiaries, including Aegon’s businesses in Hong Kong and Singapore that serve the high-net worth segment.
Tongfang Co. Ltd (THTF). The name of the joint venture is Aegon
THTF Life Insurance Co. Ltd. (Aegon THTF). Aegon THTF is licensed to sell both life insurance and accident and health products in China. The Company has expanded its network of offices and business in China since 2003. Having obtained 12 provincial licenses, its geographic presence provides access to a potential market of over 652 million people, primarily in the coastal provinces of eastern China.
Aegon has been operating in India through its joint venture life insurance company, Aegon Life Insurance Co. Ltd (Aegon Life), since 2008, and its current joint venture partner is Bennett,
Coleman & Co. Ltd. (BCCL). The joint venture today has a distribution network across 45 cities and 19 states in India.
Since 2009, Aegon has been operating in Japan through a joint venture with Sony Life, one of Japan's leading insurance companies, named Aegon Sony Life Insurance Co., Ltd. (Aegon Sony Life).
The primary focus of Aegon Sony Life is annuity sales in Japan.
Launched in 2010 and based in Bermuda, SARe manages the guaranteed benefit risks of Aegon Sony Life's products.
Wholly-owned subsidiaries Transamerica Life Bermuda and its predecessors have been serving customers in Asia for over 80 years. TLB today primarily serves the high-net-worth market in Asia through its branches in Hong Kong and Singapore.
Aegon Insights is a marketing and distribution services business in the Asia-Pacific region. This business was rebranded as Aegon
Insights first established operations in Australia in 1998, and currently maintains active operations in Japan, Thailand,
Current distribution channels include agency, brokerage, banks, direct marketing, group and e-sales.
August 2016 in order to focus on selling protection and unbundled savings products through a direct-to-customer distribution model. This model includes an e-sales channel, a direct sales force, and third party distribution (for instance aggregators and e-commerce partners) to complement and assist the e-sales channel.
In addition to the universal life products, term products are offered to high-net-worth customers, with protection at guaranteed level premiums for up to 30 years.
(primarily consisting of short-term accident and short-term health products) through all channels. Non-life sales are, however, concentrated in the group channel, where the main products are group medical policies.
Aegon THTF ranked fifty-fifth among life insurance companies and seventeenth among foreign life companies in China.
Aegon THTF's market share among foreign-invested companies was 1.3% in terms of total premium.
1 Source: CIRC, www.circ.gov.cn/web/site0/tab5168/info4054427.htm.Webpage visited February 24, 2017. 2 Source: Life Insurance Council, www.lifeinscouncil.org/industry%20information/nbp.aspx.Webpage visited February 24, 2017.
Hong Kong and Singapore: TLB TLB's main competitors in Hong Kong and Singapore are local and global providers for the high-net-worth market, such as
Asia: Aegon Insights The use of direct marketing in the insurance industry is growing due to economic pressure on traditional distribution channels and changes in customer behavior. For this reason, multinational insurers across the region are increasing their marketing capabilities. There is also an increasing awareness of the effectiveness of data-driven marketing among other marketing service providers that are active in the region.
(C-ROSS), was formally implemented. C-ROSS is a risk-based solvency system, similar to that of Solvency II, which adopts a three-pillar solvency framework aimed at improving risk management and capital efficiency. Additional market-oriented reforms were introduced during the year, such as allowing qualified insurers to be listed in a new third board for small to medium size insurers, and strengthening restrictions on insurance asset management. CIRC also focused on improving the livelihood of urban and rural residents by financing qualified commercial insurance companies to offer critical illness products to these residents.
Established by the government of India, it safeguards the interests of the country's insurance policy holders.
on protecting policyholders’ interests and exploring avenues to support growth in the industry. Steps initiated by the IRDAI
during 2016 include: the issuance of e-insurance policy, investment regulation, and guidelines on revised corporate governance circular on Central KYC records registry.
Monetary Authority, the integrated regulator of the financial services sector in Bermuda. TLB's Asia branches are located in
Hong Kong and Singapore. The insurance industry in Hong Kong is regulated by the Office of the Commissioner of Insurance (OCI).
Changes to the Insurance Companies Ordinance in 2015 provide for the establishment of a new independent insurance authority
Asia: Aegon Insights A broad range of regulations apply to Aegon Insights’ activities.
Aegon Insights keeps abreast of all changes or proposed changes to regulations governing personal data in all of its markets.
The regulatory regime of Bermuda and Japan were granted provisional equivalence on December 7, 2015. The other units in Asia (India and China) are included under Deduction &
(ALCO) that coordinates the Company’s strategy on product design and pricing. The IC and RMC meet quarterly, while the
ALCO meets monthly. An Enterprise Risk Management report that covers ALM-related issues is presented to the RMC each quarter.
Japan: Aegon Sony Life and SARe Aegon Sony Life reinsures 100% of its guarantees on variable annuities with SARe. SARe has a comprehensive hedging program in place that covers the major risk dimensions. Execution of this hedging program is outsourced to Aegon USA Investment
Management LLC. Comprehensive risk management procedures have been defined to ensure the implementation of appropriate risk management activities.
The market risks are managed through the use of capital-market hedging techniques.
Hong Kong and Singapore: TLB At TLB, there is a management-level RCC and a managementlevel IC that reports to the Board. Regular reviews of risk and capital matters are conducted by the RCC, while the IC focuses on the areas of investment performance and compliance, and mismatch risk.
Reinsurance ceded China: Aegon THTF Aegon THTF shares its morbidity and mortality risk with international and national reinsurers. The mortality risk of individual products is shared through a surplus reinsurance structure. Most of the individual morbidity risks are reinsured by Hannover Re and China Re in quota share. The group products are mainly reinsured by Hannover Re. Aegon THTF reviews the reinsurance structure regularly, and adjusts it based on claims experience and its risk acceptance capability.
India: Aegon Life Reinsurance arrangements are regulated by the IRDAI. Aegon Life primarily reinsures the mortality and morbidity risks of its policies sold with Reinsurance Group of America (RGA). For specific products, reinsurance treaties are entered into with other major reinsurance companies such as Munich Re and Swiss Re.
In April 2014, Aegon Sony Life entered into a Surplus Relief reinsurance contract with RGA Re on a local statutory basis only.
Asia: Aegon Insights Aegon Insights’ traditional business model primarily creates value by offshore reinsurance through an Aegon risk carrier, whereby risk-based premium is acquired for the group. Aegon Insights acts as an independent marketing services provider. This enables it to form partnerships with local insurers, particularly in locations where Aegon does not have a local presence. Aegon Insights also increasingly generates fee income from its professional services.
Other income / (charges) (2) (1) (16%) Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 145 172 (15%)
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (19) (19) 3%
Net income Net income in 2016 declined 20% compared with 2015 to
EUR 97 million. This was mainly driven by lower underlying earnings before tax in 2016 compared with 2015.
AIFMC due to the normalization of performance fees. �� Americas underlying earnings before tax decreased to
EUR 55 million in 2016, compared with EUR 66 million in 2015, as higher transactional fee income was more than offset by lower management fee income in 2016 compared with 2015, and increased employee and projectrelated expenses.
�� Underlying earnings before tax from the Netherlands in 2016 increased EUR 3 million to EUR 14 million compared with 2015, mainly driven by higher management fee income which were only partly offset by higher expenses in 2016 compared with 2015.
EUR 4 million. �� Underlying earnings before tax from Strategic partnerships decreased with EUR 11 million compared with 2015 to
Commissions and expenses Operating expenses increased by 2% in 2016 compared with 2015 to EUR 451 million. This increase was mainly the result of higher employee related expenses in 2016 compared with 2015 due to increased headcount to support growth strategy and the inclusion of costs related to the partnership with La Banque
Postale Asset Management, which was only partly offset by currency movements. As a result of higher expenses and lower net income in 2016 compared with 2015, the cost/income ratio in 2016 increased by 3 percentage points to 75% compared with 2015. Annualized operating expenses as a percentage of average assets under management remained in 2016 stable compared with 2015 at 13 basis points.
Production Gross inflows in other third-party increased by 37% in 2016 to
Net other third-party inflows in 2016 decreased compared with 2015 to EUR 3.0 billion, as higher net flows in 2016 compared with 2015 in mainly the Netherlands were more than offset by net outflows in the United Kingdom and AIFCM.
Income tax from certain proportionately consolidated joint ventures and associates included in income before tax 19 8 145%
Results 2015 Aegon Asset Management Net income in 2015 increased to EUR 121 million compared with 2014 as a result of higher underlying earnings before tax. Higher underlying earnings before tax in 2015 compared with 2014 were mainly the result of growth of third-party asset balances, favorable currency movements and one-off performance fees. Gross flows in third-party asset management increased by 74% to EUR 34 billion in 2015 compared with 2014 driven by record-high inflows.
Net income Net income in 2015 increased 53% to EUR 121 million compared with 2014. This was mainly driven by higher underlying earnings before tax in 2015 compared with 2014.
Underlying earnings before tax Underlying earnings before tax increased by 48% in 2015 compared with 2014 to EUR 170 million, as higher underlying earnings before tax in the Americas, the United Kingdom and
�� Underlying earnings before tax from the Netherlands decreased to EUR 11 million in 2015, compared with
EUR 18 million in 2014, as higher management fee income and positive Dutch Mortgage Fund flows were offset by higher employee and project-related expenses.
EUR 6 million in 2014, as higher management and performance fee income in Central & Eastern Europe were more than offset by expenses at the Holding.
Commissions and expenses Commissions and expenses increased by 32% in 2015 compared with 2014 to EUR 487 million. Operating expenses increased by 31% in 2015 compared with 2014 to EUR 444 million.
Production Gross third-party flows increased by 74% to EUR 33.7 billion in 2015 compared with 2014. This increase was due to higher flows in the Dutch Mortgage Fund, higher absolute return fund sales in the United Kingdom, increased flows in Chinese money market, equity and bond funds and the inclusion of Aegon’s share in
Organizational structure Aegon Asset Management is a provider of investment management expertise to institutional and private investors around the world. It has offices in the United States, the Netherlands, the United Kingdom, Hong Kong, Hungary and Spain. It operates under three main brands: �� Aegon Asset Management specializes in providing clients with a range of high-quality investment solutions across asset classes, including fixed income, equities, real estate, absolute return, liability-driven, and multi-asset and balance sheet solutions. A long and successful history of partnership with
Strategic partnerships: �� In China, Aegon Asset Management owns 49% of Aegon
Industrial Fund Management Company (AIFMC), a Shanghaibased asset manager that offers mutual funds, segregated accounts and advisory services; and �� In France, Aegon Asset Management owns 25% of La Banque
Overview of business lines Aegon Asset Management has three distinct business lines.
liabilities. As a rule, general account assets are managed in a closed architecture structure, and the main asset classes are fixed income and mortgage loans. Aegon Asset Management also manages Aegon’s general account derivatives book.
The main asset classes include fixed income, equities, real estate, mortgage loans and alternatives. In the United States and the United Kingdom, a significant element of Affiliate Sales is conducted on an open architecture basis, where Aegon Asset
large corporations or pension funds. Aegon Asset Management employs a full range of asset classes, and manages the funds against objectives, targets and risk profiles agreed with clients.
Competition in main locations Aegon Asset Management competes with other asset management companies to acquire business from openarchitecture Aegon insurance units and third parties.
Asset Management works as a sub-advisor with its insurance company affiliates and other partners in order to offer competitive and relevant strategies for its client base. It also works with consultants and other partners to offer products to third-party institutions. Primary competitors in the United States include AllianceBernstein, BlackRock, Invesco, JP Morgan, Legg
Regulation and supervision Regulation of asset management companies in general differs to that of insurers. Aegon Asset Management's global holding company, Aegon Asset Management Holding B.V., is regulated by De Nederlandsche Bank (The Dutch Central Bank (DNB)) as a financial holding company according to the Dutch Financial
Supervision Act. Local operating entities are regulated by their local regulators, most notably the Dutch Authority for the
Financial Conduct Authority (FCA) for UK-based entities and the Securities & Exchange Commission (SEC) and the Commodity
From a regulatory perspective, the asset management activities of Aegon Asset Management in the United States do not fall under the responsibility of Aegon Asset Management Holding B.V
Risk management General As an insurance group, Aegon manages risk for the benefit of its customers and other stakeholders. As a result, the Company is exposed to a range of underwriting, operational and financial risks.
Definition and tolerances For Aegon, risk management involves: �� Understanding risks that the Company faces; �� Maintaining a company-wide framework through which the risk-return trade-off associated with these risks can be assessed; �� Maintaining risk tolerances and supporting policies to limit exposure to a particular risk or combination of risks; and �� Monitoring risk exposures and actively maintaining oversight of the Company’s overall risk and solvency positions.
Objectives of risk management Aegon’s risk strategy provides direction for the targeted Aegon risk profile while supporting Aegon’s business strategy. The targeted risk profile is determined by customer needs, Aegon’s competence to manage the risk, the preference of Aegon for the risk, and whether there is sufficient capacity to take the risk. Key inputs for Aegon’s risk preferences include expected returns, alignment between Aegon, counterparty and customer interests, the existing risk exposures and other risk characteristics such as diversification, the severity of the risk in an extreme market event and the speed at which risk can materialize in Aegon’s capital position, liquidity position and IFRS net income.
In addition to the targeted risk profile, risk tolerances and limits are established to ensure that Aegon maintains, at all times, a solvency and liquidity position such that no plausible scenario would cause the Company to default on its obligations to policyholders.
Company’s low tolerance for operational risk. This helps to improve operational excellence and ensures that the Company is fair in its treatment of customers and other stakeholders; and �� Risk balance: manage the concentration of risk and encourage risk diversification within Aegon.
Management (ERM) framework, including risk governance and measures taken to ensure risk management is properly integrated into the Company's broader strategy. The SBRC oversees the
management. The Executive Board adopts the risk strategy, risk governance, risk tolerance and material changes in risk methodology and risk policies. The Group's CRO has a standing invitation to attend Executive Board meetings and a direct reporting line to the Supervisory Board to discuss ERM and related matters, and is a member of the Management Board.
The Management Board discusses and sponsors ERM, in particular the risk strategy, risk governance, risk tolerance and the introduction of new risk policies.
The Executive Board and Management Board are supported by the GRCC. The GRCC is Aegon’s most senior risk committee. It is responsible for managing Aegon’s balance sheet at the global level, and is in charge of risk oversight, risk monitoring and risk management related decisions on behalf of the Executive Board in line with its charter. The GRCC ensures risk-taking is within
Aegon’s risk tolerances; that capital position is adequate to support financial strength, credit rating objectives and regulatory requirements, and that capital is properly allocated. The GRCC
informs the Executive Board about any identified (near) breaches of overall tolerance levels, as well as any potential threats to the
The responsibilities and prerogatives of the RCCs are aligned with the GRCC and further set out in their respective charters, which are tailored to local circumstances.
Aegon’s balance sheet and reputation, and through supporting the creation of sustainable value for all stakeholders.
Board, and regional and business unit boards in ensuring that the
Aegon’s risk tolerances, and stakeholder expectations are managed under both normal business conditions and extreme conditions caused by unforeseen events.
(Supervisory) Committees; �� Providing subject matter expertise from the Centers of
Business unit CROs have either a direct reporting line to the
‘lines of defense’ to ensure conscious risk-return decisions, and to limit the magnitude of potential losses within defined levels of certainty. The objective of this structure is to avoid surprises due to the materialization of unidentified risks, or from losses that exceed predefined risk tolerance levels and related limit structures.
The Company’s three lines of defense are its business and support functions, the Risk Management Department, and the audit function. The Company's first line of defense, including the business and support functions, has direct responsibility for managing and taking risk in accordance with defined risk strategy, risk tolerances and risk policies. The second line of defense – the
Scenario analysis As part of the Company's ERM framework, Aegon undertakes regular sensitivity analyses to verify that the impact of different economic and business scenarios on earnings and the capital position are within the risk tolerances set. These analyses cover a variety of extreme event scenarios that have been constructed to test Aegon’s exposure to identified critical market events or conditions that would present an extraordinary business challenge. These scenarios include events such as economic depression and inflation.
Risk management in 2016 In 2016, the risk committee structure was reviewed with the goal to further integrate governance for risk, actuarial and finance matters. The scope of the GRCC has been extended to include risk, accounting and actuarial frameworks, methodologies and assumptions and representation of the Risk function in the GRCC
Aegon used its Solvency II PIM to measure and aggregate risks and to calculate its SCR in 2016, following regulatory approval.
Under Solvency II, capital requirements can be calculated: (i) on the basis of an internal model, developed by the insurance company itself, which requires the approval of the supervisor; (ii) on the basis of a standard formula, in accordance with
Solvency II rules and guidelines; or (iii) a combination of an internal model and the standard formula, a partial internal model.
The Solvency II metrics are embedded in our key reports and are used for risk management purposes.
Aegon faces a number of risks, some of which may arise from internal factors, such as inadequate compliance systems. Others, such as movements in interest rates or unexpected changes in longevity or mortality trends, are external in nature. The most significant risks Aegon faces are that of changes in financial markets (particularly related to fixed income credit, equity and interest rates) and underwriting risk (particularly related to longevity and policyholder behavior). The risks, whether internal or external, may affect the Company's operations, earnings, share price, value of its investments, or the sale of certain products and services. The risks can be captured in three risk categories: underwriting risks, financial risks and operational risks. Aegon’s risk appetite, which is an element of Aegon’s risk strategy, is set for these risk categories (see table below). The purpose of the risk strategy is to provide direction for the desired risk profile and to support Aegon’s business strategy. An important principle underpinning Aegon’s risk strategy is that risks are accepted, first and foremost, to meet customer needs. An integral part of devising an optimal risk strategy is analyzing the risk-return relationship of each risk. The optimization should be consistent with the requirements of all stakeholders, including policyholders, shareholders, bondholders, regulators and rating agencies.
Low to medium - Accepted where it meets customer needs and the risk return profile is acceptable.
Credit risk Credit risk is the risk of economic loss due to the deterioration in the financial condition of counterparties, either through fair value losses on traded securities or through defaults on traded securities, loans and mortgages. Having a well-diversified investment portfolio means that Aegon can accept credit spread risk to earn a liquidity premium on assets that match liabilities.
Stock markets in the UK benefitted from the depreciation of GBP
Interest rate risk Aegon is exposed to interest rates as both its assets are liabilities are sensitive to movements in the long and short term interest rates as well as to changes in the volatility of interest rates.
decreased by approximately 40 bps and 75 bps, respectively, to 1.2% and 1.4%. The existing interest rate programs remained in place in 2016 for hedging guarantees in the Netherlands and the US, and long-term care business for Aegon’s operations in the US, and for its variable annuities businesses in the US,
Aegon does not, however, consider this exposure to be material from an asset liability management perspective. The Company holds its capital base in various currencies in amounts that correspond to the book value of individual business units.
Liquidity risk Aegon needs to maintain sufficient liquidity to meet short term cash demands under normal conditions, but also in crisis situations. To that end, Aegon has put a strong liquidity management strategy in place. The Company considers extreme liquidity stress scenarios, including the possibility of prolonged
(e.g. conflicts of interest and sanctions) and continued to strengthen the group-wide oversight of conduct risks during 2016.
Capital and liquidity management Guiding principles The management of capital and liquidity is of vital importance for the Aegon group, for its customers, investors in Aegon securities and for Aegon’s other stakeholders. In line with its risk tolerance, the goal of Aegon’s capital and liquidity management is to promote strong and stable capital adequacy levels for its businesses, next to maintaining adequate liquidity to ensure that the Company is able to meet its obligations.
Aegon believes these guiding principles together strengthen the Company's ability to withstand adverse market conditions, enhance its financial flexibility, and serve both the short-term and the long-term interests of the Company, its customers and its other stakeholders.
Aegon in the Netherlands in the past as the potential liability cannot be reliably quantified at this point.
Adequate capitalization To calculate its Group Solvency Ratio, Aegon applies a combination of the group consolidation methods available under Solvency II which are the Accounting Consolidation and
December 31, 2016. The sale of Aegon’s annuity business in the United Kingdom and more thorough application of the volatility adjustment in Aegon the Netherlands reduced SCR, while less favorable markets resulted in additional required capital.
Aegon United Kingdom (Solvency II ratio) 156% 1 The Solvency II ratios are estimates, are not final until filed with the regulator and subject to supervisory review. 2 Refer to section ‘Internal capital management framework’ for Aegon’s capitalization target ranges.
RBC calculations measure the ratio of a company's statutory capital, which is measured on a prudent regulatory accounting basis, to a minimum capital amount determined by the risk-based capital formula. The RBC formula measures exposures to investment risk, insurance risk, market risk, and general business risk. The formula, as used for calculating the solvency ratio, applies a covariance diversification offset to determine the appropriate risk-based capital. Life reinsurance is treated as life insurance.
(CAL) risk-based capital requirement. This is the regulatory intervention level at which a company has to submit a plan to its state regulators. The domiciliary state regulator has the authority to require additional capital depending on the type, volume and nature of the business being conducted. The domiciliary state regulator also has the ability to require corrective actions if a company is deemed by the commissioner to pose a Hazardous
Aggregation using available and required capital as per the local capital regimes. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements of the top regulated entity. Aegon uses 250% of the local RBC Company Action Level as the SCR
equivalent for including the US life insurance and reinsurance entities into the group solvency calculation. The non-regulated
US entities and the US holding companies are included in the
Solvency II valuation and capital requirement calculations for these entities. The contribution of the Aegon Americas entities to the group Solvency II position on December 31, 2016 is estimated to 163%. This ratio includes the US Life insurance and reinsurance entities as well as non-regulated US entities and US holding companies. The Americas ratio does not include a diversification benefit between the US life companies and there is no diversification benefit between US and other group entities.
Aegon the Netherlands Aegon the Netherlands uses a PIM to calculate the solvency position of its insurance activities under Solvency II. The calculation includes the use of the volatility adjustment, but does not include the use of any transitional measures. The internal model of
Aegon the Netherlands was approved on November 26, 2015, by the supervisor DNB as part of the Internal Model Application
Aegon the Netherlands, including Aegon Bank1, on December 31, 2016, is estimated to be 135%. The solvency position of the banking activities are calculated using the CRR/CRD IV
Dutch Central Bank issued in February 2017. At December 31, 2016, the factor of LAC-DT is 75%. The Solvency II capital ratio of the Group and Aegon the Netherlands does not include any contingent liability potentially arising from unit-linked products sold, issued or advised on by Aegon in the Netherlands in the past as the potential liability cannot be reliably quantified at this point.
Aegon United Kingdom Aegon United Kingdom uses a PIM to calculate the solvency position of its insurance activities under Solvency II. The calculation includes the use of both the matching adjustment and volatility adjustment (for the with-profits fund) in addition to transitional measures on technical provisions. The internal model of Aegon
United Kingdom was approved on December 14, 2015, by the PRA as part of the Internal Model Application Process.
United Kingdom on December 31, 2016, is estimated to be 156%.
NL loss absorbency of taxes factor -25%pts (3%) - (8%) 1 Non-government bonds credit spreads. 2 Additional defaults for 1 year including rating migration of structured products. 3 Assumes no effect on the volatility adjustment.
diversifies at Group, but the lower own funds do not, increasing the impact on Group. The sensitivity towards lower interest rates is mainly caused by higher SCRs of Aegon the Netherlands and
Internal capital management framework In managing the capital adequacy of the group and its operating units, Aegon’s capital management framework is built on, among other things, managing capitalizations towards target capital management zones. Under Aegon’s capital management framework the following target capitalization zones are the most relevant: Capitalization target range
140% - 170% SCR Target 130% - 150% SCR 350% - 450% RBC Execute capital deployment and remittances according to capital plan.
<100% SCR Regulatory plan <100% SCR <100% RBC Suspension of dividends. Regulatory plan required.
Minimum solvency requirements Insurance laws and regulations in local regulatory jurisdictions often contain minimum regulatory capital requirements.
would lead to the withdrawal of the insurance license. Similarly, for the US insurance entities the withdrawal of the insurance license is triggered by a breach of 100% of the Authorized
With the introduction of Solvency II for EEA countries, Aegon views these minimum regulatory capital requirements as the level around which regulators will formally require management to provide regulatory recovery plans. For the US insurance entities this is set at 100% Company Action Level (CAL) and for insurance companies in the European Union this is set at 100% SCR.
Aegon the Netherlands 2), 3) 100% Solvency II SCR 135% Solvency II SCR ~EUR 1.3 bln
The capitalization level and shareholders’ equity of the operating units 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 operating units to transfer funds, the operating units hold additional capital in excess of the levels of the minimum regulatory solvency requirements.
Improving risk-return profile Aegon continues to take measures to improve its risk-return profile. These measures include the continued run-off of Aegon’s spread-based institutional business in the United States, the sale in 2015 of Aegon’s Canadian Life insurance business, and the strategic growth in fee-based business. In 2016, Aegon divested its annuity busines in the UK, and reinvested part of the proceeds for the acquisition of Cofund and BlackRock's DC
Extensive asset-liability management and hedging programs are also in place. Examples of these programs include hedging the interest rate and equity risk from guarantees in the Netherlands, hedging of interest rate risk and equity risk in the Aegon’s UK
G-SII designation On November 3, 2015, Aegon was first designated by the
Insurer (G-SII), based on an assessment methodology developed by the International Association of Insurance Supervisors (IAIS).
The FSB reviews the G-SII designation annually, and Aegon continues to be designated at the time of publication of this annual report.
designation, G-SIIs are required to develop a liquidity risk management plan, a systemic risk management plan, and an ex-ante recovery plan. In accordance with these requirements,
Aegon submitted these plans to DNB, and to the G-SII crisis management group, that was established for Aegon. These authorities are required: to establish a crisis management group
(within 6 months of G-SII designation); to enter into a crossborder cooperation agreement; to develop a resolution plan based on a resolution strategy (within 18 months); and to undertake a resolvability assessment (within 24 months).
Requirement (BCR) and Higher Loss Absorbing Capacity (HLA) on a confidential basis pursuant to IAIS guidelines. Furthermore, the
IAIS is, at the time of publication of Aegon’s Annual Report 2016, consulting on an International Capital Standard (ICS), with the plan being to adopt ICS Version 1.0 for confidential reporting in mid-2017.
Capital quality Capital quality is a reflection of Aegon’s stability and ability to absorb future financial losses.
Tier 2 and Tier 3 basic own funds. Aegon currently does not have ancillary own funds. Tier 1 basic own funds are divided into unrestricted Tier 1 items and restricted Tier 1 items. The latter category contains own fund items subject to the restrictions of article 82 (3) of the Solvency II Delegated Regulation, which includes grandfathered Tier 1 own fund items. Based on agreements with the supervisory authorities, Aegon applies a fungibilty and transferability restriction with respect to certain charitable trusts within Aegon Americas and a restriction equal to the own funds of Aegon Bank. These restrictions, applied to Aegon’s basic own funds, result in Aegon’s available own funds.
Dated or perpetual Subordinated capital instruments. With an original maturity of at least 10 years. Limited loss absorption. With suspension of payments and deferral of interest.
Available own funds Unrestricted Tier 1 capital consists of Aegon’s share capital, share premium and the reconciliation reserve. The reconciliation reserve includes deductions from foreseeable dividends, which are dividends that have been approved by the Board but that have not yet been distributed to Aegon’s shareholders, and restrictions related to Aegon’s with-profits fund in the United Kingdom where the excess of own funds over its capital requirement is ringfenced for the policyholder, not Aegon’s shareholders.
Aegon’s Tier 2 capital consists of its grandfathered dated subordinated notes, and certain deferred tax asset balances related to the inclusion of (provisional) equivalent regimes in
Aegon’s Solvency II calculation. Both restricted Tier 1 and Tier 2 capital is subject to tiering restrictions.
Tier 1 capital. The total of Tier 2 and Tier 3 capital may not exceed 50% of the SCR whilst the eligibility of Tier 3 capital is limited to 15% of SCR. Restricted Tier 1 capital may not exceed 20% of Tier 1 Own Funds. As a result, it is possible that part of the own funds overflows to another tier or that is not considered eligible for the determination of the Group Solvency ratio.
Accounting Consolidation based method, where tiering limits are based on the SCR of the consolidated part of the group, i.e. the consolidated group SCR; and, �� Non-EEA entities represent the part of the group covered by the Deduction & Aggregation method. If a prudential regime of an equivalent or provisionally equivalent third-country applies, such as the regulatory regimes in the United States,
Aegon does not initially categorize these own funds into tiers or defines tiers that are significantly different from those established under the Solvency II Directive. The own funds brought in by the Deduction & Aggregation method are then allocated to tiers according to the principles laid out in
Aegon’s mortgage portfolios through securitizations, warehouse facilities, covered bonds, and the funding of US Regulation XXX
Letter of Credit (LOCs) issued by third parties provided to captives to provide collateral to affiliated insurers are disclosed in note 48
On December 31, 2016, Aegon had EUR 128 million outstanding under these programs.
Aegon’s overall financial planning and capital allocation processes. The Company's liquidity risk policy sets guidelines for its operating companies and the holding in order to achieve a prudent liquidity profile and to meet cash demands even under extreme conditions.
Sources and uses of liquidity Liquidity in Aegon’s subsidiaries Aegon’s operating units are primarily engaged in the life insurance and pensions business, which is a long-term activity with relatively illiquid liabilities and generally matching assets.
Liquidity consists of liquid assets held in investment portfolios, in addition to inflows generated by premium payments and customer deposits. These are used primarily to purchase investments, as well as to fund benefit payments to policyholders, policy surrenders, operating expenses, and, if the subsidiary's capital position allows, to pay dividends to the holding.
After investments have been made in new business to generate organic growth, capital generated by Aegon’s operating units is available for distribution to the holding company, while maintaining a capital and liquidity position in the operating units in line with Aegon’s capital management and liquidity risk policies. In addition, the ability of Aegon’s insurance subsidiaries to transfer funds to the holding company is also constrained by the need for these subsidiaries to remain adequately capitalized at the levels set by local insurance regulations, and as administered by local insurance regulatory authorities.
Aegon uses cash flows from its operating units to pay for holding expenses, including funding costs. The remaining cash flow is available to execute Aegon’s strategy and to fund dividends on its shares. In order to enable equity investors to share in Aegon’s performance, Aegon aims to pay out a sustainable dividend, which may increase based on Aegon’s performance.
On December 31, 2016, Aegon held a balance of EUR 1.5 billion in excess capital at the holding, compared with EUR 1.4 billion on December 31, 2015. The increase of EUR 0.1 billion reflects the net impact of dividends from subsidiaries, capital injections in subsidiaries, divestments, acquisitions, the issuance of senior unsecured notes, holding expenses and capital returns to shareholders. The proceeds of the issuance of senior unsecured notes have been earmarked for the redemption of
Aegon’s internal audit function assists the Executive Board in maintaining effective controls by independently and objectively evaluating the adequacy and effectiveness of the organization's internal control and risk management systems. Criteria established under ‘Internal Control – Integrated Framework', the Treadway
Commission's Committee of Sponsoring Organizations (COSO, 2013 framework), are used by Aegon’s internal audit function to analyze and make recommendations to the Executive Board concerning the effectiveness of the Company's internal control framework. Based on risk assessments performed, the Executive
The risk management function develops and monitors compliance with risk policies and risk frameworks. This also involves the facilitation of risk identification and reviewing risk assessments performed by the businesses. The risk management function is responsible for identifying good practices in risk management and working with management to ensure that Aegon adheres to those practices.
Operational & Conduct Risk Management function play key roles in monitoring the Company's adherence to external rules and regulations and internal policies.
On the basis of the above, Aegon’s Executive Board states the following with respect to risks to the Company's financial reporting: �� Aegon’s risk management and control systems provide reasonable assurance that the Company’s financial reporting does not contain any material inaccuracies; and �� Aegon’s risk management and control systems functioned properly in 2016.
The statements in this section are not statements in accordance with the requirements of Section 404 of the US
or reinsurance activities in the EU. These capital requirements should, compared with the former Solvency I and Insurance
Pillar 1 comprises quantitative requirements (including technical provisions, valuation of assets and liabilities, solvency requirements and own fund requirements). Pillar 2 requirements include governance and risk management requirements, and requirements for effective supervision (the supervisory review process). Pillar 3 consists of disclosure and supervisory reporting requirements. These three pillars should not only be considered in isolation, but interact with one another. More complex risks, for instance, require a stronger risk management and governance structure, and a more complex governance structure could lead to higher capital requirements.
that should reduce volatility of the technical provisions and own funds, in particular for insurance and reinsurance products with long-term guarantees.
The lower tiers of own funds (tier 2 and tier 3) may only represent a certain part of the eligible own funds. Furthermore, the SCR may be covered up to limited amounts with off-balance sheet own funds (‘ancillary own funds’ such as letters of credits or guarantees). The MCR should be covered entirely by onbalance sheet items (‘basic own funds’).
The Pillar 2 requirements include specific requirements relating to the risk management system. This should cover at least the following areas: underwriting and reserving, asset-liability matching, investments (in particular derivatives and similar commitments), liquidity and concentration risk management, operational risk management, reinsurance and other risk mitigating techniques. Risk management relating to Solvency II is discussed in further detail in the section risk management on page 86. As part of the risk management system, insurance and reinsurance undertakings are required to undertake an ORSA, which includes the overall solvency needs of the undertaking, taking into account the risk profile, risk tolerance limits and business strategy, the ongoing compliance with Solvency II capital requirements and rules regarding technical provisions, and the extent to which the risk profile of the undertaking deviates from the assumptions underlying the calculation of the SCR. Solvency
Solvency II requirements. Possible enforcement measures include the imposition of capital add-ons (for instance in the event that the risk profile of the undertaking deviates from the SCR
However, for insurance entities domiciled outside the EEA for which provisional or full equivalence applies, such as the United
and CAL are both described in more detail in capital and liquidity section. The classification or ‘tiering’ of Aegon’s capital is based on distinct tier limits for the part of the group covered by
Accounting Consolidation Method (where tier limits are based on the SCR of the consolidated part of the group, i.e. the consolidated group SCR) and for the part of the group covered by the Deduction and Aggregation Method. If a prudential regime of an equivalent or provisionally equivalent third country (such the regulatory regimes in the United States) does not categorize own funds into tiers or defines tiers which are significantly different from those established under the Solvency II Directive, then, in line with EIOPA's opinion of January 27, 2016 (EIOPA-
Aggregation Method are allocated to tiers according to the principles laid down in Articles 87 to 99 of the Solvency II
Entities belonging to other financial sectors are usually included in the Group Solvency Calculation using prudential requirements applicable to that specific sector and using the Deduction and
Financial conglomerate supervision Since the beginning of October 2009, Aegon has been subject to supplemental group supervision by DNB in accordance with the requirements of the EU's Financial Conglomerate Directive.
G-SII designation On November 3, 2015, Aegon was first designated by the Financial
As a result of the G-SII designation, Aegon is subject to an additional layer of direct supervision at group level. Aegon has put a specific G-SII governance structure in place to ensure the G-SII requirements are met. Within 12 months of a G-SII
on a confidential basis pursuant to IAIS guidelines. Furthermore, the IAIS is, at the time of publication of Aegon’s Annual Report 2016, consulting on an International Capital Standard (ICS), with the plan being to adopt ICS Version 1.0 for confidential reporting in mid-2017.
December 31, 2016. For further details on its individual members, please see pages 111 and 112. The Supervisory
The duties of the Supervisory Board with regard to the activities of members of the Executive Board are published in the Supervisory
Remuneration Policy adopted at the Company's General Meeting of Shareholders. Overall accountability for Aegon’s remuneration governance also resides with the Supervisory Board, which is advised by its Remuneration Committee. This includes the responsibility for designing, approving and maintaining the
Regulations can be found on pages 120 and 123 of this
Composition of the Supervisory Board and Executive Board Supervisory Board The composition of the Board is discussed regularly in Board meetings and in particular by the Nomination and Governance
There were a number of changes to the Supervisory Board in 2016. Irv Bailey reached the end of his third and final term, and resigned as a member of the Board on May 20, 2016. On May 20, 2016, shareholders approved the reappointment of Rob Routs,
Ben van der Veer and Dirk Verbeek to the Board for another term of four years. In addition, Shemaya Levy will step down from the Supervisory Board in May 2017, at the end of his third and final term. The Board benefitted greatly from Irv Bailey and
Shemaya Levy, the Supervisory Board intends to propose two new members to the Supervisory Board for appointment to the
Executive Board In 2016, the Executive Board consisted of two members,
Chief Financial Officer (CFO). Darryl Button’s resignation was announced on September 6, 2016, and was effective as of
December 1, 2016. The Supervisory Board is grateful for his contribution to Aegon during his seventeen years at the Company, especially in his role as CFO and as a member of the Executive
In compliance with the Dutch Corporate Governance Code, members of the Executive Board are appointed by shareholders for a term of four years, with the option of reappointment for additional four-year terms. The appointment schedule and other information about members of the Executive Board are available on Aegon’s corporate website, aegon.com.
Board meetings Attendance In 2016, the Supervisory Board had eight regular (face-to-face)
meetings: four related to the quarterly results, one to the annual report, two to strategy, one to the budget and Medium Term Plan.
members, except for one risk committee that Dona Young was unable to attend. An overview of Supervisory Board members’
Ben van der Veer 8/8 3/3 6/6 - - 6/6 1/1
Dona Young 8/8 3/3 6/6 3/4 - - 1/1 1 Where a Supervisory Board member retired from the Supervisory Board, stepped down from a Committee or was appointed throughout the year, only meetings during his / her tenure are taken into account.
October meeting in the US. Regular Board meetings were preceded or followed by meetings attended by the members of the Supervisory Board as well as by the CEO. Furthermore, the Supervisory Board held meetings without the presence of
Highlights and activities Key topics discussed during the 2016 Supervisory Board meetings were Aegon’s quarterly results and (annual) reporting,
Report were discussed in the March 2017 meeting in the presence of the external auditor PwC. At the Supervisory Board meeting in December, the budget for 2017 was approved and the
After approving the corporate strategy in December 2015, the Supervisory Board closely monitored its execution and any opportunities to further enhance it where necessary. Plans and projects were discussed during executive sessions and in regular meetings. The strategic focus for all operating segments was discussed. Furthermore, the rationale to combine the activities in
The Netherlands, Central & Eastern Europe and Spain & Portugal into Aegon Continental Europe was discussed and approved in
Board approval, smaller add-ons and divestments were also discussed. During the year, the Board discussed various M&A
In recognition of the importance of succession planning and talent management, the Board received updates from
Results and budget In February 2016, the Supervisory Board convened to discuss the fourth quarter 2015 results. In March 2016, the Supervisory
Statements of Aegon N.V. and the annual review of 2015. In May,
August and November, the Supervisory Board reviewed Aegon’s first, second and third quarter 2016 results respectively.
Board reviewed the Company’s Medium Term Plan, including the budget and capital plan for 2017. The Boards took note of the uncertainties and challenges in the coming years as described in the Plan. These included, among others: increased regulatory requirements, low interest rates, market volatility, digital developments and the changing distribution landscape.
Legal, compliance and regulatory affairs In 2016, the Supervisory Board and the Audit Committee discussed a number of compliance, regulatory and legal topics relating to the Americas, Europe, Asia, and Asset Management with management, the General Counsel, the Global Head of
DNB) in the first half of 2016 for their annual meeting to discuss issues of strategy, risk management and compliance. In addition, in the second half of 2016 the full Supervisory Board visited
IFRS 17. The Audit Committee held a meeting dedicated to a detailed discussion on Aegon’s business in the United States,
The Supervisory Board undertakes a Board review on an annual basis, and an external assessment takes place at least once every three years. In 2015, an external assessment of the Supervisory
Board was conducted in which each member of the Board was interviewed on the basis of a completed questionnaire. This 2015 review assessed the collective performance and effectiveness of the Board and its Committees, and the performance of the
Chairman. The review addressed the composition and profile of the Board, the meeting processes and procedures, the dynamics and communication in the Board, and the Board’s key areas of supervision. In the beginning of 2016, the Supervisory Board met to review and discuss the results of the 2015 external assessment in the absence of management. The Board agreed that it had continued to make progress, and that it functioned well and fulfilled its duties and responsibilities in a satisfactory way. In the same meeting, the Board listed the priorities and follow-up for the Board to address in 2016. At the end of 2016, the Board made a self-assessment on the basis of a questionnaire that addressed the same topics as in 2015. In addition to this self-assessment, an internal evaluation of the cooperation and
The performance of the members of the Executive Board was discussed regularly during 2016 and at a dedicated meeting of the Nomination and Governance Committee in December.
Committees. All Committee reports have been prepared by the respective Committees and were approved by the Supervisory
The Audit Committee Composition On December 31, 2016, the composition of the Audit Committee was as follows: �� Ben van der Veer (chair) �� Robert W. Dineen �� Ben J. Noteboom �� Dirk P.M. Verbeek �� Dona D. Young
The Committee confirmed that all of its members qualified as independent according to Rule 10A-3 of the SEC, and it also confirmed that Ben van der Veer qualifies as a financial expert according to the terms and conditions of the Dutch Corporate
With regard to the oversight of the operation of the risk management framework and risk control systems, including supervising the enforcement of relevant legislation and regulations, the Audit Committee operates in close coordination with the Risk Committee as established by the Board. Certain committee members partake in both committees and a combined meeting of the Audit and Risk Committees is scheduled on an annual basis.
Committee meetings In 2016, the Audit Committee held seven meetings including conference calls, one of which was a combined meeting with the Risk Committee of the Supervisory Board. In October 2016, a separate meeting took place in the US dedicated to Aegon’s US
business. Topics for discussion included the operational readiness for the fiduciary rule of the Department of Labor, organizational enhancements, hedging, captives and a business overview including capital and earnings analyses, among others. The Audit
Financial Center, Chief Risk Officer, internal auditor and partners of PwC, Aegon’s external auditor.1
Financial Reporting In discharging their responsibilities in respect of the 2016 interim and full year financial statements, the Audit Committee: �� Reviewed and discussed the management letter and follow up actions with PwC, the Executive and the Management Board; �� Discussed PwC’s quarterly reports leading to a review opinion on the interim financial statements; �� Received presentations on various topics by local business unit managers and chief financial officers; and �� Reviewed and discussed areas of significant judgments in the preparation of the financial statements, including, in particular: Solvency II, investment valuation and impairments, economic and actuarial assumption setting, and model validations.
Committee was satisfied with the explanations provided and conclusions reached. Recurring items on the Audit Committee agenda in 2016 were Solvency II developments and controls.
Risk management and internal controls With respect to their oversight of accounting risk management and internal controls (provided they did not pertain to the work and responsibilities of the Risk Committee) the Audit Committee: �� Reviewed and approved the external audit plan for 2016 and monitored execution, including progress in respect of recommendations made; �� Discussed quarterly updates on the activities of the internal audit function, together with details of progress on internal audits with the internal auditor. Areas of focus in 2016 included information security, control excellence progress,
Solvency II and the remediation of outstanding issues; �� Tested and reviewed the internal control framework, amongst others in relation to the Sarbanes Oxley Act; and �� Discussed the internal control statement with the
External audit effectiveness The Audit Committee discussed and approved the external auditor's engagement letter and the audit plan for 2016.
For more information about the policies relating to the effectiveness and independence of the external auditor, please see Annex A, B and C of the Audit Committee Charter, as revised in August 2015, on Aegon’s corporate website, aegon.com.
For more information about the functioning of the Risk Committee, please see the Risk Committee Charter on aegon.com.
Solvency II internal models, the risk priority plan and the model validation plan for 2017. In addition, discussions also included information technology security and investments.
Chief Risk Officer and the members of Aegon’s Executive Board attended all meetings.
exposure information and risk policy compliance monitoring provided through the quarterly risk dashboard covering all material group level risks. Further, the Risk Committee reviewed the annual refresh of the risk strategy and resulting changes in risk tolerances and Group risk limits, key risk management initiatives to deliver on the strategy, the risk governance structure and risk competencies of the Company. The Risk Committee also discussed several regulatory topics on a regular basis, including the DNB Focus report, the Group ORSA report and the consequences and actions following the designation of Aegon as a G-SII in
Role and responsibilities The main role and responsibilities of the Nomination and
Resources Management and Corporate Governance. This includes: �� Board member and senior management succession planning; �� Drawing up selection criteria and procedures; �� Advising and proposing on nominations, appointments and reappointments; �� Reviewing and updating board profile and charters for board and committees; �� Discussing the annual global employee survey; and �� Overseeing the corporate governance structure of the Company, compliance with the Dutch Corporate
Supervisory Board related activities The Nomination and Governance Committee discussed the composition of the Supervisory Board and its Committees and governance topics. The profile of Supervisory Board members, as well as their capabilities in terms of working collectively with other members of the Supervisory Board, was debated by the
Committee discussed the search process and appointment of a new CFO following the resignation of Darryl Button.
The Committee discussed the rationale supporting the proposal to the Annual General Meeting of Shareholders in May 2017 to appoint Matt Rider as Aegon’s CFO. The Committee also discussed the extension of the Management Board with the General Counsel, Global Head Human Resources,
Acknowledging the importance of good succession planning, the Committee also discussed with the CEO and Aegon’s Global
Management Board and senior management level both in the event of emergency and when positions open up in the future.
The CEO also discussed changes in the global senior management team with the Nomination and Governance Committee during the year. The Committee was kept appraised of developments in employee engagement, talent management and international mobility. As in previous years, the Supervisory Board noted that
Board is an important issue for Aegon. Selection and appointment is based on expertise, skills and relevant experience.
‘balanced composition’ requirement under Dutch law with regard to gender diversity (at least 30% of the seats should be filled by women and at least 30% by men). Following the appointment of
Corien Wortmann-Kool to the Supervisory Board in 2014, the gap with the ‘balanced composition’ was reduced, and the Supervisory
The Remuneration Committee Composition On December 31, 2016, the composition of the Remuneration
Banking Authority. Furthermore, the Committee discussed the remuneration of the Executive Board following the resignation of
Global Remuneration Framework and the various policies and procedures related to it, including the Remuneration Policy for Identified Staff. This included: �� Setting the 2016 performance indicators and targets for remuneration purposes; �� Setting the 2017 performance indicators for remuneration purposes; �� Allocating variable compensation for 2015; �� The scenario analysis of payout levels under the Executive
Board Remuneration Policy; and �� Reviewing and/or approving the ex-ante assessments and ex-post assessments, any exemption requests under the remuneration policies, and changes to the list of
Furthermore, the Committee discussed the results of the audit by the Internal Audit Department on the application of the Remuneration Framework.
Annual Accounts This Annual Report includes the Annual Accounts for 2016, which were prepared by the Executive Board and discussed by both the Audit Committee and the Supervisory Board. The Annual
Accounts are signed by the members of the Executive Board and the Supervisory Board, and are on the agenda of the 2017
Annual General Meeting of Shareholders. The Supervisory Board recommends that shareholders adopt the Annual Accounts.
We would like to thank Aegon’s employees for all they do to serve Aegon’s millions of customers, and furthermore we would like to express our thanks to Aegon’s business partners and loyal customers for their continued confidence in the Company.
April 2010. Mr. Routs was reappointed as a member of the
Shareholders and his third and final term ends in 2020. Mr. Routs is chairman of the Supervisory Board Nomination and
DSM N.V. and sits on the Board of Directors of ATCO Ltd., A.P.
President and head of Merrill Lynch’s Managed Asset Group. He was appointed to Aegon’s Supervisory Board in May 2014 and his current term ends in 2018. He is a member of the Supervisory
Mr. Dineen is also a member of the Board of Aretec Inc (not listed, located in the US) and was a member of Lincoln New York Life
Company Board. Mr. Dineen has held no other board memberships in the past five years.
Oyj. He is a former non-executive director of the Safran Group, member of the Board of Directors of Renault Spain, Nissan Motor
Technologies Group S.A. (not listed). He has held no other board memberships in the past five years.
Randstad, Mr. Noteboom worked for Dow Chemical in several international management functions between 1984 and 1993.
Mr. Noteboom is also a member of the Supervisory Board of
In addition, Mr. Noteboom is a member of the Board of Directors of VUmc Cancer Center Amsterdam. He has held no other board memberships in the past five years.
1. Irving W. Bailey II reached the end of his third and final term, and resigned as a member of the Board on May 20, 2016.
N.V. (not listed), and a former member of the Supervisory Board of Royal Imtech N.V. and Siemens Nederland N.V. (not listed).
He has held no other board memberships in the past five years.
Mr. Verbeek is a member of the Supervisory Board of Aon Groep
Groep N.V. (not listed) until December 2015. He was also advisor to the President and Chief Executive Officer of Aon Corporation.
May 2014, and her current term ends in 2018. She is a member of the Supervisory Board Risk Committee and a member of the
until 2014. She has held no other board memberships in the past five years.
Companies, which was an insurance and asset management company at the time of her tenure. She was appointed to Aegon’s
She is a member of the Supervisory Board Audit Committee and a member of the Supervisory Board Risk Committee.
Aegon’s remuneration policies are derived from the GRF, among which is the Remuneration Policy for the Executive Board. These policies define specific terms and conditions for the employment of various groups of staff. All steps in the remuneration process are governed by the GRF and its underlying policies. In addition,
European legislation, and require at least 50% of the performance indicators used for determining variable compensation to be of a non-financial nature. In addition the regulations limit the use of financial retention and severance arrangements. The Wbfo has a provision that makes it possible to apply a variable compensation maximum that is aligned with the European CRD IV compensation ratio (100% of fixed compensation at maximum level). This has been specifically created for all people working for the corporate office of companies with a strong international nature. In 2016, Aegon met the applicable criteria. Although the regular maximum levels of variable compensation apply in the Netherlands, Aegon has offered selected senior staff at its corporate office a maximum variable compensation opportunity in line with CRD IV
These remuneration policies are for: (i) the Executive Board; (ii) material risk takers (Identified Staff); and (iii) Control Staff.
Given the rationale for having a separate policy for material risk takers and the risk mitigating measures that are applied to the remuneration of these individuals, Risk Management is involved in deciding which positions are deemed ‘Identified Staff’.
This means that the aim is for total remuneration for experienced and competent employees to be consistent with those in the markets in which Aegon operates and competes for employees.
Variable compensation, if any, is capped at an appropriate level as a percentage of base pay. Variable compensation for senior management is usually paid out in cash and shares over multiple years, and is subject to further conditions being fulfilled.
Additional holding periods may apply to shares after they have vested, restricting their sale for a further one to three years.
Supervisory Board Remuneration Policy 2016 Aegon’s Remuneration Policy for members of its Supervisory
Fee for membership of a Supervisory Board committee EUR / year Chairman of the Audit Committee 13,000
Information on members of the Supervisory Board and the composition of Aegon’s four committees – Audit, Nomination and Governance, Remuneration and Risk – can be found on pages 107-112.
Executive Board Remuneration in 2016 Executive Board remuneration Aegon’s Executive Board is remunerated on the basis of the principles described in Aegon’s GRF. Aegon’s remuneration policy for members of the Executive Board is derived from this framework and sets out terms and conditions for members of the Company's Executive Board.
Role of the Remuneration Committee The Supervisory Board has overall responsibility for the Company's
Each year, Aegon’s Remuneration Committee reviews Aegon’s remuneration policies to ensure they remain in line with prevailing international standards. This review is based partly on information provided by Aegon’s external advisor, Towers Watson. The advisor does not, however, advise individual members of the Executive and Supervisory Boards.
The Remuneration Committee may recommend changes to the policies to the Supervisory Board.
In addition, in order to monitor alignment with the general industry in the Netherlands, a reference group is used.
Board determines a maximum total compensation, reflecting the specific roles and responsibilities of the individual. Each year, the Supervisory Board reviews total compensation levels to ensure they remain competitive and provide proper, risk-based incentives to members of Aegon’s Executive Board. To ensure
Consistent with the Executive Board Remuneration Policy, the total direct compensation for Executive Board members consists of fixed compensation and variable compensation.
The Supervisory Board (Remuneration Committee) discussed and endorsed the 2016 total compensation for the Executive Board.
The committee noted, in particular, that the variable compensation (both expressed as opportunity and actual payout levels) for Executive Board members at Aegon is lower than at peer- and other non-financial companies.
Variable compensation Aegon believes that variable compensation strengthens the commitment of Executive Board members to the Company's objectives, business strategy, risk tolerance and long-term performance. Variable compensation is based on a number of individual and company performance indicators that are linked to these items. The indicators are regularly evaluated by experts in the Company's Finance, Risk Management, Business Control,
The deferred parts vest in equal tranches over a three-year period. After an ex-post assessment, which may lower the vesting parts, these individual parts are paid 50% in cash and 50% in shares. The shares are restricted for a further period of three years (with the exception of shares withheld to cover1 for the payment of any applicable taxes, social security premiums and possible other deductions by the government due for which the company holds a withholding obligation in connection with the vesting of the shares).
Information on the expenses recognized for variable compensation and the status of awards are provided in note 53 of this report.
�� If at an aggregated level the threshold target is not reached, no variable compensation related to the performance period will be made available.
Risk adjustment methodology (ex-ante) At the end of the performance period, but prior to allocation of variable compensation, the Supervisory Board assesses whether
Ex-post assessment and discretionary adjustments The Supervisory Board uses its judgment in the assessment of the outcome of strategic/personal targets to ensure that, taken together, they represent a fair reflection of the overall performance of the Board member over the performance period.
criteria such as: �� the outcome of a re-assessment of the performance against the original financial performance indicators; �� a significant downturn in the Company’s financial performance; �� evidence of misbehavior or serious error by the participant; �� a significant failure in risk management; and �� significant changes in the Company’s economic or regulatory capital base.
Claw-back provision Aegon’s Supervisory Board is obliged to claim back variable compensation that has already been paid out or vested where required based on the regulations that apply from time to time, if variable compensation is based on incorrect data (including non-achievement of performance indicators in hindsight), or in the event of material financial restatements or individual gross misconduct.
Loans Aegon does not grant Executive Board members personal loans, guarantees or other such arrangements, unless in the normal course of business and on terms applicable to all employees, and only with the approval of the Company's Supervisory Board.
Terms of Engagement Agreement Members of the Executive Board are appointed for four years, and may then be re-appointed for successive mandates also for a period of four years.
Members of the Executive Board may terminate their engagement agreement with a notice period of three months. The Company must give six months notice if it wishes to terminate the agreement of a member of its Executive Board.
The Supervisory Board has taken appropriate steps to ensure the arrangements of members of the Executive Board are in line with the Executive Board Remuneration Policy.
Executive Board Remuneration Report At the end of December 2016, Aegon’s Executive Board had one member: �� Alex Wynaendts, Chief Executive Officer and Chairman of the
Shareholders in 2015, Mr. Wynaendts was re-appointed for an additional four years. �� Darryl Button, Chief Financial Officer and member of the
Conditional variable compensation awards 2016 Subject to the adoption of the annual accounts at the General
Performance as reported on the financial and non-financial Group performance indicators and targets resulted in a performance score of 49.87% (maximum 62.50%) for Mr. Wynaendts and 59.87% (maximum 72.5%) for Mr. Button. The performance on individual (strategic) objectives resulted in a pay-out of 32.38%
In 2017, Mr. Wynaendts and Mr. Button are eligible to receive a cash payment of EUR 208,824 and EUR 149,347 respectively.
The number of shares to be made available in 2017 is 40,722 for
The remaining part of variable compensation for the performance year 2016 (60% of the total, which for
No circumstances have been identified to lower payout of the deferred payment from prior performance years that vest in 2017 (the so called ‘ex-post assessment’) or to lower the payout of the up-front payment of the 2016 performance year variable compensation that vests in 2017 (the so called
Future changes No material changes to the executive board remuneration policy are foreseen for 2017. Compensation for individuals in the financial sector, in particular for those that materially influence the risk profile of the organization, does however continue to be a focus of regulatory attention. Aegon will ensure compliance if and when new regulations are approved. Any such regulations may require further deferral and the extension of holding periods, which Aegon will apply to new allocations of variable compensation going forward.
Netherlands, United States and the United Kingdom. Aegon’s largest shareholder is Vereniging Aegon, a Dutch association with a special purpose to protect the broader interests of the
General Meeting of Shareholders A General Meeting of Shareholders is held at least once a year and, if deemed necessary, the Supervisory or Executive Board of the Company has the authority to convene an Extraordinary
Record date The record date is used to determine shareholders’ entitlements with regard to their participation and voting rights. In accordance with Dutch law, the record date is 28 days before the day of the
Voting at the General Meeting At the General Meeting, each common share carries one vote. In the absence of a Special Cause, Vereniging Aegon casts one vote for every 40 common shares B it holds.
Supervisory Board itself. Aegon aims to ensure that the composition of the Company's Supervisory Board is well balanced in terms of professional background, geography and gender. A
Aegon’s aims and developing the strategy and its associated risk profile, in addition to overseeing any relevant sustainability issues and the development of the Company's earnings. Each member has duties related to his or her specific area of expertise.
The number of Executive Board members and their terms of employment are determined by the Company's Supervisory Board.
The capital of the Company Aegon has an authorized capital of EUR 1,080 million, divided into 6 billion common shares and 3 billion common shares B, each with a nominal value of EUR 0.12. As of December, 31 2016, a total of 2,074,548,842 common shares and 585,022,160 common shares B had been issued.
Company's largest shareholder. The nominal value of the common shares B is equal to the nominal value of a common share. This means that common shares B also carry one vote per share. However, the voting rights attached to common shares B
are subject to restrictions as laid down in the Voting Rights
Significant shareholdings On December 31, 2016, Vereniging Aegon, Aegon’s largest shareholder, held a total of 279,236,609 common shares and 567,697,200 common shares B.
Autoriteit Financiële Markten, the US based investment management firm Dodge & Cox International Stock Fund holds a capital and voting interest in Aegon of over 5%. Based on its last filing with the Dutch Autoriteit Financiële Markten as at
On March 20, 2017, Dodge & Cox's filing with the US Securities and Exchange Commission (SEC) shows that Dodge & Cox holds 258,658,681 common shares, representing 9.7% of the issued capital, and has voting rights for 252,734,642 shares, representing 9.5% of the votes as at December 31, 2016. The SEC filing also shows that of this number of shares Dodge & Cox International
Based on its filing with the Dutch Autoriteit Financiële Markten as at December 29, 2016, BlackRock, Inc. stated to hold 80,649,787 shares as defined in the Wet op het Financieel
Toezicht, representing 3.0% of the capital issued and 90,812,987 voting rights, representing 3.4% of the votes as at December 31, 2016.
The filing of Franklin Resources, Inc. (FRI), a US based investment management firm, with the SEC as at February 8, 2017, shows that FRI holds 150,157,500 common shares, representing 5.6%
of the issued capital, and has voting rights for 139,607,593 shares, representing 5.2% of the votes as at December 31, 2016.
Issue and repurchase of shares New shares may be issued up to the maximum of the Company's authorized capital, following a resolution adopted by the General
Under the terms of existing share plans the vesting of granted rights is predefined. The shares shall vest as soon as possible in accordance with payroll requirements of the relevant subsidiary after the adoption of the Company's Annual Report at the Annual
suspended or dismissed by the General Meeting of Shareholders with a two-thirds majority of votes cast, representing at least one half of Aegon’s issued capital, unless the suspension or dismissal has first been proposed by the Company's Supervisory Board. A
Supervisory Board, although the General Meeting of Shareholders has the power to annul this suspension.
Dutch Corporate Governance Code. The version of the code applicable to the financial year 2016 is the version that came into force on January 1, 2009. Aegon endorses the Code and strongly supports its principles for sound and responsible corporate governance. Aegon regards the Code as an effective means to help ensure that the interests of all stakeholders are duly represented and taken into account. The Code also promotes transparency in decision-making and helps strengthen principles of good governance. It is the responsibility of both the
Supervisory Board and the Executive Board to oversee Aegon’s overall corporate governance structure. Any substantial change to this structure is submitted to the General Meeting of
Code II.2.13 (j) The Dutch Corporate Governance Code recommends that the remuneration report of the Supervisory Board shall in any event contain information on agreed arrangements for the early retirement of members of the Executive Board.
Aegon’s position on Code II.3.3 In line with Dutch law, members of the Executive Board do not take part in discussions or decision-making related to a subject or transaction in which he or she has a personal conflict of interest.
One member of Aegon’s Executive Board is a member of the
Vereniging Aegon. This may be construed as a business-related conflict of interest. However, under Vereniging Aegon’s Articles of Association, the members of Aegon’s Executive Board are specifically excluded from voting on issues directly related to
Aegon or their position within it. Aegon’s Supervisory Board holds the view that, given the historic relationship between Aegon and
Supervisory Board has decided that, in the absence of any hostile action, it will only make nominations for the appointment of members to the Executive and Supervisory Boards that are non-binding in nature.
The Supervisory Board performs supervisory and advisory functions only, and its members are outsiders that are not employed by the Company. The Supervisory Board has the duty to supervise the performance of the Executive Board, the Company's general course of affairs and the business connected with it.
The Supervisory Board also assists the Executive Board by giving advice. Other powers of the Supervisory Board include the prior approval of certain important resolutions of the Executive Board.
Members of the Supervisory Board are appointed for a four-year term and may be dismissed by the General Meeting of
Code of ethics Aegon’s ‘Code of Conduct’ is a code of ethics that outlines the
This code applies to all directors, officers (regardless of the contractual basis of their employment) and employees of all
Aegon companies. This includes members of the Executive Board, the Management Board and the Supervisory Board of Aegon N.V., as well as other executive and non-executive or supervisory directors of Aegon companies.
In order to support the Code, Aegon has engaged a vendor to supply a tool that enables employees and third parties to report actual or potential violations of the Code on an anonymous and confidential basis. Employees are encouraged to raise concerns.
Committee of the Supervisory Board. Suspected or actual frauds that exceed certain thresholds must also be reported to Group
Regulatory Compliance. All fraud matters are investigated and corrective actions are taken as appropriate.
Due to the listing of Aegon shares on the New York Stock
In making its assessment management used the criteria established in ‘Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Report of Independent Registered Public Accounting Firm To: The Annual General Meeting of Shareholders’ and Supervisory Board of Aegon N.V. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
Control – Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s
Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Financial statements of Aegon N.V. Income statement of Aegon N.V. 304
EUR USD GBP CAD EUR USD GBP CAD EUR USD GBP CAD
Amounts in EUR million (except per share data) Note 2016 2015 1) 2014 1)
Share in profit / (loss) of joint ventures 137 142 56
Net income / (loss) attributable to: Owners of Aegon N.V. 586 (524) 1,194
Earnings per share (EUR per share) 19 Basic earnings per common share 0.22 (0.31) 0.49
Diluted earnings per common share B 0.01 (0.01) 0.01 1 Amounts have been restated to reflect the voluntary changes in accounting policies for deferred cost of reinsurance that was adopted by Aegon effective January 1, 2016. Furthermore a voluntary change in insurance accounting for business in United Kingdom was adopted by Aegon effective January 1, 2016 as well. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes.
Income tax relating to items that will not be reclassified 86 (77) 333
Items that may be reclassified subsequently to profit or loss: Gains / (losses) on revaluation of available-for-sale investments 854 (2,175) 6,759
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments (2,122) (485) (702)
Total comprehensive income/ (loss) attributable to: Owners of Aegon N.V. (729) (903) 7,257
Non-controlling interests 15 - (1) 1 Amounts have been restated to reflect the voluntary changes in accounting policies for deferred cost of reinsurance that was adopted by Aegon effective January 1, 2016. Furthermore a voluntary change in insurance accounting for business in United Kingdom was adopted by Aegon effective January 1, 2016 as well. Refer to note 2.1.2 Voluntary changes in accounting policies for details about these changes.
Amounts in EUR million Note 2016 2015 1) January 1, 2015 1)
Consolidated statement of financial position of Aegon N.V. Consolidated statement of financial position of Aegon N.V.
Consolidated statement of changes in equity of Aegon N.V. For the year ended December 31, 2016
Income tax relating to items that will not be reclassified - - (3) 89 - - 86 - 86
Items that may be reclassified subsequently to profit or loss: Gains / (losses) on revaluation of available-for-sale investments - - 854 - - - 854 - 854
(Gains) / losses transferred to income statement on disposal and impairment of available-for-sale investments - - (2,122) - - - (2,122) - (2,122)
Total comprehensive income / (loss) for 2016 - 584 (1,090) (288) 64 - (729) 15 (715)
Total comprehensive income / (loss) for 2015 - (514) (1,837) 79 1,369 - (903) - (903)
1 Issued capital and reserves attributable to owners of Aegon N.V. 2 Refer to note 51 for details on the disposals 3 Amounts have been restated to reflect the voluntary changes in accounting policies for deferred cost of reinsurance that was adopted by Aegon effective
Changes in accounting policies relating to Deferred cost of reinsurance - (110) - - 5 - (105) - (105)
Net income / (loss) recognized in the income statement - 1,194 - - - - 1,194 1 1,195
Total other comprehensive income / (loss) - (4) 5,285 (905) 1,687 - 6,063 (1) 6,062
Total comprehensive income / (loss) for 2014 - 1,190 5,285 (905) 1,687 - 7,257 (1) 7,257
Share options and incentive plans - 7 - - - (4) 3 - 3 1 Issued capital and reserves attributable to owners of Aegon N.V. 2 Amounts have been restated to reflect the voluntary changes in accounting policies for deferred cost of reinsurance that was adopted by Aegon effective
Cash flow movements on operating items not reflected in income 4,258 2,875 (1,843)
Net cash flows from operating activities 3,319 914 4,122 Purchase of individual intangible assets (other than VOBA and future servicing rights) (22) (52) (28)
Purchase of equipment and real estate for own use (69) (90) (77)
Disposal of subsidiaries and businesses, net of cash (1,082) 542 -
Proceeds from TRUPS 1), subordinated loans and borrowings 3,711 1,821 3,862
Net cash and cash equivalents at the beginning of the year 9,593 10,649 5,652
Net cash and cash equivalents at the end of the year 21 11,346 9,593 10,649 1 Trust pass-through securities. 2 Included in net increase / (decrease) in cash and cash equivalents are interest received (2016: EUR 6,691 million, 2015: EUR 7,118 million and 2014: EUR 6,711 million) dividends received (2016: EUR 1,387 million, 2015: EUR 1,384 million and 2014: EUR 1,342 million) and interest paid (2016: EUR 300 million, 2015: EUR 350 million and 2014: EUR 320 million). All included in operating activities except for dividend received from joint ventures and associates (2016: EUR 203 million, 2015: EUR 76 million and 2014: EUR 75 million).
Aegon N.V. (or ‘the Company’) and its subsidiaries (‘Aegon’ or ‘the Group’) have life insurance and pensions operations in more than 20 countries in the Americas, Europe and Asia and are also active in savings and asset management operations, accident and health insurance, general insurance and to a limited extent banking operations. Headquarters are located in The Hague, the Netherlands. The Group employs over 29,000 people worldwide (2015: over 31,500).
The preparation of financial statements in conformity with IFRS-EU requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Those estimates are inherently subject to change and actual results could differ from those estimates. Included among the material (or potentially material) reported amounts and disclosures that require extensive use of estimates are: fair value of certain invested assets and derivatives, deferred policy acquisition costs, value of business acquired and other purchased intangible assets, goodwill, policyholder claims and benefits, insurance guarantees, pension plans, income taxes and the potential effects of resolving litigation matters. Aegon applies fair value hedge accounting for portfolio hedges of interest rate risk
March 22, 2017. The financial statements will be put for adoption to the Annual General Meeting of Shareholders on May 19, 2017.
2.1.1 Adoption of new IFRS-EU accounting standards New standards and amendments to standards become effective at the date specified by IFRS, but may allow companies to opt for an earlier adoption date. In 2016, the following new standards and amendments to existing standards issued by the IASB became mandatory but are not currently relevant or do not significantly impact the financial position or financial statements: �� IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception; �� IFRS 11 Joint Arrangements - Amendment Accounting for Acquisition of Interests in Joint Operations; �� IFRS 14 Regulatory Deferral Accounts1; �� IAS 1 Amendment Disclosure Initiative; �� IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization; �� IAS 27 Separate Financial Statements - Amendment Equity method in Separate Financial Statements; and �� Annual improvements 2012-2014 Cycle.
2.1.2 Voluntary changes in accounting policies On January 13, 2016, Aegon provided an update on its strategic plans at its Analyst & Investor Conference. Following this update
In the paragraphs below, details are provided for these changes in accounting policies including the impact on shareholders equity and net income.
Accounting related to certain reinsurance transactions Aegon adopted one single group-wide accounting policy for reinsurance transactions that are entered into as part of a plan to exit a business. The previous accounting policy recorded a deferred cost of reinsurance which was subsequently amortized. Under the new accounting policy, when the company enters into a reinsurance contract as part of a plan to exit a business, an immediate gain or loss will be recognized in the income statement.
For purposes of this accounting policy, a business is defined as ‘designated insurance liabilities to be disposed of through reinsurance transactions’. The insurance liabilities are designated according to their homogenous risk profiles, possible examples include but are not limited to geographical area, product type, distribution channel, policyholder profiles, and policy form or riders. Details for the deferred cost of reinsurance are included in note 2.13 Deferred expenses.
By extracting the digital solutions platform from the rest of the business, management aims to ensure the focus and separate culture required to successfully build a viable and sustainably growing business over the longer term.
Aegon adopted two voluntary accounting policy changes that better reflect its business strategy after restructuring in the United
have been adjusted to reflect lower income from subsidiaries and the knock-on impact on equity as well as the financial statement schedules included in Other financial information.
Impact of changes in accounting policies on the consolidated income statement Note
Policy holder claims and benefits 12 (23,830) - (2,614) (26,443) (36,214) - - (36,214)
Earnings per share (EUR per share) 19 Basic earnings per common share 0.23 - (0.54) (0.31) 0.49 - - 0.49
Basic earnings per common share B 0.01 - (0.01) (0.01) 0.01 - - 0.01
Diluted earnings per common share 0.23 - (0.54) (0.31) 0.49 - - 0.49
Coupons on non-cumulative subordinated notes (28) - - (28) (24) - - (24)
Net income / (loss) attributable to owners for basic earnings per share calculation 479 10 (1,153) (663) 1,034 9 - 1,043
Weighted average number of common shares B outstanding (in million) 584 - - 584 580 - - 580 1 As reported in Aegon’s Annual Report dated March 25, 2016.
Impact of changes in accounting policies on the consolidated statement of comprehensive income Note
Items that may be reclassified to profit or loss: Movement in foreign currency translation and net foreign investment hedging reserves 32.6 1,414 (12) 18 1,419 1,668 (14) - 1,654
Impact of changes in accounting policies on the consolidated statement of financial position Note
Remeasurement of defined benefit plans 32.5 (1,532) - - (1,532) (1,611) - - (1,611)
1 As reported in Aegon’s Annual Report dated March 25, 2016.
The voluntary changes in accounting policies have had no impact on the net cash flows from operating activities, investing activities nor from financing activities as presented in the cash flow statement.
Contracts; and �� IFRS 15 Revenue from Contracts with Customers, including Clarifications to IFRS 15 as issued in 2016.
IFRS 9 and IFRS 15 have been endorsed by the European Union. The amendment on applying IFRS 9 Financial Instruments with IFRS 4
Insurance Contracts and the Clarifications to IFRS 15 have not yet been endorsed.
Under IFRS 9 Classification and Measurement, financial assets are measured at amortized cost, fair value through profit or loss or fair value through other comprehensive income, based on both the entity’s business model for managing the financial assets and the financial asset’s contractual cash flow characteristics. The classification and measurement of financial liabilities is unchanged from existing requirements apart from own credit risk. For financial liabilities that are designated at fair value through profit or loss, the changes which are attributable to the change in an entity’s own credit risk are presented in other comprehensive income, unless doing so would enlarge or create an accounting mismatch. For the impairment component, the IASB included requirements for a credit loss allowance or provision which should be based on expected losses rather than incurred losses.
Application of IFRS 9 is required for annual periods beginning on or after January 1, 2018. However, the IASB has issued an amendment to IFRS 4 Insurance Contracts. The objective of the amendment is to address the temporary accounting consequences of the different effective dates of IFRS 9 and the forthcoming insurance contracts standard. The amendments permit entities whose predominant activities are connected with insurance, to either defer the application of IFRS 9 until 2021 (the ‘temporary exemption’); or to permit all issuers of insurance contracts to recognize in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before the new insurance contracts standard is issued (the ‘overlay approach’).
Investment funds managed by the Group in which the Group holds an interest are consolidated in the financial statements if the Group has power over that investment fund and it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In assessing control, all interests held by the Group in the fund are considered, regardless of whether the financial risk related to the investment is borne by the Group or by the policyholders (unless a direct link between the policyholder and the fund can be assumed).
Upon classification as held for sale, the carrying amount of the disposal group (or group of assets) is compared to their fair value less cost to sell. If the fair value less cost to sell is lower than the carrying value, this expected loss is recognized through a reduction of the carrying value of any goodwill related to the disposal group or the carrying value of certain other non-current, non-financial assets to the extent that the carrying value of those assets exceeds their fair value. Any excess of the expected loss over the reduction of the carrying amount of these relevant assets is not recognized upon classification as held for sale, but is recognized as part of the result on disposal if and when a divestment transaction occurs.
United Kingdom, New Markets and Holdings and other activities. New Markets was established to aggregate Aegon’s emerging businesses and global / European initiatives which is a combination of the following operating segments: Central & Eastern Europe,
Asia, Spain & Portugal, Asset Management and Variable Annuities Europe (VA Europe). Under IFRS 8 these operating segments were aggregated as one reportable segment due to their respective size.
The following tables show the reconciliation between former and new segment reporting, first showing the impact of the segment change and second showing the new segments taking into account the voluntary change in accounting policies as described in note 2.1.2 and finally showing the change in measurement of underlying earnings before tax as described in note 5 Segment information.
The following table presents Aegon’s 2015 segment results as previously reported: Income statement – Underlying earnings Americas
Jo in t ve nt ur es an d as so ci at es el im in at io ns
2.4.3 Change in measurement of underlying earnings before tax As described in note 5 Segment Reporting, Aegon made changes in the measurement of underlying earnings before tax by presenting the impacts from assumption updates as part of other income/ (charges) rather than as part of underlying earnings before tax or fair value items. In addition, the impact from updates to actuarial assumptions, as well as model updates and updates to economic assumptions both previously recorded in fair value items, are recorded in Other income / (charges) as of 2016.
The following table presents the impact of the changes in measurement of actuarial assumption updates, as implemented in 2016, on the comparative numbers for the years ended December 31, 2015 and 2014: Income statement - Underlying earnings A
Realized gains / (losses) on investments - - - - - - - - - - - - -
Fair value is defined as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions (i.e. an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability). For quoted financial assets for which there is an active market, the fair value is the bid price at the reporting 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 unobservable 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.
A financial asset is derecognized when the contractual rights to the asset’s cash flows expire and when the Group retains the right to receive cash flows from the asset or has an obligation to pay received cash flows in full without delay to a third party and either: has transferred the asset and substantially all the risks and rewards of ownership, or has neither transferred nor retained all the risks and rewards but has transferred control of the asset. Financial assets of which the Group has neither transferred nor retained significantly all the risk and rewards are recognized to the extent of the Group’s continuing involvement. If significantly all risks are retained, the assets are not derecognized.
All property is initially recognized at cost. Such cost includes the cost of replacing part of the real estate and borrowing cost for long-term construction projects if recognition criteria are met. Subsequently, investments in real estate are measured at fair value with the changes in fair value recognized in the income statement. Real estate held for own use is carried at its revalued amount, which is the fair value at the date of revaluation less subsequent accumulated depreciation and impairment losses. Depreciation is calculated on a straight line basis over the useful life of a building. Land is not depreciated. On revaluation the accumulated depreciation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount.
c. Hedge accounting As part of its asset liability management, the Group enters into economic hedges to limit its risk exposure. These transactions are assessed to determine whether hedge accounting can and should be applied.
obligations each investor has rather than the legal structure of the joint arrangement. Aegon has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method.
accordance with the terms of each reinsurance contract. They are subject to impairment testing and are derecognized when the contractual rights are extinguished or expire or when the contract is transferred to another party.
Acquisition costs are deferred to the extent that they are recoverable and are subsequently amortized based on factors such as expected gross profit margins. For products sold in the United States with amortization based on expected gross profit margins or revenues, the amortization period and pattern are reviewed at each reporting date and any change in estimates is recognized in the income statement. Estimates include, but are not limited to: an economic perspective in terms of future returns on bond and equity instruments, mortality, morbidity and lapse assumptions, maintenance expenses and expected inflation rates.
When losses on buying reinsurance are deferred, the amortization is based on the assumptions of the underlying insurance contracts.
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.
When impairing a cash-generating unit, any goodwill allocated to the unit is first written-off and recognized in the income statement.
Impairment losses recognized for debt instruments can be reversed if in subsequent periods the amount of the impairment loss decreases and that decrease can be objectively related to a credit event occurring after the impairment was recognized. For debt instruments carried at amortized cost, the carrying amount after reversal cannot exceed what the amortized cost would have been at the reversal date, had the impairment not been recognized.
d. Impairment of reinsurance assets Reinsurance assets are impaired if there is objective evidence, as a result of an event that occurred after initial recognition of the reinsurance asset, that not all amounts due under the terms of the contract may be received. In such a case, the value of the reinsurance asset recoverable is determined based on the best estimate of future cash flows, taking into consideration the reinsurer’s current and expected future financial conditions plus any collateral held in trust for Aegon’s benefit. The carrying value is reduced to this calculated recoverable value, and the impairment loss recognized in the income statement.
All treasury shares are eliminated in the calculation of earnings per share and dividend per common share.
Subordinated borrowings include the liability component of non-cumulative subordinated notes. These notes are identified as a compound instrument due to the nature of this financial instrument. Compound instruments are separated into equity components and liability components. The liability component for the non-cumulative subordinated notes is related to the redemption amount.
For further information on the accounting policy of the non-cumulative subordinated notes refer to note 2.17 Equity.
2.19 Insurance contracts Insurance contracts are accounted for under IFRS 4 Insurance Contracts. In accordance with this standard, Aegon continues to apply the existing accounting policies that were applied prior to the adoption of IFRS-EU with certain modifications allowed by IFRS 4 for standards effective subsequent to adoption. Aegon applies, in general, non-uniform accounting policies for insurance liabilities and intangible assets to the extent that it was allowed under Dutch Accounting Principles. As a result, specific methodologies applied may differ between Aegon’s operations as they may reflect local regulatory requirements and local practices for specific product features in these local markets. At the time of IFRS-EU adoption, Aegon was applying US GAAP for its United States operations whereas in the
Netherlands and the United Kingdom, Aegon was applying Dutch Accounting Principles. Since adoption of IFRS-EU, Aegon has
considered new and amended standards in those GAAPs which have become effective subsequent to the date of transition to IFRS-EU.
Insurance liabilities are recognized when the contract is entered into and the premiums are charged. The liability is derecognized when the contract expires, is discharged, disposed or cancelled. Within the United States, the Netherlands and the United Kingdom, substantially modified contracts are accounted for as an extinguishment of the original liability and the recognition of a new liability.
Insurance assets and liabilities are valued in accordance with the accounting principles that were applied by the Group prior to the transition to IFRS-EU and with consideration of standards effective subsequent to the date of transition to IFRS-EU, as further described in the following paragraphs. In order to reflect the specific nature of the products written, subsidiaries are allowed to apply local accounting principles to the measurement of insurance contracts. All valuation methods used by the subsidiaries are based on the general principle that the carrying amount of the net liability must be sufficient to meet any reasonably foreseeable obligation resulting from the insurance contracts.
Terms and conditions, including participation features and expected lapse rates, are considered when establishing the insurance liabilities. Where the Group has discretion over the amount or timing of the bonuses distributed resulting from participation features, a liability is recognized equal to the amount that is available at the reporting date for future distribution to policyholders.
d. Shadow accounting Shadow accounting allows that all gains and losses on investments affect the measurement of the insurance assets and liabilities in the same way, regardless of whether they are realized or unrealized and regardless of whether the unrealized gains and losses are recognized in the income statement or directly in equity in the revaluation reserve. In some instances, realized gains or losses on investments have a direct effect on the measurement of the insurance assets and liabilities. For example, some insurance contracts include benefits that are contractually based on the investment returns realized by the insurer. In addition, realization of gains or losses on available-for-sale investments can lead to unlocking of VOBA or DPAC and can also affect the outcome of the liability adequacy test to the extent that it considers actual future investment returns. For similar changes in unrealized gains and losses, shadow accounting is applied. If an unrealized gain or loss triggers a shadow accounting adjustment to VOBA, DPAC or the insurance liabilities, the corresponding adjustment is recognized through other comprehensive income in the revaluation reserve, together with the unrealized gain or loss.
a. Investment contracts with discretionary participation features Some investment contracts have participation features whereby the policyholder has the right to receive potentially significant additional benefits which are based on the performance of a specified pool of investment contracts, specific investments held by the
Group or on the issuer’s net income. If the Group has discretion over the amount or timing of the distribution of the returns to policyholders, the investment contract liability is measured based on the accounting principles that apply to insurance contracts with similar features.