Results of operations 18 �� Worldwide 18 �� Americas 26 �� The Netherlands 42 �� United Kingdom 53 �� New Markets 62
Introduction About this report This report serves as Aegon’s Annual Report for the year ended
Standards (IFRS) as adopted by the European Union, and Part 9 of Book 2 of the Dutch Civil Code.
'member companies' means, in relation to Aegon N.V., those companies required to be consolidated in accordance with the Netherlands legislative requirements concerning relating to consolidated accounts.
when referring to the lawful currency of Poland; 'RON' when referring to the lawful currency of Romania; 'TRY' when referring to the lawful currency of Turkey, and 'UAH' when referring to the lawful currency of Ukraine.
Once again, one of the key highlights of the year was the very strong and profitable sales we generated across the Company, which are up by 24% on 2014. Moreover, I am pleased that we have seen a 12% year-on-year increase in sales over the last five years, and this success underlines the continued progress Aegon has made to connect with customers in new ways – including through our new and innovative digital propositions.
While we had strong results in terms of sales, it was a challenging year from an earnings perspective and I am disappointed that our results – in particular those in the US –
While the gradual upturn in the US economy was a positive sign, the economic growth outlook in the US remains mixed and below that of the pre-crisis level. Similarly, although measures to stimulate the eurozone economy had a positive effect on the outlook for the region, conditions for insurers became more challenging as interest rates dropped to historic lows. In this challenging environment Aegon remains well positioned for the future. The transformation in our business over the last five years, from one reliant largely on spread businesses to one focused on fee and technical income, makes us a stronger and more resilient franchise going forward.
Transforming our business 2015 was the final year of a five-year strategy cycle at the Company. As pleasing as it was to not only meet, but exceed, our targets for operational free cash flows and fee-based earnings, I am disappointed that we did not achieve our targets for return on equity and earnings growth. In January 2016, we updated the market on our strategy and the steps we are taking to continue to improve our operational performance. Central to this is the announcement that we will further reduce our expenses by EUR 200 million over the next three years.
In parallel, we will focus on developing a life-long relationship with our customers so that we can serve their financial needs at all the major financial junctures in their lives; rather than on a one-off basis. In order to accomplish this, we need to get much closer to our customers and connect with them how and when they wish. To this end, we will step up our work to provide guidance and advice to customers and accelerate our investments in digital solutions.
Clark Consulting and our joint venture with La Mondiale in France, freeing up close to a billion euros of capital. In terms of reinvesting our capital, two transactions that we secured are particularly exciting: first, the creation of a strategic partnership with La Banque Postale Asset Management, the fifth largest asset manager in France with over 10 million customers; and second, the acquisition of Mercer’s record keeping business, which makes Aegon one of the top five in the US pension administration market, with approximately 5 million plan participants. Both of these deals illustrate how we are reaching new customers by enhancing our distribution networks and teaming up with market leaders.
Kingdom in December was a significant achievement, and our strong capital position was reflected in the fact that all our major business units are above their respective target levels. I am pleased that our estimated group Solvency II ratio of 160% is in the upper end of our target range, meaning we are in a strong position to return capital to our shareholders. Our strong capital position enabled us to announce a share buyback of
Stability Board (FSB). We are engaging with supervisors with regard to the G-SII Framework, and while some implications of
G-SII designation are not clear, we are making progress on the plans we need to develop.
Our communities and our employees Although this report provides a comprehensive overview of
This explains our social, economic and environmental performance and impacts, together with outlining how we create value for our stakeholders.
Looking to the future Aegon is, I believe, well positioned to take advantage of the many opportunities in our markets by connecting with ever more customers and meeting their needs in a smooth and seamless way across their lifetimes. This gives me confidence that Aegon will achieve its strategic and financial objectives, and also create long-term value for customers and therefore shareholders alike.
Composition of the Executive Board and the Management Board Alex Wynaendts (1960, Dutch) Chief Executive Officer Chairman of the Executive Board Chairman of the Management Board Alex Wynaendts began his career in 1984 with ABN AMRO Bank, working in Amsterdam and London in the Dutch bank’s capital markets, asset management, corporate finance and private banking operations. In 1997, Mr. Wynaendts joined Aegon as Senior Vice President for Group Business Development.
He was appointed as a member of the Executive Board in 2003, overseeing the Company’s international growth strategy.
General Meeting of Shareholders of Aegon N.V. on May 20, 2015.
His third and final term of office will end in 2019.
Canada, joining Aegon in 1999 as Director of Product Development and Risk Management at Aegon USA's Institutional Markets business unit. He was appointed Corporate Actuary of Aegon USA
in 2002 and became CFO of Aegon Americas in 2005. From 2008 to 2011, Mr. Button also took on the responsibilities of Chairman and executive management of Aegon’s Canadian operations, before joining Aegon’s Corporate Center in 2012 as Executive
Tom Grondin (1969, Canadian)1 Chief Risk Officer of Aegon N.V. Member of the Management Board Tom Grondin was appointed Chief Risk Officer of Aegon N.V.
in 2003 and as a member of Aegon’s Management Board in
Transfer functions. He joined Aegon USA’s Institutional Markets business unit in 2000, where he was Chief Actuary. Prior to joining Aegon, he was a consultant at Tillinghast-Towers Perrin, and an asset liability manager at Manulife Financial.
1 Tom Grondin was appointed as Chief Financial Officer, Aegon Asia, effective January 1, 2016. Allegra van Hövell-Patrizi joined Aegon on
Strategic information Composition of the Executive Board and the Management Board8
Fokker Aircraft and NS Reizigers, part of the Dutch railway company, NS Group. In 1999, he joined Swiss Life in the Netherlands as a board member. Three years later, Mr. Keim was appointed CEO. In June 2008, he became CEO of Aegon the Netherlands and a member of Aegon’s Management Board.
Mr. Kepecs was the CEO of Aegon Hungary from 1992 to 2009, during which time he headed the expansion of Aegon’s businesses not only in Hungary, but also across the Central &
Mark Mullin (1963, American) Chief Executive Officer of Aegon Americas Member of the Management Board Mark Mullin has spent more than 20 years with Aegon in various investment and business management positions in both the United States and Europe. Mr. Mullin has served as President and CEO of one of Aegon’s US subsidiaries, Diversified Investment
Advisors, and as head of the Company’s annuity and mutual fund businesses. He was named President of Aegon Americas in 2009, and became President and CEO of Aegon Americas and a member of the Management Board in 2010.
Aegon’s ambition Aegon’s purpose – to help people achieve a lifetime of financial security – forms the basis of the Company’s strategy. The central focus of the strategy is to further change the Company by shifting from a product-based company to a customer needdriven one. This means serving diverse and evolving needs across the customer life cycle (‘right time, right solution’); aligning
In order to do so, Aegon will focus on reducing complexity, eliminating duplication, improving accuracy, and increasing automation to realize cost efficiencies, allowing investments in its transformation to a digitally enabled, customer-centric company. Furthermore, the Company will focus on driving scale and establishing strong market positions in its current footprint, and strictly adhering to comprehensive standards that support the efficient use of capital by all businesses. The different market segments, the different geographies, and the different starting positions of Aegon’s businesses nonetheless mean that they will experience different paths to meet the same goals. Expertise and knowledge available in Aegon’s established markets will be utilized to position its businesses in emerging markets.
Aegon’s history dates back over 170 years. Aegon N.V. was formed in 1983 through the merger of AGO and Ennia, both of which were successors to insurance companies founded in the 1800s.
Aegon is headquartered in the Netherlands and through its subsidiaries it employs over 31,500 people worldwide.
Holding B.V., the holding company for all European activities; Aegon International B.V., which serves as a holding company for the Aegon Group companies of all non-European countries; and Aegon Asset Management Holding B.V., the holding company for some of its asset management entities.
The Company fosters an entrepreneurial spirit within its businesses and encourages the innovation of products and services, with the focus always on helping people achieve a lifetime of financial security. Aegon uses a multi-brand, multichannel distribution approach to meet its customers’ needs.
Borrowings including subordinated and trust pass-through securities 13,361 15,049 12,009 13,416 9,377
Dividends Aegon declared interim and final dividends on common shares for the years 2011 through 2015 in the amounts set forth in the following table. The 2015 interim dividend amounted to
EUR 0.12 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 18, 2015. At the General
EUR 0.00625 respectively. Dividends in US dollars are calculated based on the foreign exchange reference rate as published each working day at 14:15 hours by the European Central Bank on the business day following the announcement of the interim dividend or on the business day following the General Meeting of Shareholders approving the relevant final dividend.
Year Interim Final Total Interim Final Total 1 Paid at each shareholder's option in cash or in stock. 2 Proposed.
From May 2003 to May 2013, Aegon had common shares and class A and class B preferred shares. The annual dividend on
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
Products offering protection against mortality, morbidity and longevity risks, including traditional and universal life, in addition to endowment, term, and whole life insurance products. �� Accident and health insurance
�� Latin America Brazil: Life and critical illness insurance; private and company pensions; pension scheme administration; and investment funds.
Mexico: Individual life, group life, and health insurance; and saving plans.
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.
�� Pensions Individual and group pensions usually sponsored by, or obtained via, an employer. Administration-only services are offered to company and industry pension funds.
�� 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.
New Markets Includes all businesses and operating units in Central & Eastern
Life insurance marketed to high-net-worth individuals via the Transamerica brand in Hong Kong and Singapore. Direct and affinity products marketed in Asia by Aegon Direct & Affinity
Europe; Central & Eastern Europe; and Spain & Portugal), Asia and Aegon Asset Management. Furthermore, rather than report its financial results by division, Aegon Americas will report by using the following product groups: �� Life �� Accident & Health �� Retirement Plans �� Mutual Funds �� Variable Annuities �� Fixed Annuities �� Stable Value Solutions �� Latin America
For this reason, Aegon’s 2015 Annual Report reflects the former reporting structure.
This Annual Report includes the non-IFRS financial measure: underlying earnings before tax. The reconciliation of this measure to the most comparable IFRS measure is presented in the table above in addition to in note 5 Segment information of the consolidated financial statements. This non-IFRS measure is calculated by consolidating on a proportionate basis the revenues and expenses of Aegon’s joint ventures in the Netherlands,
Gross deposits (on and off balance) Amounts in EUR millions 2015 2014 %
Number of employees, including agent employees 12,701 4,503 2,260 11,767 299 31,530
�� Underlying earnings before tax from the Americas increased by 6% to EUR 1,200 million in 2015 compared with 2014.
�� Underlying earnings before tax from Aegon’s operations in the United Kingdom were up 9% to EUR 125 million in 2014, mainly due to favorable currency movements.
Impairment charges Net recoveries improved by EUR 83 million to EUR 49 million in 2015 compared with 2014. In the United States, gross impairments were more than offset by recoveries mostly related to investments in subprime residential mortgage-backed securities.
Income tax Income tax amounted to EUR 167 million. The effective tax rate on underlying earnings and total income for 2015 was 20% and 21%, respectively. This was mostly driven by tax credits related to solar energy investments in the United States.
Commissions and expenses Commissions and expenses increased by 15% in 2015 compared with 2014 to EUR 6.8 billion. Operating expenses increased by 13% in 2015 compared with 2014 to EUR 3.7 billion.
Adverse currency movements and higher defined benefit expenses in the Netherlands more than offset lower project and transformation costs in the UK and the positive impact of the divestment of the Canadian life insurance activities.
to EUR 77.2 billion, driven by higher pensions and mutual fund deposits in the United States, production from online bank
compared with 2014 to EUR 1.9 billion, mostly driven by lower universal life production in the United States, fewer pension buy-out sales in the Netherlands, and a lower demand for traditional pension products in the United Kingdom.
EUR 1.0 billion, as the stronger US dollar more than offset a lower contribution from portfolio acquisitions and several product exits.
Capital management During 2015, shareholders' equity decreased by EUR 0.4 billion to EUR 23.9 billion, as retained earnings and 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.
EUR 1.8 billion to EUR 6.5 billion. Aegon’s shareholders' equity, excluding revaluation reserves and defined benefit plan remeasurements, amounted to EUR 19.0 billion on
During 2015, Aegon’s Insurance Group Directive (IGD) ratio increased from 208% at the end of 2014 to 220% on
December 31, 2015. The increase reflects positive retained earnings during the year, in addition to the impact of divestments.
(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 United States decreased from 540% at year-end 2014 to ~460% on December 31, 2015. The decrease in the
United States primarily reflected market conditions and the impact of assumption changes and model updates implemented during the third quarter. In the Netherlands, the IGD ratio, excluding Aegon Bank, increased from 215% on
Total life insurance gross premiums 6,461 3,982 4,859 2,015 (70) 17,246 (351) 16,896 Accident and health insurance
Underlying earnings before tax by line of business Amounts in EUR millions 2014 2013 %
Results 2014 worldwide Aegon’s net income in 2014 amounted to EUR 1,186 million. Underlying earnings before tax amounted to EUR 1,865 million. Furthermore, results in 2014 were impacted by a loss of EUR 807 million on fair value items, which was driven by accounting losses on hedging programs and the impact of assumption changes and model updates, and other charges of EUR 240 million. This was partly offset by realized gains of EUR 697 million, and net impairment charges of EUR 34 million.
Underlying earnings before tax Aegon’s underlying earnings before tax in 2014 decreased 5% to
EUR 1,865 million compared with 2013. The benefit of business growth and favorable equity markets was more than offset by the impact of charges for actuarial assumption changes and model updates, and unfavorable mortality in the Americas. �� Underlying earnings before tax from the Americas decreased 14% to EUR 1,134 million in 2014 compared with 2013.
Growth in variable annuities and pensions was more than offset by the impact of a charge for actuarial assumption changes and model updates, unfavorable mortality in the life business and the impact of lower interest rates.
�� In the Netherlands, underlying earnings before tax increased 23% to EUR 558 million in 2014 compared with 2013, primarily generated by mortgage production. Underlying earnings before tax growth in 2014 was driven by higher investment income, improved margins on savings, a EUR 45 million employee benefit reserve release resulting from legislation changes in the Netherlands, and improvement in non-life.
�� Underlying earnings before tax from Aegon’s operations in the United Kingdom amounted to EUR 115 million in 2014.
The 32% increase compared with 2013 was primarily the result of improved persistency.
Aegon Asset Management due to higher third-party balances was more than offset by lower underlying earnings before tax in Asia, which was mostly due to charges for actuarial assumption changes and model updates.
Fair value items The results from fair value items amounted to a loss of
Americas (EUR 251 million), mainly driven by the loss on equity hedges, which were set up to protect Aegon’s capital position, as a result of the strong US equity market performance in 2014.
Other charges Other charges amounted to EUR 240 million. These were mostly caused by a charge in the Netherlands (EUR 95 million) related to the agreement with the harbor workers’ former pension fund
Optas, a provision taken for the closed block of European direct marketing activities (EUR 36 million), a provision for the implementation of the fee cap on pensions in the United Kingdom
Asset Management. Net deposits, excluding run-off businesses, decreased 7% to EUR 9.9 billion compared to 2013, mostly due to a reduction in stable value solutions balances of approximately
The gross leverage ratio improved to 28.7% on December 31, 2014 compared to the end of 2013, which was mostly as a result of deleveraging. Excess capital in the holding decreased to
(IGD) ratio stood at 208%.The capital in excess of the S&P AA
The RBC ratio in the United States was ~540% at year-end 2014.
EUR 350 million, in line with IFRS book value. The proceeds will increase the group’s IGD solvency ratio by approximately 5 percentage points. This transaction was closed on
Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) (308) 889 - (277) 669 -
Accident and health insurance premiums 2,515 2,490 1% 2,266 1,874 21%
Realized losses on investments amounted to USD 83 million, and were mainly related to investments in emerging markets and the energy sector. Net impairments improved compared with 2014 to a benefit of USD 79 million as recoveries, which were mostly related to investments in subprime residential mortgage-backed securities, more than offset gross impairments.
Other charges were USD 1.0 billion, and were primarily related to the divestment of Aegon’s Canadian business and model updates.
This is due to lower charges for assumption changes more than offsetting unfavorable mortality and morbidity, the impact of lower interest rates and the impact on recurring earnings of the actuarial assumption changes and model updates implemented in the third quarters of 2014 and 2015.
USD 501 million compared with 2014 as a result of the negative impact from actuarial assumption changes of
Commissions and expenses Commissions and expenses increased by 2% in 2015 to
to USD 27.8 billion due to higher recurring deposits. Variable annuity gross deposits were down by 23% 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.
Gross deposits (on and off balance) 2014 2013 % 2014 2013 %
Canadian business in anticipation of the sale, subject to regulatory approval.
�� Underlying earnings before tax from Life & Protection decreased 72% compared to 2013 to USD 199 million as growth from the business was more than offset by the negative impact of assumption changes and model updates (USD 400 million), unfavorable mortality and the impact of lower interest rates. The actuarial assumption updates were primarily related to updated mortality assumptions for the older ages. The model updates were primarily related to changes to modeled premium persistency.
USD 174 million. Excluding this benefit, underlying earnings before tax were up due to higher fee income from higher account balances. Underlying earnings before tax from mutual funds increased 42% to USD 47 million compared to 2013, primarily driven by higher net inflows and favorable markets.
Underlying earnings before tax from fixed annuities was down 20% to USD 172 million compared to 2013 as the product is no longer being actively sold. Furthermore, underlying earnings before tax from fixed annuities was adversely impacted by assumption changes amounting to
Production New life sales increased 19% in 2014 to USD 733 million compared with 2013 mostly as a result of higher universal life sales. New premium production for accident & health insurance increased 32% in 2014 to USD 1,193 million compared with 2013. This was mostly driven by expanded distribution and higher supplemental health sales due to the Affordable Care Act.
Overview of Americas Aegon Americas comprises Aegon USA, which operates under the Transamerica brand, together with operations in Brazil and Mexico.
Aegon USA Aegon USA is one of the leading1 life insurance organizations in the United States, and the largest of Aegon’s operating units worldwide. It administers millions of policies and employs around 12,000 people. Most of Aegon USA's companies operate under the Transamerica brand, one of the best-known2 names in the United States for financial services (i.e. banks and businesses engaged in issuing, administering and selling insurance products, mutual funds, and other securities). Its companies have existed since the mid-19th century, and its main offices are in Cedar
provides a wide range of life insurance, supplemental health, pensions, long-term savings and investment products.
Brasil) signed an agreement to establish a new life insurance and pensions company dedicated to providing life insurance and pension products and services to the Sicoob system. Sicoob is the largest cooperative financial system in the country, with over 3 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 Mongeral Aegon, which already serves over 2 million customers nationwide through over 4,000 broker partners. The venture is still subject to final regulatory approval from SUSEP (Superintendência de Seguros Privados).
Aegon Canada On July 31, 2015, Aegon completed the sale of its Canadian life insurance business to Wilton Re following regulatory approval.
The agreement to sell Aegon’s Canadian life insurance was announced on October 16, 2014. Based in Toronto, Aegon Canada offered a range of insurance products and financial services, primarily through its Transamerica Life Canada and Canadian
Premier Life subsidiaries. Aegon maintains an insurance agency operating in Canada as World Financial Group Insurance Agency of Canada Inc., in addition to an affiliated securities dealer.
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 December 31, 2015, Aegon USA, LLC was merged into
Transamerica Corporation, which is the holding company for the US operations. Business is conducted through its various subsidiaries. The use of the term 'Aegon USA' throughout this document refers to the operating subsidiaries in the United States, through which Aegon USA conducts business. Aegon USA has operating licenses in every US state, in addition to the District of Columbia, Puerto Rico, the Virgin Islands and Guam.
The business structure is designed to enable Aegon USA to manage and improve the efficiency of the organization and operating processes, identify business synergies, and pursue cross-selling opportunities. Coordinated support services complement operations by providing functional support in systems technology, investment management, regulatory compliance, and various corporate functions. Products are also offered and distributed through one or more of Aegon USA's licensed insurance or brokerage subsidiary companies.
In general, Aegon USA companies are focused on particular products or market segments, ranging from lower income to high-net-worth individuals, and from small to large institutions.
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 as a policyholder's circumstances change. 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. Transamerica withdrew its universal life secondary guarantees product in early 2015, in response to the low and volatile interest rate environment.
Whole (or permanent) life insurance provides lifelong death benefit protection, provided that the premiums required are paid, while accumulating tabular cash values based on statutory requirements. Premiums are generally fixed and usually payable over the life of the policy.
A number of these products provide insureds with lump sum or specified income payments if hospitalized or diagnosed with
a critical illness. Others pay benefits for specific medical expenses and treatments, or cover deductibles, co-payments and co-insurance amounts not covered by other health insurance. In addition, L&P offers stop-loss insurance to employers to protect against catastrophic losses under self-funded health plans.
Long-term care (LTC) insurance products provide benefits to policyholders that require care due to a qualifying chronic illness or cognitive impairment. LTC insurance serves as an asset protection tool by reimbursing policyholders for costly expenses associated with LTC services, and it may also help families better manage the financial, health and safety issues associated with LTC.
Life & Protection sales and distribution The L&P division is organized by distribution channel to better align with customers’ needs. It is supported by a shared services platform. Each channel has primary target market segments on which it focuses. The L&P distribution channels fall into four main categories: independent, partner, worksite and direct-to-consumer.
Through exclusive relationships with over 35,000 sales associates, this channel provides the same life and health products as the independent distribution channel, with a focus on the middle and emerging affluent markets.
It offers life and supplemental health insurance products through employers, labor unions and trade associations.
The comprehensive portfolio includes universal life, whole life and term life insurance, in addition to accident, critical illness, cancer, hospital indemnity, supplemental medical expense, short-term disability, vision, and dental policies.
Investments & Retirement Investments & Retirement (I&R) offers a wide range of solutions to serve customers to and through retirement: first, as they accumulate assets; and second, as they manage assets to generate retirement income. The division administers these products, and distributes them through a variety of channels, including wirehouse firms, banks, broker-dealers, consultants, insurance agents, registered investment advisors, independent financial planners, and direct-to-consumer.
I&R products and services include mutual funds, variable and fixed annuities, retirement plans (including ancillary services)
I&R provides a wide range of specialized mutual funds for all market conditions, including asset allocation, US equity, global/
'manager of managers' mutual fund platform. Sub-advisers can include both those affiliated or not affiliated with Transamerica.
Fixed annuities allow investors 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.
I&R introduced a new fixed-indexed annuity in 2015. A fixedindexed annuity may credit interest using an annual point-topoint crediting method 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. Transamerica is not actively marketing new sales of fixed deferred annuities; current sales primarily represent annuitizations and additional premium on existing contracts.
Solutions, which provides plans across all market segments, including administration, recordkeeping and investment services to employers of all sizes, also in addition to partnering with plan advisors and third-party administrators to serve their customers.
US defined contribution administration business. As a result of the acquisition, Transamerica Retirement Solutions is now a top ten defined contribution record-keeper based on plan participants and assets1.
Transamerica Retirement Solutions provides tools to help plan participants monitor their retirement accounts and engage in behavior to stay on track toward a funded retirement.
For individual plan participants who are in transition due to a job loss or change or planned retirement, Transamerica Retirement
Solutions offers Personal Retirement Services (PRS) through a team of experienced registered representatives ad registered investment advisers. Solutions include IRAs, advisory services, annuities and access to other financial products and resources.
I&R distributes its retirement plan, mutual fund and annuity products primarily on a wholesale basis through third-party intermediaries such as broker-dealers, wirehouses, consultants, insurance agents, and registered investment advisors. A subset of those firms that represent a significant portion of I&R sales are managed by the I&R Business Development Group.
I&R has three main wholesaling teams: retirement, mutual fund, and annuities. The retirement team is broken down into two segments: Emerging Markets, which focuses on the USD 20 million and below asset segment; and Institutional Markets, which focuses on the USD 20 million and over asset segment. The annuity wholesaling team is divided into groups by distribution channel
I&R also serves customers directly through two businesses: PRS, as described above, and Your Financial Life (YFL). YFL offers guidance and resources for retirement planning (including financial articles and tools, and Transamerica certified financial planners), together with access to annuity, mutual fund and IRA
Aegon’s insurance activities include pension product distribution, individual and group life insurance products, and administrative services. Seguros Argos's primary product is a 20-year term life insurance product. Both insurance companies distribute their products in the worksite market. Aegon is also a 50% owner of a joint venture with Administradora Akaan S.A. de C.V. to create Akaan-Aegon S.A.P.I. de C.V. to explore financial service opportunities. This organization is in the start-up process and will initially focus on third-party asset management.
Guaranteed investment contracts and funding agreements GICs and FAs are spread-based products issued on a fixed-rate or floating-rate basis. They provide the customer with a guarantee of principal and a specified rate of return. Practically all of the liabilities represented by the fixed-rate contracts were effectively converted to a floating-rate via swap agreements when the contracts were issued. Contracts issued in foreign currencies were converted at issuance to US dollars through swap agreements when the contracts were issued to eliminate currency risk.
USD 177.5 million. The transaction closed on September 2, 2015. Clark Consulting was a distinct entity within the BOLI/COLI
Competition The US marketplace is highly competitive. Aegon USA's competitors include other large insurance carriers, in addition to certain banks, securities brokerage firms, investment advisors, and other financial intermediaries marketing insurance products, annuities and mutual funds. Aegon USA leverages long-term relationships with many institutions to offer them product lines such as variable annuities, life insurance, mutual funds, and defined contribution pension plans.
The Life & Protection division faces competition from a variety of carriers. In individual life insurance, leading competitors include
John Hancock. In long-term care insurance, Transamerica competes primarily with Genworth and John Hancock. In supplemental health, Transamerica competes with a wide range of companies and company types based on the nature of the coverage.
The Investment & Retirement division also faces competition from a variety of carriers. It maintains an effective wholesaling force, and focuses on strategic business relationships and products with competitive features, benefits and pricing.
Schwab, T. Rowe Price, and Vanguard. Aegon USA's main competitors in the defined benefit segment are Mass Mutual,
New York Life, Principal Financial, and Prudential Financial. In the emerging market segment and the multiple employer plan segment, Aegon USA's main competitors are American Funds,
State regulators, by law, conduct extensive financial examinations every three to five years.
Recent regulatory enhancements that have been or are being implemented in states, include increased reporting of holding company activities, increased transparency and uniformity for certain captive reinsurance transactions and requirements for companies to conduct an Own Risk and Solvency Assessment
(ORSA). In 2014, the NAIC adopted a regulatory framework impacting captives used for term and universal life with secondary guarantee products (‘Actuarial Guideline 48’), which became effective on January 1, 2015. Additionally, principlebased reserving is expected to come into force in 2017.
Actuarial Guideline 49 adds new rules for illustrations of indexed 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.
Internationally Active Insurance Groups (IAIGs). Aegon USA uses reinsurance and VA captives in part for reserve requirements and to hedge risk. Given that proposals related to VA captive reinsurance arrangements are still being formulated, it is too early to assess their possible impact on Aegon USA’s operations.
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 were granted provisional equivalence on December 7, 2015. The combined
Securities Regulation A number of Aegon USA subsidiaries are subject to regulation under the federal securities laws administered by the SEC and aspects of states’ securities and other laws. Variable insurance policies, certain annuity contracts and registered investment companies (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 Aegon USA insurers that offer variable life insurance
The distribution and sale of these and other securities by affiliate and non-affiliate broker-dealers is regulated by the SEC and the Financial Industry Regulatory Authority (FINRA). A number of
Aegon USA companies are also registered as investment advisors and subject to SEC regulation.
In addition, in accordance with Dodd-Frank Act requirements, the SEC intends to enhance its regulatory and examination oversight of registered investment advisers, but has not provided any timeframe for such a proposal. Finally, the SEC has reformed the regulation of institutional money market funds by requiring those funds to price and transact their shares at a market value floating net asset value per share (NAV). The SEC has also provided money market fund boards with the discretion to stem heavy redemptions by, among other tools, imposing liquidity fees and gates in the fund's best interests. The SEC has set a two-year period for compliance. The impact of these requirements and any future regulations regarding investment advisors, money market funds, or other investment products, including proposed 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.
Aegon USA modified business practices in response to those inquiries or findings. Certain Aegon USA companies have paid, or have been informed that the regulators may seek, restitution, fines or other monetary penalties or changes in the way that business is conducted. The impact of any such fines or other monetary penalties is not expected to have a material impact on Aegon USA's financial position, net income or cash flow.
Regulation of Workforce Retirement Plans and IRAs Aegon USA administers and provides investment and insurance services and products used to fund defined contribution plans, such as 401(k) plans, defined benefit plans, IRAs, 529 plans and other savings vehicles. Aegon USA also provides plans used to administer benefits distributed on termination of defined benefit plans. These products and services are subject to the Employee
The DOL recently proposed a conflicts of interest rule that significantly expands the scope of activities that are classified as fiduciary investment advice and that are subject to a best interest standard. The rule, if promulgated in the manner proposed, would impact the delivery of products and services to workforce retirement plans and participants in those plans and in IRAs, especially concerning sales and services to small business plans and sales of variable annuities. Legislation and regulation is also being considered that would facilitate the use of multiple employer plans (MEPs), of which Aegon USA is a leading provider.
In addition, both the Treasury and the DOL have published, in final and proposed forms respectively, guidance to facilitate the offering of guaranteed lifetime income products. Finally, many states have sought to open their plans to non-government workers who do not have access to an employer retirement savings plan. Any proposals that impact the current business models or fees and services to employer plans or IRAs will impact the Aegon USA companies that provide administration and investment services and products to private workforce plans.
The likelihood that these legislative proposals will be passed or the regulatory guidance finalized cannot be predicted at this time.
affiliate. Executive Administration budget proposals, legislative proposals and discussion drafts must be enacted by Congress before they become law. The risk of tax law changes is heightened when additional revenue is sought to reduce the federal deficit or to pay for other tax law changes, such as lower tax rates. In addition, tax reform initiatives of the type contemplated by discussion drafts of comprehensive federal tax reform legislation further increase the risk of both increased taxation of life insurers and of decreased tax incentives for short- and long-term savings products. These changes, if enacted, would have a direct impact on the cost and competitiveness of life insurance, annuity and pension products sold to ensure Americans' financial and retirement security.
Asset liability management Aegon USA's insurance companies are primarily subject to regulation under the laws of the states in which they are domiciled. Each state's laws prescribe the nature, quality and percentage of various types of investments that may be made by the companies. Such laws generally permit investments in government bonds, corporate debt, preferred and common stock, real estate and mortgage loans. Limits are generally placed on other classes of investments.
Aegon USA manages its asset liability matching through the work of several committees. These committees review strategies, define risk measures, define and review asset liability management studies, examine risk-hedging techniques, including the use of derivatives, and analyze the potential use of new asset classes. The primary method for analyzing interest rate sensitivity is the economic capital risk measure. Under this measure, the sensitivity of assets relative to liabilities is calculated in a market consistent manner and presented as the risk of loss in a 1 in 200-year event. Another methodology used to analyze risk is cash flow testing. Cash flow testing analysis is performed using computer simulations, which model assets and liabilities under projected interest rate scenarios and commonly used stress-test interest rate scenarios. Cash flow testing is run using defined scenarios and is a real world simulation. It takes various forms of management action into account such as reinvestment and sales decisions, together with spreads and defaults on Aegon’s assets, which is not the case in a market consistent framework.
Based on the results of these risk measures, an investment portfolio is constructed to best match the cash flow and interest sensitivity of the underlying liabilities, while trying to maximize the spread between the yield on the portfolio assets and the rate credited on the policy liabilities. ALM is a continual process.
These reinsurance contracts are designed to diversify Aegon USA's overall risk and limit the maximum loss on risks that exceed policy retention levels. The maximum retention limits vary by product and class of risk up to USD 15 million.
Aegon USA regularly monitors the creditworthiness of its reinsurers, and where appropriate, arranges additional protection through letters of credit or trust agreements. For certain agreements, funds are withheld for investment by the ceding company. Aegon USA has experienced no material reinsurance recoverability problems in recent years.
Net income Net income from Aegon’s businesses in the Netherlands increased by 34% to EUR 661 million in 2015 compared with 2014. Realized gains on investments totalled EUR 306 million, and were mainly the result of portfolio rebalancing in the low rate environment. Results on fair value items amounted to a gain of EUR 55 million, driven by a positive impact of rising credit spreads and interest rates. Impairment charges amounted to EUR 20 million and were primarily related to the consumer loan portfolio. Other charges of EUR 22 million included a EUR 11 million charge for the restructuring of the non-life business.
EUR 537 million, as 2014 included an employee pension-related reserve release of EUR 45 million. On a comparable basis, underlying earnings before tax increased by 5%, as lower funding costs, higher earnings from mortgages and a mortality provision release more than offset lower non-life results. �� Underlying earnings before tax from Life & Savings amounted to EUR 325 million in 2015. Higher investment income, primarily generated by profitable mortgage production, and lower funding costs were more than offset by the non-recurrence of an employee benefit reserve release and the transfer of part of the mortgage portfolio to the Pension business.
�� Underlying earnings before tax from Pensions increased by 9% to EUR 212 million compared with 2014. Higher earnings from mortgages and favorable mortality more than offset the non-recurrence of an employee benefit reserve release and lower investment income resulting from rebalancing the fixed income portfolio..
Production Gross deposits almost doubled in 2015 to EUR 5.1 billion compared with 2014, mainly driven by the growth of Knab,
Aegon’s online bank in the Netherlands, and by the PPI business.
New life sales amounted to EUR 130 million, which was a result of the absence of large pension buyouts. Individual life sales remained stable at EUR 32 million, while pension sales decreased to EUR 98 million.
1 Throughout this report, Aegon the Netherlands refers to all Aegon companies operating in the Netherlands.
Net income Net income from Aegon’s businesses in the Netherlands increased 26% to EUR 491 million in 2014 compared with 2013.
Higher underlying earnings before tax and realized gains more than offset an increase in other charges in 2014 compared with 2013. Realized gains on investments totaled EUR 431 million, and were mainly the result of the sale of a private equity investment and repositioning the fixed income portfolio in anticipation of Solvency II. Results on fair value items amounted to a loss of EUR 207 million, primarily related to model updates and hedging programs. In 2014, impairment charges declined by more than half, compared with 2013, to EUR 12 million as a result of lower mortgage arrears. Other charges of
EUR 113 million were mostly due to a EUR 95 million provision for the Optas agreement.
�� Underlying earnings before tax from Life & Savings increased 36% to EUR 336 million compared with 2013, and were mostly a result of higher investment income, primarily generated by mortgage production, and improved margins on savings. An employee benefit reserve release resulting from legislation changes accounted for EUR 20 million of the increase.
EUR 13 million in 2014, including the impact of an employee benefit reserve release resulting from legislation changes of
EUR 11 million. Management actions taken to improve the profitability of the disability segment and the proxy channel in the general insurance business showed positive results, but are yet to have the desired impact. For this reason,
Commissions and expenses Commissions and expenses decreased slightly in 2014 to
EUR 977 million compared with 2013. Operating expenses decreased to EUR 726 million in 2014 compared with 2013, mainly the result of a EUR 45 million employee benefit reserve release resulting from legislation changes. Excluding this release, operating expenses increased 5%.
EUR 251 million. Individual life sales declined 18% in 2014 to
EUR 33 million compared with 2013, as the ongoing shift to
'banksparen' products more than offset higher term sales related to new mortgage production. Pensions sales increased 31%
in 2014 to EUR 218 million compared with 2013, mainly the result of a single large new contract for Dutch mineworkers.
(2013: EUR 3.2 billion), of which EUR 2.1 billion was related to third-party investor demand (2013: EUR 0.5 billion).
Overview of the Netherlands Aegon has operated in the Netherlands for more than 170 years, and is the country's leading provider of life insurance and pensions1, with approximately 4,500 employees. Aegon the Netherlands is headquartered in The Hague, has offices in Leeuwarden and Groningen, and owns the Unirobe Meeùs Group, one of the largest intermediaries in the Netherlands2.
Overview of sales and distribution channels Like other Aegon companies, Aegon NL uses a variety of distribution channels to help customers access its products and services as best suits their needs. In general, all business lines use the intermediary channel, which focuses on independent agents and retail sales organizations in the Netherlands.
Aegon Schadeverzekering has strategic partnerships for the sale of its products, and uses an online channel. Furthermore, Aegon the Netherlands has made significant investments in its direct online channel, including the proprietary brands Knab, Kroodle and onna-onna.
Knab was launched in 2012 by Aegon Bank, to help people better understand their finances. Knab enables its customers to make their own choices regarding their personal financial situation and thereby achieve their financial goals. The online bank reflects
While the distribution landscape is becoming increasingly multi-channel, Aegon will continue to distribute the largest part of its portfolio through intermediaries.
Overview of business lines Life & Savings Aegon the Netherlands provides a range of individual savings products, mortgage loans and life insurance and personal protection products and services, including traditional, universal and term life. Based on underlying earnings before tax, Life &
Older generation products contain a 4% guarantee. In 1999 the guarantee for new products decreased to 3%; and in 2013 the guarantee decreased to 0%.
These products have a minimum benefit guarantee, except for premiums invested in equity funds. The initial guarantee period is ten years. Tontine plans are unit-linked contracts with a specific bonus structure. 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. A death benefit is paid to the dependents in the event that the policyholder dies before the policy matures. Tontine policyholders may invest premiums in a number of Aegon funds. Aegon the Netherlands manages tontine plans, but no longer sells them.
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 by issuing residential mortgage-backed securities in Saecure – Aegon’s
For this business, Aegon originates the mortgage loans fully for account of third parties and remains the service provider for these mortgage loans.
'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.
Products Aegon the Netherlands provides full-service pension solutions and administration-only services to company and industry pension funds, large companies and owners of small and medium-sized companies. The full-service pension products for account of policyholders are separate account group contracts with and without guarantees.
guarantee product. If profit sharing turns into a loss, the minimum guarantee becomes effective, but the loss in any given year is carried forward to be offset against future surpluses. In general, the guarantee is dependent on the life of the insured in order that their pension benefit is guaranteed.
Aegon the Netherlands also offers products for small and medium-sized companies, 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. Every year, clients also have the opportunity to decide whether or not they wish to continue with the contract.
Aegon also offers customers 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. Aegon the Netherlands also offers defined contribution products for both single and recurring premiums. 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.
A decrease in the number of company and industry pension funds in the Netherlands will continue over the next few years. By law, the assets and liabilities of a terminated pension fund must be transferred to another pension provider. Aegon the Netherlands offers a pension fund buy-out product for its terminating pension funds. It takes on the guaranteed or non-guaranteed liabilities, with or without annual pension increases, and receives a lumpsum premium upfront. All risks related to the transferred benefits are carried by Aegon the Netherlands.
On December 22, 2015, legislation was passed that enables companies to set up ‘Algemeen Pensioen Fonds’ (General Pension
Fund). In 2016, Aegon the Netherlands introduced this new proposition to clients. This offers pension solutions to clients in which Aegon the Netherlands provides no guarantees and the investment benefits lie with the participants. Aegon the Netherlands provides fee-based services to this General
Aegon the Netherlands offers disability and sick leave products to employers that cover sick leave payments to employees not covered by social security, and for which the employer bears the risk.
Sales and distribution Aegon the Netherlands offers 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 is the main one, through which it offers financial advice to customers, including the sale of insurance, pensions, mortgage loans, financing, and savings and investment products.
Group, Achmea, ASR, Vivat and Delta Lloyd. In addition, these markets are subject to fast-changing dynamics, including the growing use of online distribution channels and a changing pensions landscape (such as the introduction of Premie Pensioen
In the mortgage loans market, Aegon the Netherlands held a market share of approximately 11% based on new sales4 in 2014 and its maket share continues to grow. Rabobank,
Since 2008, several regulatory changes have had an impact on demand for insurance products in the Dutch market – notably in the life insurance market where the tax deductibility of certain products has been reduced, which has also caused a shift to bank saving products ('banksparen'). Furthermore, low economic growth and financial market volatility have made customers more reluctant to commit to long-term contracts. These changes have increased competition, resulting in a greater focus on competitive pricing, improved customer service and retention, and product innovation.
The premium pension institution (PPI) market is set to grow significantly due to the shift from defined benefit plans to defined contribution plans, and demand for more transparent and cost-efficient pension products. As a result, significant economies of scale will be required to service this market effectively, and the number of providers is expected to shrink within a few years.
Wft). The Wft came into force on January 1, 2007, replacing the seven, primarily sectoral financial supervision Acts that were in place at that time, completing reform of financial supervision legislation in the Netherlands.
DNB is the supervisory authority, and therefore the main insurance and banking supervisory authority in the Netherlands, in the case of the latter, together with the European Central Bank (ECB).
The Solvency I framework consisted primarily of EU directives, which were transposed into national law, in the Netherlands in the Dutch Financial Supervision Act and lower level national rules, such as in particular the Decree on Prudential Rules for Financial
Supervision Act. However, a large part of the Level II Solvency II
rules are also set out in EU regulations, which apply directly in
EU member states, and as a consequence do not need to be implemented into national legislation, such as in the Bpr Wft.
Solvency I Under Solvency I, life insurance companies were required to maintain certain levels of capital in accordance with EU directives.
With respect to the period up to December 31, 2015, every life and non-life insurance company licensed by DNB and falling under its prudential supervision must file audited regulatory reports on at least an annual basis. These reports, which are primarily designed to enable DNB to monitor the solvency of the insurance company, include a (consolidated) balance sheet, a (consolidated) income statement, extensive actuarial information, and detailed information on the insurance company's investments. DNB's regulatory reporting is based on a single entity focus, and is designed to highlight risk assessment and risk management.
May 17, 2015, by amending the Decree on Prudential Rules for
(TSC) introduced on January 1, 2014. Solvency I quarterly reports were therefore no longer required as of the second quarter of 2015, and yearly reports are no longer required from 2016 onwards.
The calculation includes the use of the volatility adjuster, but does not include the use of any transitional measures.
Financial supervision of credit institutions As of November 4, 2014, Aegon Bank N.V. has been subject to indirect supervision by the ECB under the new European system of banking supervision, the Single Supervisory Mechanism (SSM), which comprises the European Central Bank and the relevant national authorities of participating EU Member States. The SSM
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 majority of the requirements became effective as of that date, with the liquidity coverage ratio becoming effective on October 1, 2015 and a number of other requirements (such as the leverage ratio and net stable funding ratio) to be further defined.
Additional Tier 1 capital (AT1 capital) forms the rest of the Tier 1 capital. In addition, the capital of a credit institution may be composed of Tier 2 (T2) capital, which is of a lesser quality than
The BRRD gives regulators powers to write down debt (or to convert such debt into equity) of ailing banks, certain investment firms and their holding companies to strengthen their financial position and allow such institutions to continue as a going concern subject to appropriate restructuring. Pursuant to the BRRD, the 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 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.
Other financial undertakings in the Netherlands DNB also supervises pension funds, including premium pension institutions (PPIs), investment firms and fund management companies.
Asset liability management Aegon the Netherlands’ Risk & Capital Committee, which meets every month, determines and monitors the balance sheet and profit and loss account. The focus of these meetings is, among other activities, to ensure an optimal strategic asset allocation, to decide on hedging strategies to reduce interest rate and equity risks, to manage and possibly hedge actuarial risks, and to decide on the need for securitizations of residential mortgage portfolios in order to improve the liquidity and funding position of Aegon the Netherlands.
Asset Management. Risk-based restrictions are in place to monitor and control actual portfolio allocations against strategic portfolio allocations. An internal framework limits investment exposure to any single counterparty.
longevity increases related to parts of its insurance liabilities by buying longevity index derivatives. These longevity derivatives will pay out if the mortality rates in future years have decreased more than a pre-determined percentage compared with the base scenario at the moment of signing the contract. To further implement the strategy of reducing longevity risk, Aegon the Netherlands implemented an additional longevity hedge on
For non-life, Aegon the Netherlands reinsures its property, marine, general and motor third-party liability business only.
EUR 20 million for each windstorm event. For motor third-party liability insurance, Aegon the Netherlands has reinsurance in place with a retention level of EUR 2.5 million for each event.
For marine insurance there is also an 'excess of loss' contract in place with a retention level of EUR 1.5 million for each event.
Income tax on shareholders return 11 5 135% 15 6 162%
Results 2015 United Kingdom Net income in 2015 increased by more than 10% to GBP 158 million compared with 2014, primarily due to lower business transformation costs and the non-recurrence of a provision for the implementation of the pension fee cap. Underlying earnings before tax decreased slightly compared with 2014. New life sales declined by 16% to GBP 661 million compared with 2014, driven by lower traditional pensions production. Platform assets more than doubled to GBP 6.4 billion by the end of 2015 compared with the end of 2014.
Underlying earnings before tax Underlying earnings before tax in the United Kingdom decreased by 2% to GBP 91 million compared with 2014. Higher underlying earnings before tax in Pensions nearly offset lower underlying earnings before tax from the Life business.
to GBP 58 million compared with 2014. This was mostly due to lower investment income as a result of selective de-risking of the asset portfolio to improve Aegon’s capital position in preparation of Solvency II.
Platform assets reached GBP 6.4 billion by the end of 2015, which was more than double the total at the end of 2014.
Income tax attributable to policyholder return (34) (27) (26%) (42) (32) (31%)
Income tax on shareholders return 5 56 (91%) 6 66 (91%)
GBP 16 million in 2014 compared with a loss of GBP 9 million in 2013. This increase was mostly driven by improved persistency following the introduction of the Retail
Commissions and expenses Commissions and expenses decreased by 3% in 2014 to
Organizational structure Aegon UK PLC is Aegon UK's holding company. It was registered as a public limited company at the beginning of December 1998.
The leading operating subsidiaries (both operating under the Aegon brand) are: �� Scottish Equitable PLC; and �� Aegon Investment Solutions Ltd.
Aegon Retirement Choices (ARC) helps advisors and their customers with the transition from work to retirement. ARC uses leading-edge digital technology to deliver an intuitive method of saving for retirement, taking income in retirement, and dealing with changing circumstances. It also provides valuable online reporting and lifestyle tools that enable advisors to demonstrate their professionalism and display their charges for advice in a transparent way. In addition to the Self Invested Pension Plan
Aegon UK offers two distinct versions of the proposition targeted at distinct market segments: �� A full-wrap 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.
Aegon UK’s Retail sales team has been increasing adoption of the proposition by helping Independent Financial Advisors (IFAs)
to upgrade existing business and to acquire new assets from other providers.
Workplace channel – Workplace Aegon Retirement Choices Aegon is building and diversifying its workplace distribution capability to cover a range of advisors from IFAs to large
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
Direct to Customer channel In April 2014, Aegon launched its Retiready digital retirement planning service, which is designed to help customers understand how on track they are for the retirement they want, and to support them in taking action. Answering a few simple questions gives customers a Retiready score out of 100, showing how ready they are for retirement.
Overview of Business Lines In line with the rest of the Group, reporting for Aegon UK is organized along two business lines: ‘Life’ and ‘Pensions’. ‘Life’
comprises protection products sold to individuals and small and medium sized companies(SMEs), and individual annuities.
From a business management perspective, the Aegon UK has been reorganized into ‘Digital Solutions’ and ‘Traditional Pensions
Business’. These have separate leadership teams and operating models that allocate systems and resources so that Aegon UK
is able to split profitability and capital requirements by business line.
The Digital Solutions business also includes Aegon UK’s protection proposition. As of January 1, 2016, Aegon’s European variable annuity business ‘Variable Annuities Europe’ has also been part of this business line.
The Traditional Pensions Business is responsible for older products that are no longer actively marketed to new customers.
Pensions Business and include a variety of individual and corporate pensions, with-profits products and annuity products.
Competition There is a diverse range of competitors in the markets in which
Aegon UK operates, and market dynamics are continuing to evolve. Aegon UK faces competition from three main sources: life and pension companies, retail investment firms, and retail platform service companies. 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 tool used by advisors to manage their clients assets, or as a preferred partner for EBCs advising corporate clients.
Zurich and Aviva, in addition to independent platform businesses such as Transact. Consolidation and realignment is taking place in the market, for example Aviva’s acquisition of Friends Life.
In addition, in April 2015, the government removed all restrictions on individuals being able to access their pension pots, thereby significantly increasing the flexibility with which individuals can use their pension savings. Individuals are now no longer restricted to buying an annuity or entering drawdown, and can choose to withdraw some of their money, all of it, take flexible income through drawdown, or secure income via an annuity or guaranteed product. This development has had a substantial impact on the at retirement market, with a large reduction in annuity sales and an increase in the purchase of income drawdown products. Financial Conduct Authority (FCA)
The shift from annuity products to drawdown products has created significant opportunities for Aegon UK because it has been a relatively small player in the UK annuity market, and much stronger in drawdown products. The recently launched Secure
A number of Aegon UK directors and senior managers have been approved by the FCA and/or the PRA to perform one or more controlled functions. A candidate is only approved by the regulator if the regulator is satisfied he or she is fit and proper to perform the controlled function(s) for which they have applied.
Every life insurance company licensed by and/or falling under the supervision of the PRA must file audited regulatory reports on at least an annual basis. These reports, primarily designed to enable the PRA to monitor the solvency of the insurance company, include a (consolidated) balance sheet, a (consolidated)
The PRA may request additional information it considers necessary and may conduct an audit at any time. The PRA may also make recommendations for improvements, and may, ultimately, withdraw an insurance company's license.
every few years, and may apply an Individual Capital Guidance if they deem this appropriate.
Aegon UK has been using a Partial Internal Model to calculate the solvency position of its insurance activities. The calculation includes the use of both the matching adjustment in addition to the use of transitional measures. The internal model was approved on December 14, 2015, by the PRA as part of the
Asset liability management Asset liability management (ALM) is overseen by Aegon UK's
Aegon N.V.'s worldwide risk management strategies, investment exposure to any single counterparty is limited by an internal framework that reflects the limits set by the appropriate regulatory regime. This applies both within asset classes
For its with-profit business, Aegon UK's guiding philosophy is to match guarantees with appropriate investments. The nature of with-profit businesses, however, typically prevents perfect matching, and the role of the MIC is therefore to monitor the capital implications of any mismatching. Reports covering the impact of a range of possible investment scenarios on the solvency of each of the funds are produced on a periodic basis. These reports allow the investment strategy for the with-profit funds to be discussed, and are summarized for the With-Profits Forum a sub-committee of the Board of Aegon UK.
These funds contain free assets that have not yet been fully distributed to individual policyholders. Free assets help meet the cost of guarantees and provide a buffer to protect the fund from the impact of adverse events. Aegon UK has an exposure only once these assets have been exhausted. As outlined below,
on December 31, 1993. Aegon UK has no financial interest in
Scottish Equitable PLC's with-profit fund, except routine yearly fund management charges, and costs and expenses that the Company agreed to accept at the time of demutualization.
Management of the with-profit fund Aegon UK's with-profit fund has an investment strategy that reflects the nature of the underlying guarantees. The fund can invest in a variety of different asset types. The main categories are UK and overseas equities, UK-fixed interest securities, and cash. The with-profit fund has a target range for the percentage of its assets that are invested in equities, and this range may be varied. There is a policy of holding an appropriate mix of asset classes to reduce risk within these target ranges.
As mentioned above, the free assets (assets that, as yet, have not been distributed to policyholders) help meet the cost of guarantees and provide a buffer to deal with adverse events.
Reinsurance ceded Aegon UK uses reinsurance to both manage risk and maximize financial value, through returns achieved and efficient capital management. The degree to which reinsurance is used across the product lines varies, depending largely on the appropriateness and value of reinsurance available in the market.
Re, Pacific, RGA, Scor, Swiss Re, and XLRe. In addition, internal reinsurance is in place with Blue Square Re.
Underlying earnings before tax by business / country Central & Eastern Europe 37 60 (39%)
Other income / (charges) (47) (24) (96%) Income before tax (excluding income tax from certain proportionately consolidated joint ventures and associates) 215 139 54%
Of which Income tax from certain proportionately consolidated joint ventures and associates included in income before tax (28) (8) -
of which operating expenses 827 684 21% 1 Underlying earnings before tax in 2014 include EUR 19 million of Aegon’s stake in La Mondiale Participations (France).
Results 2015 New Markets Net income in 2015 increased to EUR 144 million compared with 2014 as a result of higher underlying earnings before tax and lower impairments. Higher underlying earnings before tax in 2015 compared with 2014 were mainly the result of improved results in Asia and growth of third-party asset balances in Asset Management. Gross deposits increased by 69% to EUR 35 billion as a result of record-high Asset Management inflows. New life sales of EUR 304 million were mainly related to sales of universal life products out of Hong Kong and Singapore.
Net income Net income in 2015 increased 61% to EUR 144 million compared with 2014. Impairments decreased from EUR 43 million in 2014 to EUR 2 million in 2015, as a result of lower impairments on the Hungarian mortgage portfolio. Other charges amounted to
Underlying earnings before tax In New Markets, underlying earnings before tax increased by 20%
Europe (CEE) and Variable Annuities Europe. �� Underlying earnings before tax from CEE decreased to
EUR 37 million in 2015 compared with EUR 60 million in 2014.
This decrease was primarily driven by the negative impact of higher surrenders in Poland following product changes and adverse claim experience due to storms in Hungary. �� Underlying earnings before tax from Asia increased significantly to EUR 20 million, compared with EUR (17) million in 2014. This increase in underlying earnings before tax was the result of higher policy fees and the non-recurrence of a charge from model updates.
�� Underlying earnings before tax from Spain & Portugal decreased from EUR 28 million in 2014 to EUR 12 million in 2015. Underlying earnings before tax in 2014 include
�� Underlying earnings before tax from Variable Annuities Europe decreased to EUR (3) million in 2015, mainly as a result of increased hedging expenses.
Management increased by 48% in 2015 to EUR 170 million compared with 2014. This increase was driven by higher performance and management fees. Performance fees of
EUR 35 million were received in relation to mandates in China.
The increase in operating expenses was mainly the result of currency movements, growth of the business and higher project-related expenses.
New life sales increased by 12% in 2015 compared with 2014 to EUR 304 million. �� In CEE, new life sales in 2015 declined by 15% to EUR 91 million.
Sales growth in Turkey was more than offset by lower sales in
Poland resulting from changes in the product offering. �� In Asia, new life sales increased by 52% in 2015 compared with 2014 to EUR 173 million. This increase was mainly the result of higher sales of universal life products out of
This new regulation focused on the determination of the adequate exchange rate to be used for the calculation of outstanding debt and interest payments.
in 2014 to EUR 196 million compared with 2013, as higher earnings in Aegon Asset Management, Variable Annuities Europe and Central & Eastern Europe were more than offset by a decrease in earnings in Asia and Spain & France. �� Underlying earnings before tax from Central & Eastern Europe increased to EUR 60 million in 2014 compared with
�� Underlying earnings before tax from Variable Annuities Europe amounted to EUR 10 million in 2014, mainly resulting from growth of the business �� Underlying earnings before tax from Aegon Asset
�� In Central & Eastern Europe, new life sales in 2014 remained stable at EUR 107 million. This was mostly the result of higher sales in Turkey, Hungary and the Czech Republic, due to improved distribution productivity and growth of the tied-agent network, which were offset by adverse currency movements and lower sales in Poland.
EUR 114 million compared with 2013. This increase was mainly driven by increased sales of universal life products in
EUR 19 billion compared with 2013, mainly driven by strong growth in retail sales in China and the United Kingdom. Gross deposits in Asia declined to EUR 526 million in 2014 compared with 2013 as a result of lower sales of variable annuities in
Overview of Central & Eastern Europe Aegon has operations in the Central & Eastern European (CEE) countries of the Czech Republic, Hungary, Poland, Romania, Slovakia, Turkey and Ukraine. Aegon first entered the Central & Eastern European market in 1992 with the purchase of a majority stake in Hungary's former state-owned insurance company, Állami Biztosító. Aegon Hungary is Aegon’s leading business in Central & Eastern Europe.
Życie Spółka Akcyjna); �� Aegon Poland Pension Fund Managemenet Co. (Aegon
Traditional general account life insurance consists mainly of index-life products that are not unit-linked but have guaranteed interest rates, in addition to group life and preferred term life products.
In Poland, Aegon is one of the leading providers of unit-linked products1. In addition, Aegon Poland Life also offers traditional saving type products.
Aegon entered the Ukrainian life insurance market in February 2013 by acquiring Fidem Life, a life insurance company offering mainly endowment traditional life products. The company was subsequently renamed 'Aegon Life Ukraine'. The business has developed slowly due to the unstable political and economic climate.
Poland Life Insurance Company. The Romanian branch sells unit-linked, term life and endowment insurance policies. In April, 2014, Aegon Poland Life's branch took over Eureko Asigurari
Supreme Court), financial institutions were required to reimburse unilateral fee and interest increases made in the past under the loan agreements to debtors. The settlement with debtors was completed in accordance with the law. Furthermore, due to additional legislative changes also enacted in 2014, most foreign currency denominated loans were required to be converted into Hungarian forint-based loans at fixed exchange rates in 2015, with subsequent interest charges maximized by law.
On March 17, 2014, Aegon Hungary Mortgage Finance Company suspended the acceptance of new loan applications for an indefinite period of time.
October 10, 2014. The Eureko fund merged with Vital, the Pillar 2 private pension fund managed by Aegon. As a result, it became the fourth largest fund of its kind in the country1.
In terms of assets under management, Aegon’s private pension funds in Poland4, Slovakia7 and Romania1, and its voluntary pension fund in Hungary8, are among the largest in the respective countries. In terms of numbers of members, Aegon has a significant market presence in Poland4, Romania1, and Hungary8.
Non-life Aegon Hungary offers non-life cover (mainly household and car insurance, along with some wealth and liability industrial risk and travel insurance). Aegon is the leading insurance company in the Hungarian household market2. 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.
Aegon is a less significant market participant in Slovakia, the Czech Republic and Romania. In Turkey, Aegon was ranked ninth based on written premium at the end of October 20156.
participants and managed assets in 2014 in the voluntary pension fund market in Hungary1. For managed assets, at the end of 2015, Aegon was ranked fifth in the Slovakian private pension market2. In November 2015, Aegon ranked tenth in terms of both the number of participants and managed assets in Poland3.
At year-end 2015, Aegon was the fourth largest provider in the Romanian mandatory private pension market, both in terms of net assets under management and number of participants4.
State supervision and oversight of the insurance industry is conducted by the following bodies and institutions: �� The Central Bank of Hungary (MNB); �� National Bank of Slovakia (NBS); �� Czech National Bank (CNB); �� Polish Financial Supervisory Authority (KNF); �� Authority for Financial Supervision (ASF) (Romania); �� Undersecretariat of Treasury (Turkey); and �� National Commission for State Regulation of Financial
In preparation for the implementation of Solvency II, with the exception of the Czech Republic, the other European
position of the activities of Aegon CEE on December 31, 2015 is estimated to be ~250%.
In Hungary, the foundation and operations of voluntary pension funds are regulated by the country's Voluntary Mutual Pension
Funds Act (411/2004) and the voluntary pension system is subject to the Voluntary Pension Law (204/2006), both complemented by individual regulations (as secondary legislation). In Poland, this activity is supervised by the KNF and governed by the Organization and Operation of Pension Funds
(2013) stipulates the foundation, operation and reporting obligations of the country's financial institutions (including
Asset liability management The investment strategy and the asset liability management of the CEE region is overseen within Aegon by the Regional Risk and
Reinsurance ceded Aegon takes out reinsurance for its life and non-life businesses in Central & Eastern Europe, the aim of which is to mitigate insurance risk. In accordance with Aegon’s Reinsurance Use
Policy, Aegon’s companies in the region only work through large multinational reinsurers that have well-established operations in the region. For short-tail business, Aegon CEE accepts reinsurance companies with a minimum Standard & Poor's (S&P)
rating of A-. For long-tail business Aegon CEE accepts reinsurance companies with a minimum S&P rating of AA-.
Re retrocedes the risk in the reinsurance market, potentially with some level of retention. In addition, in 2014, Aegon Turkey started to cede the mortality risk stemming from the bulk of its traditional life portfolio to Blue Square Re.
(EUR 16 million retention); �� Motor third-party liability excess of loss treaty
(EUR 1.0 million retention); and �� General third-party liability excess of loss treaty
Overview of Asia Aegon Asia operates through three major joint ventures in the People’s Republic of China (hereafter referred to as 'China'), India and Japan, in addition to a network of wholly-owned subsidiaries, including Aegon’s businesses in Hong Kong and Singapore that serve the high-net worth segment.
Joint ventures On October 20, 2014, Aegon and Tsinghua Tongfang Co. Ltd
Insurance Co., Ltd.’ (Aegon Life). By December 31, 2015, the joint venture had a distribution network across 52 cities and 20 states in India, and had issued more than 472,000 policies to over 412,000 customers.
Sony Life, one of Japan's leading insurance companies, to establish Aegon Sony Life Insurance Co., Ltd. (Aegon Sony Life).
Aegon Sony Life is annuity sales in Japan. Aegon and Sony Life also jointly established a reinsurance company, SA Reinsurance
Ltd. (SARe), to provide Aegon Sony Life with greater flexibility in the pricing and design of its annuity products. Launched in 2010 and based in Bermuda, SARe manages the guaranteed benefit risks of Aegon Sony Life's products.
Transamerica Life Bermuda (TLB) and its predecessors recently celebrated 81 years of service to customers in Asia. TLB now primarily serves the high-net-worth market in Asia through its branches in Hong Kong and Singapore.
Hong Kong, while continuing to fulfill obligations to customers through its broker operation. On September 30, 2015, ADAMS
ADAMS is one of the largest independent insurance direct marketing services companies in Asia. ADAMS specializes in direct and affinity marketing, and services business partners across the direct marketing value chain.
Universal life and term products TLB's main products consist of USD denominated universal life and USD term plans for the high-net-worth market.
Since 2010, SARe has assumed the risk on all minimum guarantees offered on Aegon Sony Life's variable annuity products.
Non-life Aegon THTF offers non-life products (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.
Accident products are also one of the major types of products sold through the e-sales channel.
ADAMS is a marketing services company. It operates via partnerships primarily with local insurers to consult on the development and marketing of the most relevant insurance products to a given market’s customers. Revenue is primarily generated through reinsurance arrangements with reinsurance or insurance companies from within the Aegon Group, together with fee income from product sales. Under this business model
Aegon THTF ranked forty-ninth among life insurance companies and fourteenth among foreign life companies in China. Aegon
THTF's market share among foreign-invested companies was 1.4% in terms of total premium1.
India: Aegon Life There were 24 licensed life insurers in India at the end of
Corporation of India continues to maintain a dominant share of new business premiums (April 2015 to December 2015)2, private sector companies have shown double-digit growth to garner more than 50% of the individual recurring new business premiums written. Aegon Life India ranked twenty-first in the individual recurring premium market (April 2015 to December 2015)3.
Control’. These regulations demonstrate the commitment to reforming product pricing, in addition to loosening restrictions on investment strategy. The insurance industry in China began its 1 Source: the China Insurance Regulatory Commission (www.circ.gov.cn).
The IRDAI is very active in introducing new regulations that focus on protecting policyholders' interests and exploring avenues to support growth in the industry. Some steps initiated by the IRDAI
during 2015 include: the Insurance Amendment Act 2015; regulations on the transfer of equity shares; recognizing other forms of capital; draft regulations on the expense of management; guidelines on opening a place of business; guidelines on the unclaimed amounts of policyholders; and guidelines related to appointment of insurance agents.
Hong Kong and Singapore: TLB TLB is incorporated in Bermuda and regulated by the Bermuda
Changes to the Insurance Companies Ordinance in 2015 provide for the establishment of a new independent insurance authority.
The amendments will take effect in stages, with the first being the establishment of the Provisional Insurance Authority.
Aggregation. For TLB and SA Re, Deduction & Aggregation is applied using available and required capital as per the local capital regime. The regulatory regime of Bermuda was granted provisional equivalence on December 7, 2015. The other units in
Regular review of risk and capital requirements is conducted in these committees to monitor asset and liability mismatch risk, investment risk and the solvency position. Based on the payment structure and term of insurance liabilities, Aegon THTF invests in corporate bonds, government bonds, bank deposits, debt projects, or other fixed income assets to match liabilities. Operating and shareholders' equity funds may be invested in mutual funds, stocks, money market funds and bond repurchase in order to enhance investment returns.
Japan: Aegon Sony Life and SARe Aegon Sony Life reinsures 100% of its guarantees on variable annuities to 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
Hong Kong and Singapore: TLB TLB’s assets are currently managed by Aegon USA Investment
Management in the United States in a pool of assets backing similar liabilities. ALM is performed as part of asset portfolio management.
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 taken by
reviews the reinsurance structure regularly and adjusts it based on claims experience and its risk acceptance capability.
Hong Kong and Singapore: TLB TLB uses third-party mortality reinsurance for its universal life and traditional policies. Mortality reinsurance takes the form of yearly-renewable term excess-of-retention or quota-share arrangements. This is typically arranged through a pool of reinsurers, such as Munich Re and Swiss Re.
Organizational structure Aegon’s main subsidiaries and affiliates in Spain and Portugal are: �� Aegon España S.A. de Seguros y Reaseguros; �� Aegon Administracion y Servicos A.I.E.; �� Aegon Activos A.V, S.A.; �� Aegon Santander Generales Seguros y Reaseguros (51%), in partnership with Banco Santander; �� Aegon Santander Vida Seguros y Reaseguros (51%), in partnership with Banco Santander; �� Aegon Santander Portugal Vida Companhia de Seguros S.A.
S.A. (51%), in partnership with Banco Santander Totta; and �� Liberbank Vida y Pensiones, Seguros y Reaseguros, S.A. (50%), in partnership with Liberbank, S.A..
Overview of sales and distribution channels The main distribution channel in the Spanish market is bancassurance, which accounts for 67% of life sales, in comparison with 28% for brokers and 5% for direct customers1.
Banco Santander is the largest financial institution in Spain, with over 3,500 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%.
In July 2014, Aegon Spain and Banco Santander Totta Seguros, a Portuguese insurance company that is part of the Santander
(accident, home and commercial multi-risk insurance, and sickness) through over 600 branches nationwide – the largest network of its kind in the country. These are sold through two insurance entities: Aegon Santander Portugal Vida for pure life risk products, and Aegon Santander Portugal Não Vida, for general insurance products. Aegon has a 51% share in each entity.
Distribution Aegon Spain offers life insurance, general insurance, health, pension products and mutual funds. It uses three main distribution channels: bancassurance, which comprises 58%; 40% through its own network of brokers and agents; and 2%
Life insurance & Pensions Aegon Spain's life insurance business comprises both individual and group protection and savings products, with individual products forming the larger part of the business.
Protection business includes primarily life, accident and disability cover, and products can be complemented with critical illness, income protection and other riders. Customers' saving needs are serviced by Aegon Spain through its targeted offering of universal life, unit-linked and pension funds. Both savings and protection products are distributed through the channels mentioned above.
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 Spain.
Aegon Spain's business lines was 55% for life insurance, 20% for accident and health insurance, and 25% for general insurance.
With respect to the Portuguese market, the risk life bancassurance market is dominated by Ocidental Vida and
Fidelidade, which distribute their products through Milleniumbcp and Caixa Geral de Depósitos respectively. These companies have a market share of 20% each3.
In the non-life bancassurance market, Ocidental Seguros is currently the market leader in terms of issued premiums, with a market share of 34%. It is followed by Fidelidade and CA
Regulation and supervision Insurance companies in Spain are required to report on a quarterly basis to the Direccion General de Seguros y Fondos de
Solvency I The local Solvency I requirements in Spain and Portugal are based on percentages of the reserves for the life insurance business and the premiums and the sum at risk for the health and general insurance business. The local regulations for investments require the appropriate matching of investments and technical provisions, and also establish different levels of restrictions on the type of assets in which the insurance company may invest.
2 Investigación Cooperativa entre Entidades Aseguradoras y Fondos de Pensiones (ICEA).
Asset liability management Aegon Spain's approach to asset liability management is to make projections of asset and liability cash flows, calculate their present values using a market yield curve, and calculate the main parameters affecting these cash flows, such as duration and convexity. The goal is to lock in the spread by matching the duration of assets to the duration of liabilities.
Reinsurance ceded Aegon Spain has a 'one Aegon' reinsurance management policy.
The main contract for mortality and morbidity provides proportional reinsurance protection for both its individual risk and group risk policies. With this approach, Aegon Spain seeks to optimize the cost of reinsurance coverage, sharing the profits and not the losses, while achieving prudential diversification of its insurance risk by limiting the maximum possible losses on risks that exceed retention levels. Maximum retention levels vary by product and by the nature of the risk being reinsured, although the retention limit is in general between EUR 9,000 and
EUR 60,000 per life insured. Aegon Spain remains contingently liable for the amount ceded should the reinsurance company fail to meet its obligations. Aegon Spain generally only uses reinsurance companies that have a Standard & Poor credit rating of 'A' or higher. 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. Further protection is taken out through funds that are withheld for investment by the ceding company where appropriate.
Overview of Variable Annuities Europe Variable Annuities Europe is a specialist provider of variable annuity (guarantee) products in the United Kingdom, Germany and France. It also offers offshore investment bonds in the United Kingdom.
Aegon UK’s retail advisor channel. In Germany, Aegon Ireland has its own branch office in Frankfurt and has a number of distributors and a customer service team. Business in France is conducted through a reinsurance contract with AG2R
Variable annuities (guarantees) Variable annuities are advised products distributed primarily through financial advisors and banks in three European markets: the UK, Germany and France.
The policyholder's account value reflects the performance of the selected funds less charges, withdrawals or guarantee payments. The insurance provider earns administration and expense charges, in addition to guarantee charges for the guaranteed benefits.
The surrender value reflects the performance of the funds selected by the client. The final surrender value of the policy may therefore be less than that of the original investment.
Competition Variable annuities (guarantees) There was no material change in the competitive environment for variable annuities in Europe in 2015 as challenging economic and financial conditions limited new product launches.
In the UK, Variable Annuities Europe has two direct competitors: Axa and MetLife. Following the introduction of pension reforms in the UK in April 2015, the market for retirement income products is expected to grow – especially for those products offering income guarantees. New retirement income products are expected to come to market in 2016. While this is a challenge for
In France, AXA and Allianz are the only other providers offering variable annuities other than AG2R La Mondiale.
Economic Area on either a freedom of services (FOS) or freedom of establishment (FOE) basis, subject to the notification requirements set out in the 1994 Regulations.
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). Aegon Ireland must comply with the general good provisions that apply to insurers selling such policies in each jurisdiction.
Solvency II As of January 1, 2016, when Solvency II became effective,
Solvency II position of the activities of Variable Annuities Europe on December 31, 2015, is estimated to be ~125%.
Asset liability management Variable Annuities Europe’s main market exposures arise from the guarantees provided on Variable Annuity (guarantee)
Reinsurance ceded 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 – and AG2R La Mondiale.
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, Hungary, Spain, and
Industrial Fund Management Company, a Shanghai-based asset manager that offers mutual funds, segregated accounts and advisory services; and �� On June 4, 2015, Aegon Asset Management entered into a strategic partnership for the French market through the acquisition of a 25% stake in La Banque Postale Asset
Strategic direction and global oversight of business performance is executed by the Board of Aegon Asset Management with both global and local roles and responsibilities. The Board (AAM) is supported by the Governance Risk & Compliance Committee
Committee, which focuses on strategy execution. Members of the Board (AAM) are appointed by Aegon N.V. The Risk Advisory
Aegon insurers through which the policyholder’s return is determined by the investment return of the fund. These funds have various legal structures, and are usually managed against a benchmark or peer group target. 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 Management competes with external fund managers.
In the United States, Aegon Asset Management focuses on fixed income, asset allocation and real estate loans. In the wholesale market, Aegon Asset Management works as a sub-advisor with its insurance company affiliates in order to produce competitive products. It also works with consultants and other partners to offer products to third-party institutions.
In France, La Banque Postale Asset Management competes for private investors through La Banque Postale’s retail banking network, with a focus on new multi-asset strategies. In the institutional market, it will expand its current offering with additional strategies from Aegon Asset Management businesses to compete with the big local asset managers and specialized international players.
Management in the United States do not fall under the responsibility of Aegon Asset Management Holding B.V
January 1, 2016. The EU-domiciled asset management activities are accounted for in the Group Solvency II calculation using the requirements set by the Capital Requirements Directives (CRD).
Definition and tolerances For Aegon, risk management involves: �� Understanding which risks the Company is facing; �� 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.
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. To accomplish this, Aegon has established a number of risk criteria and tolerances as part of its risk strategy: �� Financial strength: ensure Aegon meets long-term obligations to policyholders, thereby enabling Aegon to compete in key markets as a financially strong global insurer; �� Continuity: ensure that Aegon meets policyholder obligations, even under extreme event scenarios; �� Culture: encourage strong risk awareness by stressing the 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.
Aegon’s risk governance framework Aegon has a strong culture of risk management, based on clear, well-defined risk governance; the goals of which are to: �� Minimize ambiguity by clearly defining roles and responsibilities and risk reporting procedures for decision makers; �� Institute a proper system of checks and balances, and ensure that senior management is aware of material risk exposure at all times; �� Manage risk in line with the targeted risk profile, including the avoidance of an over-concentration of risk in particular areas; �� Facilitate diversification by enabling management to identify diversification benefits from apparent risk-return trade-offs; and �� Reassure external stakeholders that Aegon has appropriate risk management structures and controls in place.
Aegon has a comprehensive range of company-wide risk policies that detail specific operating guidelines and limits. These policies are designed to keep overall risk-specific exposures to a manageable level. Any breach of policy limits or warning levels triggers immediate remedial action or heightened monitoring.
Risk & Capital Committee (GRCC); and �� The Regional Risk & Capital Committees.
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 Company's risk exposure as it relates to capital, earnings and compliance with Group Risk policies. It is the responsibility of the Executive Board and the Group's Chief Risk Officer (CRO) to inform the Supervisory Board of any risk that directly threatens the solvency, liquidity or operations of the Company. Details of members of the SBRC can be found on pages 101, 106 and 107 of this Annual Report.
The Management Board discusses and sponsors ERM, in particular the risk strategy, risk governance, risk tolerance, and material changes in risk methodology and risk policies.
The Management Board is supported by two committees: �� The Enterprise Risk Management Committee (ERMC), which focuses on Aegon’s ERM framework development and maintenance, including risk strategy, risk governance, risk tolerance, risk methodology, risk policies and risk management standards of practice; and �� The Group Risk & Capital Committee (GRCC), which focuses on managing Aegon’s overall solvency and liquidity position, while ensuring that risk-taking is within the risk tolerance statements and consistent with the group risk policies.
The ERMC can seek advice on significant ERM framework development work from temporary working groups, which are comprised of subject-matter experts from across the Company's businesses. These working groups are established by the ERMC, including their membership, scope of work and deliverables.
The GRCC informs the Management Board about any identified or near breaches of overall tolerance levels, in addition to any potential threats to the Company’s solvency, liquidity or operations.
Risk & Capital Committees (RCCs) have been established at each of Aegon’s reporting units. The responsibilities and prerogatives of the RCCs are set out in their respective charters and are similar in content to those of Group Risk, but tailored to local circumstances. Group Risk is responsible for the development, maintenance and oversight of compliance with the ERM
framework, including risk strategy, risk governance, risk tolerance, risk methodology and risk policies. Group Risk also maintains oversight of material risk, balance sheet and commercial decisions taken throughout the Company. Group Risk further identifies good risk management practices and facilitates implementation of these, in addition to ensuring that there is consistency in the application of these practices across the Company. Furthermore, Group Risk prepares risk management information, including information about current risk exposures and issues, and additional sensitivity and scenario analyses, both at its own initiative and at the request of management.
Within the context of the ERM framework, the following reporting units are distinguished: the Americas, the Netherlands, the UK, Central & Eastern Europe, Asia, Spain, Variable Annuities
The Company's first line of defense, including the business and support functions, such as Regulatory Compliance, has direct responsibility for managing and taking risk in accordance with defined risk strategy, risk tolerance and risk policies. The second line of defense – the Risk Management department including the operational risk and conduct management function
across the Company. The third line of defense – the audit function –provides independent assurance and challenge regarding the effectiveness and integrity of ERM across the Company.
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. An important development in 2015 was that Aegon both applied for and received approval to use a partial internal model as of January 1, 2016, to measure and aggregate most material risks related to its EU exposures and calculate its Solvency Capital Required
Framework) and its ERM Framework formed a strong basis on which to develop its partial internal model. The various components of the internal model were extensively debated with the relevant supervisors, went through internal governance and were fully validated and vetted before approval was obtained.
It is important to not only meet technical implementation requirements, but to also use Solvency II in the taking of management decisions. While the full application of the Solvency
Solvency II numbers as much as possible before the implementation date. Examples in 2015 include Risk and
Capital reporting, the budget and Medium Term Plans, target setting of staff, product pricing and development, asset & liability management, and merger, acquisition and disinvestment decisions.
Risk overview 2015 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 risk Aegon faces is that of changes in financial markets, particularly movements in interest rates, equity and credit markets. These 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.
Credit risk In 2015, credit spreads increased moderately, and Aegon slightly reduced its exposure to credit risk. In the UK, callable bonds were sold and the proceeds and new business were invested largely in high-rated sovereign-linked paper. In the Netherlands, corporate bonds were sold and reinvested in highly-rated structured assets.
Equity market risk and other investment risks Equity markets were volatile in 2015, with a sharp correction in the third quarter followed by a partial recovery in the fourth.
During the year, Aegon continued to progress its program of hedging equity risk at its UK pension business, variable annuities, and US and Dutch operations in order to protect the Company against a possible deterioration in equity markets. The US
business has a macro hedge in place to protect the business capital position of variable annuities from fluctuations in equity markets. As a result of a mismatch between US statutory and
The Company considers extreme liquidity stress scenarios, including the possibility of prolonged 'frozen' capital markets, an immediate and permanent rise in interest rates, and policyholders withdrawing liabilities at the earliest conceivable date. In addition, the Company has liquidity stress planning in place. In 2015, Aegon retained significant holdings of cash and highly liquid assets as a precaution against potential adverse market developments. Stress tests show that available liquidity would more than match the Company's liquidity requirements even if market conditions were to significantly deteriorate.
Underwriting risk Aegon’s earnings depend, to a significant degree, on the extent to which claims experience is consistent with assumptions used to price products and establish technical liabilities. Changes in, among other things, morbidity, mortality, longevity trends and policyholder behavior may have a considerable impact on the Company's income. Assumptions used to price products and establish technical liabilities are reviewed on a regular basis.
Risk Management Framework, and focuses on financial strength, continuity, the steering of the risk balance and the desired risk culture. The core aim is to establish the organization's tolerance for risk to assist management in carrying out Aegon’s strategy within the Group's available resources.
Guiding principles Aegon follows a number of guiding principles that determine its approach to capital and liquidity management: �� To promote strong capital adequacy in Aegon’s businesses and operating units; �� To manage and allocate capital efficiently in support of the strategy and in line with its risk tolerance; �� To maintain an efficient capital structure with an emphasis on optimizing Aegon’s cost of capital; �� To ensure sufficient liquidity by enforcing stringent liquidity risk policies for both business units and the holding; and �� To maintain continued access to international capital markets on competitive terms.
Capital management Strategic importance Aegon’s approach to capital management plays an important role in supporting the execution of Aegon’s strategic priorities. These priorities include the shift of capital to products that offer higher growth and return prospects, and the shift from spread business to fee business. Disciplined risk and capital management support
Capital requirements and leverage Aegon’s goal for all business units is to maintain a strong financial position in order to be able to withstand losses from adverse business and market conditions. The Company's overall capital management strategy is based on managing capital adequacy, capital quality and the use of leverage.
As a matter of policy, Aegon maintains the capitalization of its business units based on the most stringent of the following constraints: �� Local regulatory requirements; �� Rating agency requirements for very strong capitalization for rated entities; and �� Any additional, self-imposed internal requirements.
The increase reflects earnings generated during the year as well as the impact of divestments.
Solvency II The introduction of Solvency II has meant a change in the regulatory capital requirements in EU-domiciled legal entities and therefore impacted the capitalization levels used to assess capital adequacy of Aegon’s EU-domiciled business units.
The Group Solvency II position on December 31, 2015, which excludes Aegon Bank N.V., is estimated to be ~160%. There are however still uncertainties around the interpretation of the
The FSB reviews the G-SII designation annually. As a result of the G-SII designation, Aegon will be subject to an additional layer of direct supervision at group level. G-SIIs will be required (as of
Absorbing Capacity or HLA) in addition to the capital buffer (Basic
Capital Requirements or BCR) internationally active insurance groups will be required to hold pursuant to IAIS guidelines.
as adopted by the EU; �� Non-controlling interests and share options not yet exercised; and �� Total financial leverage.
Aegon’s fixed charge coverage is a measure of the Company's ability to service its financial leverage. It is the ratio of underlying earnings before tax and prior to the payment of interest expenses on financial leverage to interest payments on financial leverage.
(6.5x on December 31, 2014). Aegon targets a gross financial leverage ratio of 26-30% and a fixed charge coverage of 6-8x.
Funding and back-up facilities Most of Aegon’s financial leverage is issued by Aegon N.V., the parent company. A limited number of other Aegon companies have also issued debt securities, but for the most part these securities are guaranteed by Aegon N.V.
additional LOC facilities of USD 2.6 billion, which mature in 2020.
In addition, Aegon also maintains various shorter-dated bilateral backup liquidity, and committed and uncommitted LOC facilities.
LOCs issued by third parties provided to captives to provide collateral to affiliated insurers are disclosed in note 48
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 so allows, to pay dividends to the holding.
Insurance laws and regulations in local regulatory jurisdictions often contain minimum regulatory capital requirements, which during 2015 included 100% of the Authorized Control Level
December 31, 2015, are included in the following table: Capital requirements Legal/regulatory minimum capital requirement Actual capitalization Excess over legal/regulatory minimum
United Kingdom3) 100% Solvency I (Pillar 1) ~165% Solvency I (Pillar 1) ~EUR 1.1 bln 1 Capitalization for the United States represents the internally defined combined risk-based capital ("RBC") ratio of Aegon’s life insurance subsidiaries in the United States. The combined RBC ratio utilizes the NAIC RBC ratio excluding affiliated notes and taking into account excess or deficient amounts related to offshore life affiliates.
2 Excluding the banking activities. 3 Including the With Profits fund at unaudited June 30, 2015 values.
Local insurance regulators generally use their discretionary authority and judgment to restrict and/or prohibit the transfer of funds to the holding company to capital levels well above the minimum capital requirements contained in the applicable insurance regulations. The discretionary nature of the regulatory assessment of capital adequacy creates a natural ambiguity with regards to the exact level of capital required by local regulatory authorities. Precise capitalization levels effectively required by local insurance regulators are often not known in advance, in part because the views and risk tolerances of certain regulators for certain asset classes continue to develop over time, in line with the development and evolution of local, regional and global regulatory capital frameworks. In practice, and for transfer of funds purposes, Aegon manages the capitalization of its subsidiaries in excess of the minimum regulatory capital requirements contained in the applicable regulations, as shown in the table above.
The capitalization level and shareholders' equity of the subsidiaries can be impacted by various factors (e.g. general economic conditions, capital markets risks, underwriting risk factors, changes in government regulations, legal and arbitrational proceedings). To mitigate the impact of such factors on the ability of subsidiaries to transfer funds, the subsidiaries hold additional capital in excess of the levels required by local insurance regulations.
External dividends 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.
There is no requirement or assurance that Aegon will declare and pay any dividends.
In addition, the Executive Board is responsible for Aegon’s enterprise risk management under the supervision of the Supervisory Board and its Risk Committee. Aegon’s risk management function monitors and controls Aegon’s solvency position, and ensures that risk taking is within Aegon’s risk tolerance levels. The Executive Board is informed of any risks that threaten the Company's economic/statutory solvency, reputation, reliability of financial reporting or operations.
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; �� Aegon’s risk management and control systems functioned properly in 2015; and �� There are no indications to suggest that Aegon’s risk management and control systems will not continue to function properly in 2016.
Regulation and Supervision Individual Aegon companies are each subject to prudential supervision in their respective home countries. Insurance and banking companies, together with a number of the investment undertakings in the Group, are required to maintain a minimum solvency margin based on local requirements. In addition, some parts of the Group are subject to prudential requirements on a consolidated basis, including capital and reporting requirements. Such additional requirements lead, in certain circumstances, to duplicative requirements, such as the simultaneous application of consolidated banking requirements and Solvency II group solvency requirements.
EU supervisors to make a detailed assessment of the financial position of the EU insurance and reinsurance companies that are part of that group. The provisions of the Insurance Groups
The requirements of the Insurance Groups Directive are included in the Solvency II framework, which entered into force in
EU member states, as well as for groups with insurance and/or reinsurance activities in the EU. These capital requirements should, compared with the current Solvency I and IGD framework, better reflect the actual risk profile of insurance and reinsurance companies and insurance groups. The Solvency II approach to prudential supervision can be described as a ‘total balance sheet-approach,’ and takes material risks to which insurance companies are exposed into account in addition to the correlation between these risks.
(group supervision). This means that a number of requirements from the Solvency II framework that apply to the individual
in addition to the assets held to cover the technical provisions in order to ensure that they are able to meet their obligations over the next 12 months with a probability of at least 99.5%
(insurance or reinsurance company’s balance sheet ability to withstand a 1-in-200-year event). The buffer that insurance and reinsurance companies are required to hold is the Solvency
Capital Requirement (SCR). Insurance and reinsurance companies are allowed to: (a) use a standard formula to calculate their SCR
The system of governance should be subject to regular internal review. Solvency II requires insurance and reinsurance companies to have written policies in a number of areas (such as risk management, internal control, internal audit and outsourcing
calculation or if there are weaknesses in the system of governance), the requirement to submit and execute a recovery plan (in the event of a (threatening) breach of the SCR or MCR), and ultimately the revocation of an insurance or reinsurance license (to the extent the measures relate to an EU licensed insurance or reinsurance undertaking and not to the group as a whole, which does not have a license).
Pillar 3 Solvency II introduces new and more detailed reporting and disclosure requirements than formerly prescribed under the Solvency I framework. These requirements include non-public supervisory reporting on a quarterly and annual basis through regular supervisory reports (RSR), complemented by detailed quantitative reporting templates (QRTs) containing detailed financial data. In addition, it will be a requirement to publish a Solvency and Financial Condition Report (SFCR) on an annual basis.
Group supervision Solvency II not only imposes regulatory requirements on individual EU insurance and reinsurance undertakings; many of the requirements that apply to the individual insurance and reinsurance undertakings apply, with the necessary modifications,at group level. These requirements include group solvency requirements, group reporting and disclosure requirements, and requirements regarding the system of governance, risk management and internal control framework at group level. The group requirements do not include an MCR.
Entities in other financial sectors are, in most cases, taken into account in the group solvency calculation, applying the capital requirements of that specific financial sector (such as Basel III
requirements for banks and certain investment firms) and using the deduction and aggregation method for inclusion of these entities in the group calculation (as opposed to the accounting consolidation method, which is the default method under
Solvency ratio, the Accounting Consolidation method and the Deduction and Aggregation method. Aegon applies the Accounting Consolidation method as the default method.
United States, Aegon uses the Deduction and Aggregation method, with local regulatory requirements to bring these into the Group Solvency position. US insurance and reinsurance entities are included in Aegon’s group solvency calculation in accordance with local US (RBC) requirements. Aegon uses 250%
equivalent. The RBC and CAL are both described in more detail in note 46. 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
Solvency II group supervision is exercised by a combination of the supervisory authorities of the local insurance and reinsurance entities and the group supervisor, which in Aegon’s case is DNB.
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 designated by the Financial
designation are not yet fully clear, as relevant parts of the IAIS
guidelines still need to be determined (and where appropriate, subsequently included in formal regulation).
Oversight and advice In performing their duties, members of the Supervisory Board are guided by the interests of Aegon and the Company’s stakeholders.
Corporate governance Details of Aegon’s corporate governance structure and a summary of the Company's compliance with the Dutch
Annual Report and in the Corporate Governance Statement published on Aegon’s corporate website, aegon.com.
Board in 2015 can be found on pages 106 and 107.
Mr. Leo van Wijk resigned as a member of the Board on
May 20, 2015, at the end of his third and final term. The Board greatly benefitted from his knowledge and experience, and is grateful for his many contributions. On May 20, 2015, shareholders approved the appointment of Mr. Ben Noteboom to the Board for a term of four years.
second term as CEO ended in 2015. Following the recommendation from the Nominating and Governance Committee, and in view of his broad international and financial services experience, his leadership and vision and his performance as CEO, the
Mr. Wynaendts at the Annual General Meeting of Shareholders of May 20, 2015, as a member of the Executive Board for another four-year term as of May 20, 2015. The Board has full confidence that with Mr. Wynaendts as CEO, Aegon is well-positioned to deliver on its purpose ‘to help people achieve a lifetime of financial security’. Shareholders reappointed Mr. Wynaendts as CEO to the Executive Board in the General Meeting of
Shareholders of May 20, 2015. 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 2015, the Supervisory Board had seven regular (face-to-face)
Members of the Executive Board and Management Board were present at most of the Supervisory Board meetings held in 2015.
PwC attended the March Supervisory Board meeting on Aegon’s annual report. PwC also attended all 2015 Audit Committee meetings. Regular Board meetings were preceded or followed by executive sessions – meetings of the Supervisory Board without the presence of Executive Board or Management Board members.
Agreement was reached on the strategic framework during the June meeting. This included the measures to achieve Aegon’s financial targets, in particular a return on equity of 10%.
At the Supervisory Board meeting in December, the budget for 2016 was approved and the Medium Term Plans were discussed.
In 2015, Supervisory Board discussions included the following topics: �� Strategy, including Aegon’s sustainability program and business reviews; �� Acquisitions, divestments and the restructuring of businesses; �� Executive Board and senior management succession planning; �� Senior appointments; �� Executive remuneration; �� Governance and composition of the Supervisory Board; �� Technological developments and the application of these to enhance customer centricity; �� Human resources, including talent development and results of the global employee survey; �� Annual and quarterly results, dividend and the Group Medium
Highlights One of the key focus areas of the Supervisory Board in 2015 was
Solvency II, the European regulatory framework for insurers and insurance groups. Solvency II entered into force on January 1, 2016, and includes risk-based capital requirements, an Own Risk and Solvency Assessment (ORSA), group supervision, supervisory review processes, and reporting and disclosure requirements.
Global Head of Human Resources on progress made towards achieving the objectives of the talent agenda: attracting new staff with a wide range of different skills and experience; identifying sufficient qualified succession candidates; and strengthening the talent pipeline for future succession.
The Board also received and discussed the results of the annual Global Employee Survey.
A long-lasting dispute ended after the appeal period of the court approval expired and the restrictions on the capital of the harbor workers’ former pension fund Optas Pensioenen N.V. were removed.
Results and budget In February 2015, the Supervisory Board convened to discuss the results of the fourth quarter of 2014. In March 2015, the Supervisory Board reviewed and adopted Aegon’s 2014
Legal and compliance In 2015, the Supervisory Board and the Audit Committee discussed a number of compliance, regulatory and legal topics relating to Europe, the United States, Asia, and Asset
Management with management, the General Counsel and the Global Head Regulatory Compliance. In particular, the Board discussed the possible consequences of being designated as a Global Systematically Important Insurer (G-SII), restructuring of the Compliance and Operational Risk Management (ORM)
The Chairmen of the Supervisory Board, Audit and Risk Committees visited the group regulator (Dutch Central Bank, DNB) to discuss issues of strategy, risk management and compliance.
Committee, joined by several other members of the Board, held a meeting that focused on the European regulatory framework for insurers and insurance groups in the run-up to Solvency II and the consequences for Aegon.
The Supervisory Board undertakes a Board self-assessment on an annual basis. In the beginning of 2015, the Supervisory Board met to review and discuss the results of the 2014 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 for the Board to address in 2015. An external advisor interviewed each member of
towards the end of 2015. The 2015 review assessed the collective performance and effectiveness of the Board and its committees, and the performance of the Chairman.
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 primarily relies on the Risk
Corporate Controller, Chief Risk Officer, internal auditor and partners of PwC, Aegon’s external auditor. Members of Aegon’s
Supervisory Board also reviewed the changes to Aegon’s accounting policies relating to certain reinsurance transactions, in addition to insurance accounting for its business in the UK, as part of the execution of the financial strategy as announced in January 2016.
The Audit Committee received detailed written and verbal reports from the external auditors on these matters. The Audit Committee was satisfied with the explanations provided and conclusions reached. Recurring items on the Audit Committee agenda in 2015 were Solvency II capital position and Solvency II reporting.
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 internal audit plan for 2015 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. Focus areas in 2015 included hedging policies and processes, information security and progress on preparing for the new Solvency II regime
The Audit Committee also reviewed Aegon’s compliance with the US Sarbanes Oxley Act and regular reports from the Global
For more information about the policies relating to the effectiveness and independence of the external auditor, please see
Furthermore, the Risk Committee regularly reviews risk exposures as they relate to capital, earnings and compliance with risk policies.
Partial Internal Model (PIM) application, and the design of key control functions under this new regulatory regime.
The Risk Committee convened five times in 2015, including the combined meeting with the Audit Committee. The Company's
Recurring items on the Risk Committee agenda in 2015 were the quarterly risk dashboard and the Board risk list. The Risk
The Nomination and Governance Committee Composition On December 31, 2015, the composition of the Nomination and
Governance Committee was as follows: �� Robert J. Routs (Chair) �� Shemaya Levy �� Ben van der Veer �� Dirk P.M. Verbeek
Resources Management and Corporate Governance. This includes, inter alia: �� board member and senior management succession planning; �� drawing up selection criteria and procedures; �� advising on and proposing nominations, appointments and reappointments; �� reviewing and updating the board profile and charters for the Board and committees; �� discussing annual employee survey; and �� overseeing the corporate governance structure of the Company, compliance with the Dutch Corporate
Committee meetings Aegon’s Nomination and Governance Committee had six meetings in 2015. In addition to the committee members, these meetings are typically attended in whole or in part by the CEO, the Global
After updating the Supervisory Board Charter, updates for the Charters for the Audit Committee, Risk Committee,
Executive Board related activities The Nomination and Governance Committee discussed the reappointment process and the rationale supporting the proposal to the Annual General Meeting of shareholders
and Aegon’s Global Head of Human Resources the extent to which sufficient internal candidates are available to fill positions at Executive Board, Management Board and senior management level in the event of an emergency, and when positions open up in the future. The CEO also discussed changes in the global senior management team with the Nomination Committee and
Head of Human Resources. As in previous years, the Board noted that Aegon continued to make progress to ensure proper succession planning is in place. The Board was pleased with the results of the annual Global Employee Survey, which was conducted in January in 2015.
The Remuneration Committee Composition On December 31, 2015, the composition of the Remuneration
Committee was as follows: �� Ben J. Noteboom (Chair) �� Irving W. Bailey II �� Robert J. Routs �� Corien M. Wortmann-Kool
Identified Staff and Group Control functions; �� preparing the information provided to shareholders on remuneration policies and practices, including the Remuneration Report.
Committee meetings The Remuneration Committee had six meetings in 2015, all of which were attended in whole or in part by the CEO. Other regular attendees were the Global Head of Human Resources and
Aegon’s General Counsel. During the year, the Committee considered advice from the independent external consultant,
Towers Watson, on specific topics and ascertained that these consultants did not also advise the members of the
The scope of the Remuneration Committee has broadened in recent years as a result of successive new regulations introduced by the EU (the Capital Requirements Directive III and IV, or ‘CRD III
and IV’), together with the Guidelines on Remuneration Policies and Practices issued by the Committee of European Banking
Global Remuneration Framework and the various policies and related procedures, including the Remuneration Policy for
Identified Staff. This included: �� setting the 2015 performance indicators and targets for remuneration purposes; �� allocating variable compensation for 2014; �� 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 in 2015.
Annual Accounts This Annual Report includes the Annual Accounts for 2015, which were prepared by the Executive Board and discussed by both the Audit Committee and the Supervisory Board. The Annual
We would like to thank Aegon’s employees for all they do to serve Aegon’s millions of customers, and we would also like to express our thanks to Aegon’s business partners and loyal customers for their continued confidence in the Company.
Robert J. Routs (1946, Dutch) Chairman of the Supervisory Board Chairman of the Nomination and Governance Committee Member of the Remuneration Committee Robert J. Routs is a former Executive Director for Downstream at Royal Dutch Shell. He was appointed to Aegon’s Supervisory
Mr. Routs is also Chairman of the Supervisory Board of Royal
Irving W. Bailey II (1941, American) Vice-Chairman of the Supervisory Board Member of the Audit Committee Member of the Remuneration Committee Irving W. Bailey II is retired Chairman and Chief Executive Officer of Providian Corp., a former Managing Director of Chrysalis
Mr. Bailey is also a senior advisor to Chrysalis Ventures Inc.
Ben J. Noteboom (1958, Dutch) Chairman of the Remuneration Committee Member of the Audit Committee Ben J. Noteboom worked for Randstad Holding N.V. from 1993 until 2013, where he was appointed member of the Executive
Randstad, Mr. Noteboom worked for Dow Chemical in several international management functions from 1984 until 1993.
He started his career in 1982 at Zurel as a management assistant. Mr. Noteboom was appointed to Aegon’s Supervisory
Supervisory Board in 2008, and his current term will end in 2016.
President Emeritus of Aon Group Inc.. Mr. Verbeek was appointed to Aegon’s Supervisory Board in 2008, and his current term ends in 2016. He is also a member of the Supervisory Board of Aon
Pensioenfonds ABP (ABP), the Dutch public sector collective pension fund. She is also a member of the Supervisory Board of
Locker, Inc. and a member of the Board of Trustees of Save the Children US (not listed). In 2015, Ms. Young was selected to the National Association of Corporate Directors’ Directorship 100.
Principles are as follows: �� Aegon remuneration is employee-oriented by: fostering a sense of value and appreciation in each individual employee; promoting the short- and long-term interests and well-being of all Aegon staff via fair compensation, pension and/or other benefits; supporting employees’ career development; and supporting the (international) mobility of its staff; �� Aegon remuneration is performance-related by: establishing a clear link between pay and performance by aligning objectives and target setting with performance evaluation and remuneration; reflecting individual as well as collective performance in line with Aegon’s long-term interests; enhancing the transparency and simplicity of Aegon Group remuneration, consistent with the principle of pay for performance; avoiding any pay for non-performance; �� Aegon remuneration is fairness-driven by: promoting fairness and consistency in Aegon’s remuneration policies and practices, with remuneration packages that are wellbalanced across the different echelons within Aegon and its business units; avoiding any discrimination in Aegon’s remuneration structures, including, among others, discrimination based on nationality, race, gender, religion, sexual orientation, and/or cultural beliefs; creating global alignment in the total compensation of all Identified Staff; aiming at controlled market competitive remuneration, by providing total compensation packages in line with an appropriately established peer group at a regional unit, country and/or functional level; and �� Aegon remuneration is risk-prudent by: aligning business objectives with risk management requirements in the target setting practices throughout the Aegon Group; giving an incentive to appropriate risk-taking behavior while discouraging the taking of excessive risks; protecting the risk alignment effects embedded in the remuneration arrangements of individual staff against any personal strategies or insurance to counter them.
The key pillars outlined above are set out in Aegon’s Global
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. In addition, all steps in the remuneration process, in addition to the involvement of Human Resources,
Risk Management, Compliance and Audit, are governed by the GRF and its underlying policies.
Among others, the legislation introduces caps on variable compensation that go beyond the maximums suggested by
For compensation of staff outside Europe, the Company requested shareholder approval to pay a maximum of 200% of base salary as variable compensation for performance delivered by selected senior staff in positions that, based on local market practice, could exceed the 100% of base salary variable compensation set out in the legislation. The Company’s capital is not adversely impacted by the maximum variable compensation that could be paid out.
The GRF includes separate remuneration policies for three specific groups of employees. This is in recognition of the fact that these employees’ roles and responsibilities require specific risk mitigating measures and governance processes. These remuneration policies are for: (i) the Executive Board; (ii) material risk takers (Identified Staff1); 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'.
Management and Compliance, existing remuneration policies have been amended, including deferral and holding arrangements, payment in non-cash instruments, and specific ex-ante and ex-post measures.
and associated practices are aligned with the defined risk tolerances and behaviors. In this respect, risk mitigating measures undertaken prior to the payout of compensation to individual employees (regardless of whether the compensation is deferred)
are considered ex-ante measures. Retribution measures applied after payouts, or concerning allocated but deferred payments
More detailed information is provided in the following sections on the compensation practice for the Supervisory Board and
Each of these fees is a fixed amount. Members of Aegon’s
Information on members of the Supervisory Board and the composition of Aegon’s four committees – Audit,
Leo M. van Wijk (up to May 20, 2015) 38,625 86,000
Not included in the table above is a premium for the mandatory health insurance paid on behalf of Dutch Supervisory Board members. Remuneration for Supervisory Board members is subject to Dutch VAT.
Executive Board Remuneration Policy 2015 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.
The Executive Board Remuneration Policy was prepared in accordance with the Dutch Corporate Governance Code and the Decree on Sound Remuneration Policy (Regeling beheerst beloningsbeleid (Rbb) Wft 2011, which was succeeded by
Rbb Wft 2014) produced by DNB. It was adopted at the General
Role of the Remuneration Committee The Remuneration Committee of Aegon’s Supervisory Board has overall responsibility for the Company's Remuneration Policies, including the Executive Board Remuneration Policy. Members of the Committee are drawn from the Supervisory Board.
Review of the Remuneration Policy Aegon’s Executive Board Remuneration Policy is reviewed every year by the Remuneration Committee. The policy applies to all members of Aegon’s Executive Board.
In addition, in order to monitor alignment with the general industry in the Netherlands, a reference group was established, comprising the 12 leading companies listed on Euronext
Total compensation For each member of the Executive Board, Aegon’s Supervisory
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 regularly evaluated by experts in the Company's Finance,
Performance is assessed by Aegon’s Remuneration Committee and validated by the full Supervisory Board.
For 2015, the performance period for variable compensation was one year. By implementing deferral and additional holding periods, Aegon believes that the long-term interests of Executive
This part will be paid 50% in cash (=200) and 50% in shares vesting immediately (=200 /6.1061 = 32 shares). The remaining 600 is deferred and vests according to a pre-defined schedule.
Personal objectives 40% Individual basket of strategic and personal objectives related to Aegon’s strategy
At an aggregated level, payments1 are made as follows: �� 50% of base salary if the threshold target is reached. This results in the allocation of EUR 288,518 and 47,252 shares for Mr Wynaendts and EUR 247,748 and 40,943 shares for
Mr Button; �� 80% of base salary if the pre-determined performance targets are met. This results in the allocation of EUR 461,628 and 75,602 shares for Mr Wynaendts and EUR 396,396 and 59,693 shares for Mr Button; �� Up to 100% of base salary if the targets are exceeded. This results in the allocation of EUR 577,036 and 94,503 shares for Mr Wynaendts and EUR 495,496 and 74,617 shares for
Risk adjustment methodology (ex-ante) At the end of the performance period, but prior to allocation of variable compensation, the Supervisory Board assesses whether (downward) modifications are needed. For this purpose, quantitative and qualitative measures at group, regional unit and individual level are taken into account, such as: �� Breaches of laws and regulations; �� Breaches of internal risk policies (including compliance); �� Significant deficiencies or material weaknesses relating to the Sarbanes-Oxley Act; and �� Reputation damage due to risk events.
or should be adjusted. This ex-post assessment is based on informed judgment by the Supervisory Board, taking into account significant and exceptional circumstances that are not (sufficiently) reflected in the initially applied performance indicators.
Pension arrangements Members of Aegon’s Executive Board are offered pension arrangements and retirement benefits. Benefits offered are consistent with Executive Board members' agreements.
Fixed compensation The fixed compensation of Mr. Button was increased in 2015 to
USD 1.1 million (EUR 0.991 million) to further align his compensation towards the desired market position. The fixed compensation of Aegon’s CEO remained unchanged in 2015 at
Meeting of Shareholders on May 20, 2016, variable compensation for Executive Board members is set in cash and shares, based on both their individual and the Company's performance. Targets for the performance indicators have been set in line with the agreed variable compensation targets and 2015 company budgets.
performance indicators and targets resulted in a performance score of 44.90 % (maximum 60%). However, after incorporating model validation updates and assumption changes for the 2015 financial performance of the Group for the Executive Board members, the pay-out on the financial and non-financial Group performance indicators and targets was reduced to 41.94%
(maximum 60%). The performance on personal objectives resulted in a pay-out of 38.00% and 37.20% for Mr Wynaendts and Mr Button respectively (maximum 40%).
Any payout is split 50/50 in a cash payment and an allocation of shares (vesting). After vesting (with the exception of shares sold to meet income tax obligations), a retention (holding) period is applicable for a further three years, before shares are at the disposal of the Executive Board members.
No circumstances have been identified to lower payout of the deferred payment from prior performance years that vest in 2016
General Meeting of Shareholders. The main function of the General Meeting of Shareholders is to decide matters such as the adoption of annual accounts, the approval of dividend payments and (re)appointments to the Supervisory Board and
Convocation Meetings are convened by public notice at least 42 days before the meeting. The convocation states the time and location of the meeting, the record date, the agenda items, and the procedures for admittance to the meeting and representation at the meeting by means of a written proxy. Those shareholders who alone or jointly represent at least 1% of Aegon’s issued capital or a block of shares worth at least EUR 100 million may request items be added to the agenda of a General Meeting of Shareholders. In accordance with Aegon’s Articles of Association, such a request will be granted if it is received in writing at least 60 days before the meeting, and if there are no important interests of the Company that dictate otherwise.
Supervisory Board Aegon’s Supervisory Board oversees the management of the Executive Board, in addition to the Company’s business and corporate strategy. The Supervisory Board must take into account the interests of all Aegon stakeholders. The Supervisory Board operates according to the principles of collective responsibility and accountability.
Board members are no longer eligible for appointment after the age of 70, unless the Supervisory Board decides to make an exception. Remuneration of the Supervisory Board members is determined by the General Meeting of Shareholders. At present,
Committees The Supervisory Board also oversees the activities of several of its committees. These committees are composed exclusively of Supervisory Board members and deal with specific issues related to Aegon’s financial accounts, risk management strategy, executive remuneration and appointments. These committees are the: �� Audit Committee; �� Risk Committee; �� Remuneration Committee; and �� Nomination and Governance Committee.
Composition of the Executive Board The Executive Board of Aegon has two members: Alex Wynaendts, who is Chief Executive Officer (CEO) and Chairman of the
Management Board Aegon’s Executive Board is assisted in its work by the Company’s
The capital of the Company Aegon has authorized capital of EUR 1,080 million, divided into 6 billion common shares and 3 billion common shares B, each with a par value of EUR 0.12. As of December, 31 2015, a total of 2,147,036,826 common shares and 585,022,160 common shares B had been issued.
Significant shareholdings On December 31, 2015, Vereniging Aegon, Aegon’s largest shareholder, held a total of 292,687,444 common shares and 585,022,160 common shares B.
To Aegon’s knowledge based on the filings made with the Netherlands Authority for Financial Markets, the AFM, the US based investment management firm Dodge & Cox holds a capital and voting interest in Aegon of 3%. Based on its last filing with the Dutch Autoriteit Financiële Markten on July 1, 2013 the Dodge & Cox International Stock Fund stated to hold 83,320,454 common shares and voting rights which represents 3.0% of the capital issued as at December 31, 2015.
On February 12, 2016, Dodge & Cox’s filing with the US
Cox holds 252,801,195 common shares, representing 9.3% of the issued capital, and has voting rights for 246,721,656 shares, representing 9.0% of the votes as at December 31,2015.
December 31, 2015. The remainder of the common shares registered in name of Dodge & Cox with the SEC are held by
Vereniging Aegon may cast one vote for every common share it holds and one vote only for every 40 common shares B it holds.
Share plan Senior executives at Aegon companies and some other employees are entitled to variable compensation of which part is granted in the form of shares. For further details, please see the remunerationreport on page 108 and note 53 of the notes to Aegon’s consolidated financial statements of this Annual Report. 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 a subsidiary after the adoption of the Company’s Annual Report at the Annual General Meetings of
Appointing, suspending or dismissing Board members The General Meeting of Shareholders appoints members of both the Supervisory and Executive Boards, following nominations by the Supervisory Board. These nominations are binding providing at least two candidates are nominated. The General Meeting of
Amending the Articles of Association The General Meeting of Shareholders may, with an absolute majority of votes cast, pass a resolution to amend Aegon’s
Articles of Association or to dissolve the Company, in accordance with a proposal made by the Executive Board and approved by the Supervisory Board.
In general, Aegon applies the best practice provisions set out in the Code and a detailed explanation is given below for those instances where Aegon does not fully apply the best practice provisions of the Code. In these few instances, Aegon adheres, as much as is possible, to the spirit of the Code.
That notwithstanding, Aegon’s CEO and CFO are also members of the Executive Committee of the Company’s largest shareholder,
Association, Aegon’s CEO and CFO 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 Vereniging Aegon, it is not in the Company’s best interests to prevent Aegon’s CEO
Its members are not Aegon employees and have an engagement agreement with the Company. Members of the Executive Board are appointed and dismissed by the General Meeting of
Shareholders. The number of the Executive Board members and the terms of their engagement are determined by the Supervisory
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.
Shareholders. The remuneration of Supervisory Board members is fixed by the General Meeting of Shareholders. Resolutions entailing a significant change in the identity or character of the Company or its business require the approval of the General
Code of ethics Aegon has in place a code of ethics, titled the Code of Conduct, which contains Aegon’s ethical principles in relation to various subjects. This Code of Conduct applies to all directors, officers
Board of Aegon N.V. as well as other executive and non-executive or supervisory directors of Aegon companies.
Aegon’s CEO and CFO concluded that, as of December 31, 2015, the disclosure controls and procedures were effective. There have been no material changes in the Company’s internal controls or in other factors that could significantly affect internal controls over financial reporting subsequent to the end of the period covered by this Annual Report.
Furthermore, external auditors are required to provide an opinion on the effectiveness of Aegon’s internal controls over financial reporting. The SOX 404 statement by the Executive Board is stated below, followed by the report of the external auditor.
Based on the assessment, management concluded that, in all material aspects, the internal control over financial reporting was effective as of December 31, 2015. They have reviewed the results of its work with the Audit Committee of the Supervisory Board.
The effectiveness of internal control over financial reporting as of December 31, 2015, was audited by PricewaterhouseCoopers
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
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Notes to the consolidated financial statements 1 General information 137 2 Summary of significant accounting policies 137 3 Critical accounting estimates and judgment in applying accounting policies 160 4 Financial risks 163 5 Segment information 191 6 Premium income and premiums paid to reinsurers 199 7 Investment income 200 8 Fee and commission income 200 9 Income from reinsurance ceded 200 10 Results from financial transactions 201 11 Other income 202 12 Policyholder claims and benefits 203 13 Profit sharing and rebates 203 14 Commissions and expenses 203 15 Impairment charges / (reversals) 207 16 Interest charges and related fees 207 17 Other charges 208 18 Income tax 208 19 Earnings per share 210 20 Dividend per common share 210 21 Intangible assets 212 23 Investments for account of policyholders 217 25 Investments in joint ventures 221 26 Investments in associates 223 27 Reinsurance assets 223 28 Deferred expenses 225 29 Assets and liabilities held for sale 226 30 Other assets and receivables 227 31 Cash and cash equivalents 229 32 Shareholders’ equity 231 33 Other equity instruments 237 34 Subordinated borrowings 239 35 Trust pass-through securities 239 36 Insurance contracts 239 37 Investment contracts 243 38 Guarantees in insurance contracts 244 41 Defined benefit plans 250 42 Deferred gains 257 43 Deferred tax 257 44 Other liabilities 259 46 Capital and solvency 260 47 Fair value 262 48 Commitments and contingencies 275 49 Transfers of financial assets 279 50 Offsetting, enforceable master netting arrangements and similar agreements 282 51 Business combinations 283 52 Group companies 284 53 Related party transactions 285 54 Events after the balance sheet date 292
Consolidated financial statements of Aegon N.V. Consolidated financial statements of Aegon N.V. Exchange rates Exchange rates Exchange rates
Income before share in profit / (loss) of joint ventures, associates and tax 606 1,368 992
Net income / (loss) attributable to: Equity holders of Aegon N.V. 619 1,186 854
Income tax relating to items that will not be reclassified (77) 333 (201)
Movement in foreign currency translation and net foreign investment hedging reserves 1,414 1,668 (727)
Total comprehensive income attributable to: Equity holders of Aegon N.V. 234 7,262 (2,538)
Other comprehensive income: Items that will not be reclassified to profit or loss: Changes in revaluation reserve real estate held for own use - - 13 - - - 13 - 13
Income tax relating to items that will not be reclassified - - (2) (75) - - (77) - (77)
Items that may be reclassified subsequently to profit or loss: Gains / (losses) on revaluation of available-for-sale investments - - (2,175) - - - (2,175) - (2,175)
Changes in cash flow hedging reserve - - 446 - - - 446 - 446
Movements in foreign currency translation and net foreign investment hedging reserves - - - (86) 1,500 - 1,414 - 1,414
Items that may be reclassified subsequently to profit or loss: Gains / (losses) on revaluation of available-for-sale investments - - 6,759 - - - 6,759 - 6,759
Income tax relating to items that will not be reclassified - - 1 (202) - - (201) - (201)
Income tax relating to items that may be reclassified - - 1,274 - 21 - 1,295 - 1,295
Share options and incentive plans - 30 - - - (3) 27 - 27 1 Issued capital and reserves attributable to equity holders of Aegon N.V.
Net purchase of investments for account of policyholders 4,371 (1,788) (1,395)
Proceeds from TRUPS 1), subordinated loans and borrowings 1,821 3,862 1,056
Net increase / (decrease) in cash and cash equivalents 2) (1,257) 4,766 (3,766)
Net cash and cash equivalents at the end of the year 31 9,593 10,649 5,652 1 Trust pass-through securities. 2 Included in net increase / (decrease) in cash and cash equivalents are interest received (2015: EUR 7,118 million, 2014: EUR 6,711 million, and 2013: EUR 6,731 million) dividends received (2015: EUR 1,384 million, 2014: EUR 1,342 million, and 2013: EUR 1,021 million) and interest paid (2015: EUR 350 million, 2014: EUR 320 million, and 2013: EUR 347 million).
Adoption of new IFRS accounting standards. The consolidated financial statements are presented in euro and all values are rounded to the nearest million unless otherwise stated. The consequence is that the rounded amounts may not add up to the rounded total in all cases. All ratios and variances are calculated using the underlying amount rather than the rounded amount. Certain amounts in prior years may have been reclassified to conform to the current year presentation. These reclassifications had no effect on net income, shareholders' equity or earnings per share.
March 25, 2016. The financial statements will be put for adoption to the Annual General Meeting of Shareholders on May 20, 2016.
2.1.1 Adoption of new IFRS 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 2015, the following 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: �� IAS 19 Employee Benefits - Amendment Employee Contributions; �� Annual improvements 2010-2012 Cycle; and �� Annual improvements 2011-2013 Cycle.
2.1.2 Future adoption of new IFRS accounting standards The following standards, amendments to existing standards and interpretations, published prior to January 1, 2016, were not early adopted by the Group, but will be applied in future years: �� IFRS 9 Financial Instruments; and �� IFRS 15 Revenue from Contracts with Customers.
These standards have not yet been endorsed by the European Union.
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 measured 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.
Those new measures would supplement other measures, including the flexibility offered by the existing IFRS 4 in choosing an accounting policy for insurance contracts (e.g. an option to adjust the measurement of insurance contracts to reduce accounting volatility) and the transition reliefs to be included in the new insurance contracts Standard for entities that apply that Standard after they apply IFRS 9.
At this stage it is not yet clear whether Aegon is planning or able to use the overlay or deferral approach. The implementation of IFRS
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers. IFRS 15 will replace IAS 18 Revenue, as well as other
IFRIC and SIC interpretations regarding revenue unless the contracts are within the scope of other standards (for example, financial instruments, insurance contracts or lease contracts). The standard outlines the principles an entity shall apply to measure and recognize revenue and the related cash flows. The core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer. IFRS 15 will be effective for the Group on January 1, 2018, using either of two methods: a full retrospective approach with certain practical expedients or a modified retrospective approach with the cumulative effect of initially applying this standard recognized at the date of initial application with certain additional disclosures. Aegon is evaluating the impact that adoption of this standard is expected to have on the Group’s financial statements. The full impact will only be clear after full assessment of the standard.
The following new standards and amendments to existing standards and interpretations, published prior to January 1, 2016, which are not yet effective for the Group nor early adopted, are not expected to significantly impact the financial position or financial statements: �� IFRS 10, IFRS 12 and IAS 28 - Investment Entities: Applying the Consolidation Exception1; �� IFRS 11 Joint Arrangements - Amendment Accounting for Acquisition of Interests in Joint Operations; �� IFRS 14 Regulatory Deferral Accounts1; �� IAS 1 - Amendment Disclosure Initiative; �� IAS 27 Separate Financial Statements - Amendment Equity method in Separate Financial Statements; �� IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization; and �� Annual improvements 2012-2014 Cycle.
Classification into or out of held for sale does not result in restating comparative amounts in the balance sheet.
These segments are based on the business as presented in internal reports that are regularly reviewed by the Executive Board which is regarded as the chief operating decision maker. Aegon’s segment information is prepared by consolidating on a proportionate basis
Subsequently, goodwill is carried at cost less accumulated impairment charges. It is derecognized when the interest in the subsidiary or joint venture is disposed.
VOBA is amortized over the useful life of the acquired contracts, based on either the expected future premiums or the expected gross profit margins. The amortization period and pattern are reviewed at each reporting date; any change in estimates is recorded in the income statement. For all products, VOBA, in conjunction with deferred policy acquisition costs (DPAC) where appropriate, is assessed for recoverability on a country-by-country basis and the portion determined not to be recoverable is charged to the income statement. VOBA is considered in the liability adequacy test for each reporting period.
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. Increases in the net carrying amount are recognized in the related revaluation reserve in shareholders’ equity and are released to other comprehensive income over the remaining useful life of the property.
value recognized in the income statement. When hedge accounting is discontinued for a cash flow hedge because the cash flow is no longer expected to occur, the accumulated gain or loss in shareholders’ equity is recognized immediately in the income statement. In other situations where hedge accounting is discontinued for a cash flow hedge, including those where the derivative is sold, terminated or exercised, accumulated gains or losses in shareholders’ equity are amortized into the income statement when the income statement is impacted by the variability of the cash flow from the hedged item.
Gains and losses on transactions between the Group and the joint ventures are eliminated to the extent of the Group’s interest in the entity, with the exception of losses that are evidence of impairment which are recognized immediately. Own equity instruments of
2.11 Investments in associates Entities over which the Group has significant influence through power to participate in financial and operating policy decisions, but which do not meet the definition of a subsidiary, are accounted for using the equity method. Interests held by venture capital entities, mutual funds and investment funds that qualify as an associate are accounted for as an investment held at fair value through profit or loss. Interests held by the Group in venture capital entities, mutual funds and investment funds that are managed on a fair value basis, are also accounted for as investments held at fair value through profit or loss.
2.12 Reinsurance assets Reinsurance contracts are contracts entered into by the Group in order to receive compensation for claims/benefits incurred on contracts written by the Group (outgoing reinsurance). For contracts transferring sufficient insurance risk, a reinsurance asset is recognized for the expected future benefits, less expected future reinsurance premiums. Reinsurance contracts with insufficient insurance risk transfer are accounted for as investment or service contracts, depending on the nature of the agreement.
For all products, DPAC, in conjunction with VOBA where appropriate, is assessed for recoverability at least annually on a country-bycountry basis as part of the liability adequacy test for each reporting period. If appropriate, the assumptions included in the determination of estimated gross profits are adjusted. The portion of DPAC that is determined not to be recoverable is charged to the income statement.
For products sold in the United States, when unrealized gains or losses arise on available-for-sale assets, DPAC is adjusted to equal the effect that the realization of the gains or losses (through sale or impairment) would have had on its measurement. This is recognized directly in the related revaluation reserve in shareholders’ equity.
The deferred transaction costs are amortized in line with fee income, unless there is evidence that another method better represents the provision of services under the contract. The amortization is recognized in the income statement. Deferred transaction costs are subject to impairment testing at least annually.
allocated to cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination. The allocation is based on the level at which goodwill is monitored internally and cannot be larger than an operating segment. When impairing a cash-generating unit, any goodwill allocated to the unit is first written-off and recognized in the income statement. The remaining impairment loss is allocated on a pro rata basis among the other assets, on condition that the resulting carrying amounts do not fall below the individual assets’ recoverable amounts.
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, 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 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, Aegon has considered new and amended standards in those GAAPs which have become effective subsequent to the date of transition to IFRS.
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 and the Netherlands, substantially modified contracts are accounted for as an extinguishment of the original liability and the recognition of a new liability.
All tests performed within the Group are based on current estimates of all contractual future cash flows, including related cash flows from policyholder options and guarantees. A number of valuation methods are applied, including discounted cash flow methods, option pricing models and stochastic modeling. Aggregation levels are set either on geographical jurisdiction or at the level of portfolio of
To the extent that the account balances are insufficient to meet future benefits and expenses, any resulting deficiency is recognized in the income statement, initially by impairing the DPAC and VOBA and subsequently by establishing an insurance liability for the remaining loss, unless shadow loss recognition has taken place. In the Netherlands, in situations where market interest rates for the valuation of debt securities leads to a change in the revaluation reserve, and where the result of using the same assumptions for the liabilities could lead to a deficiency in the liability adequacy test that should be recognized in the income statement, shadow loss recognition is applied. Shadow loss recognition is applied to the extent that the deficiency of the insurance liabilities relates to the revaluation of debt securities as a result of movements in interest rates, the addition to the insurance liabilities is then off set against the revaluation reserve. If in subsequent periods such a deficiency of the insurance liability is no longer applicable, shadow loss recognition is reversed via the revaluation reserve.
discounted cash flow methods and stochastic modeling. For investment contracts without discretionary participation features that can be cancelled by the policyholder, the fair value cannot be less than the surrender value.
For unit-linked contracts without discretionary participation features and subject to actuarial funding, the Group recognizes a liability at the funded amount of the units. The difference between the gross value of the units and the funded value is treated as an initial fee paid by the policyholder for future asset management services and recognized as a deferred revenue liability, refer to note 2.23
The amount recognized as a provision is the best estimate of the expenditure required to settle the present obligation at the balance sheet date, considering all its inherent risks and uncertainties, as well as the time value of money. The estimate of the amount of a loss requires management judgment in the selection of a proper calculation model and the specific assumptions related to the particular exposure. The unwinding of the effect of discounting is recorded in the income statement as an interest expense.
assumptions, the valuation of defined benefit plans and the level of pension expenses recognized in the future may be affected. Plan improvements (either vested or unvested) are recognized in the income statement at the date when the plan improvement occurs.
The cost for share option plans and long term incentive plans are recognized in the income statement, together with a corresponding increase in shareholders’ equity, as the services are rendered. During this period the cumulative expense recognized at the reporting date reflects management’s best estimate of the number of shares expected to vest ultimately.
Share option plans that can be settled in either shares or cash at the discretion of the employee and/or employer are accounted for as a compound financial instrument, which includes a debt component and an equity component.
b. Deferred gain on reinsurance A deferred gain on reinsurance is established when Aegon enters into a reinsurance transaction. Aegon is not relieved of its legal liabilities, so the insurance liabilities relating to the underlying reinsured contracts will continue to be reported in the consolidated statement of financial position during the contractual term of the underlying business.
Gains or losses on buying reinsurance are amortized based on the assumptions of the underlying insurance contracts. The amortization is recognized in the income statement.
A provision is recognized for present legal or constructive obligations arising from past events, when it is probable that it will result in an outflow of economic benefits and the amount can be reliably estimated. If the outflow of economic benefits is not probable, a contingent liability is disclosed, unless the possibility of an outflow of economic benefits is remote.
In the following paragraphs, 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 will adopt one single group-wide accounting policy for reinsurance transactions that are entered into as part of a plan to exit a business. The existing accounting policy records a deferred cost or gain of reinsurance which is subsequently amortized. Under the new accounting policy, when the company enters into a reinsurance transaction 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.
Insurance accounting for business in United Kingdom In January 2016, Aegon announced the restructuring of its business and operations in the UK. This involves splitting the Aegon UK
business into three components: the annuity business, the traditional pension book and the new digital solutions platform. 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.
Kingdom, only effecting Aegon UK. The changes involve the aggregation level at which the liability adequacy test is carried out and the definition of when a substantially modified contract will be derecognized.
The current accounting policy for Aegon’s business in the United Kingdom is to derecognize insurance contracts when legal extinguishment occurs. As the annuity business, the traditional pension book and the new digital solutions platform will be managed separately post-restructuring, Aegon has decided to change its accounting policy for Aegon UK to one that applies criteria from IAS 39 contract modification. Under these criteria a change should be significant enough to be considered an extinguishment of the existing contract and the issuance of a new contract. Aegon considers that this change in accounting policy is preferred as introducing a more sophisticated approach to contract modification is consistent with how the business will be managed post-restructuring. Furthermore, it will provide the user with information that is more relevant and that reliably reflects the economic substance of our transactions with our upgraded policyholders, as required by IFRS 4 and IAS 8, in relation to the nature of contract modifications.
Both changes in accounting policy, affecting Aegon UK, will be adopted retrospectively as of January 1, 2016 to coincide with the commencement of the restructuring in 2016. The changes are expected to decrease net income of the year 2015 approximately by between GBP 0.8 billion and GBP 0.9 billion as the two policy changes combined trigger a premium deficiency in 2015. This range also reflects the total impact on shareholders’ equity at the date of adoption (January 1, 2016) as there is no impact on the income statement 2014 and 2013.
2.36 Future changes to segment reporting presentation Based on the amended strategic plans as announced on January 13, 2016, Aegon has reconsidered its segment reporting. IFRS 8 requires operating segments to be defined in line with how the ‘chief operating decision maker’ (CODM, i.e. Aegon’s Executive Board)
Portugal) are separate operating segments which under IFRS 8 cannot be aggregated, therefore further details will be provided for these operating segments in the segment note.
The change in segment reporting does not have an impact on the financial position, results of operations or cash flows of Aegon.
Investment assumptions are prescribed by the local regulator, market observable or based on management’s future expectations. In the latter case, the anticipated future investment returns are set by management on a countrywide basis, considering available market information and economic indicators. A significant assumption related to estimated gross profits on variable annuities and variable life insurance products in the United States and some of the smaller countries, is the annual long-term growth rate of the underlying assets.
unlocking. The difference between the original DPAC or VOBA amortization schedule and the revised schedule, which is based on estimates of actual and future gross profits, is recognized in the income statement as an expense or a benefit in the period of determination.
Assumptions are reviewed periodically, typically in the third quarter, based on historical experience and observable market data, including market transactions such as acquisitions and reinsurance transactions. Similarly, the models and systems used for determining our liabilities are reviewed periodically and, if deemed necessary, updated based on emerging best practices and available technology.
over the next 10 years and 6% thereafter. The 90-day Treasury yield was 0.16% at December 31, 2015, and is assumed to remain level for the next six months followed by a 9.5 year grade to 2.5%. On a quarterly basis, the estimated gross profits are updated for the difference between the estimated market return and the actual market return.
For 2014, Aegon kept its long-term equity market return assumption for the estimated gross profits on variable life and variable annuity products in the Americas at 8% (December 31, 2013: 8%). The long-term assumption for 10-year US Treasury yields remained at 4.25% and the uniform grading period was 10 years. Aegon’s assumed returns for US separate account bond fund remained at 4%
EUR 3.0 billion at December 31, 2015 (2014: EUR 2.6 billion).
Additional information is provided in the table headed 'Effect of changes in significant unobservable assumptions to reasonably possible alternatives' in note 47 Fair Value. While Aegon believes its valuation techniques are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain instruments (both financial and non-financial) could result in a different estimate of fair value at the reporting date.
4 Financial risks General As an insurance group, Aegon is exposed to a variety of risks. Aegon’s largest exposures are to changes in financial markets (e.g. foreign currency, interest rate, credit and equity market risks) that affect the value of the investments, liabilities from products that Aegon sells, deferred expenses and value of business acquired. Other risks include insurance related risks, such as changes in mortality and morbidity, which are discussed in note 36 Insurance contracts. Aegon manages risk at local level where business is transacted, based on principles and policies established at the Group level. Aegon’s integrated approach to risk management involves similar measurement of risk and scope of risk coverage to allow for aggregation of the Group’s risk position.
To manage its risk exposure, Aegon has risk policies in place. Many of these policies are group-wide while others are specific to the unique situation of local businesses. The Group level policies limit the Group’s exposure to major risks such as equity, interest rates, credit, and currency. The limits in these policies in aggregate remain within the Group’s overall tolerance for risk and the Group’s financial resources. Operating within this policy framework, Aegon employs risk management programs including asset liability management (ALM) processes and models and hedging programs (which are largely conducted via the use of derivatives). These risk management programs are in place in each country unit and are not only used to manage risk in each unit, but are also part of the Group’s overall risk strategy.
As part of its risk management programs, Aegon takes inventory of its current risk position across risk categories. Aegon also measures the sensitivity of net income and shareholders' equity under both deterministic and stochastic scenarios. Management uses the insight gained through these 'what if?' scenarios to manage the Group’s risk exposure and capital position. The models, scenarios and assumptions used are reviewed regularly and updated as necessary.
Results of Aegon’s sensitivity analyses are presented throughout this section to show the estimated sensitivity of net income and shareholders’ equity to various scenarios. For each type of market risk, the analysis shows how net income and shareholders’ equity would have been affected by changes in the relevant risk variable that were reasonably possible at the reporting date. For each sensitivity test the impact of a reasonably possible change in a single factor is shown. Management action is taken into account to the extent that it is part of Aegon’s regular policies and procedures, such as established hedging programs. However, incidental management actions that would require a change in policies and procedures are not considered.
The accounting mismatch inherent in IFRS is also apparent in the reported sensitivities. A change in interest rates has an immediate impact on the carrying amount of assets measured at fair value. However, the shock will not have a similar effect on the carrying amount of the related insurance liabilities that are measured based on locked-in assumptions or on management’s long-term expectations. Consequently, the different measurement bases for assets and liabilities lead to increased volatility in IFRS net income and shareholders’ equity. Aegon has classified a significant part of its investment portfolio as 'available-for-sale', which is one of the main reasons why the economic shocks tested have a different impact on net income than on shareholders’ equity. Unrealized gains and losses on these assets are not recognized in the income statement but are booked directly to the revaluation reserves in shareholders’ equity, unless impaired. As a result, economic sensitivities predominantly impact shareholders’ equity but leave net income unaffected. The effect of movements of the revaluation reserve on capitalization ratios and capital adequacy are minimal.
The sensitivities do not reflect what the net income for the period would have been if risk variables had been different because the analysis is based on the exposures in existence at the reporting date rather than on those that actually occurred during the year. Nor are the results of the sensitivities intended to be an accurate prediction of Aegon’s future shareholders’ equity or earnings. The analysis does not take into account the impact of future new business, which is an important component of Aegon’s future earnings. It also does not consider all methods available to management to respond to changes in the financial environment, such as changing investment portfolio allocations or adjusting premiums and crediting rates. Furthermore, the results of the analyses cannot be extrapolated for wider variations since effects do not tend to be linear. No risk management process can clearly predict future results.
Concentration risk for financial risks are measured and managed at the following levels: �� Concentration per risk type: Risk exposures are measured per risk type as part of Aegon’s internal economic framework. A risk tolerance framework is in place which sets risk limits per risk type and which promotes diversification across risk types; �� Concentration per counterparty: Risk exposure is measured and risk limits are in place per counterparty as part of the Counterparty
Where this is not possible or practical, remaining currency exposure should be sufficiently documented and limits are placed on the total exposure at both group level and for individual country units.
Decrease by 15% of USD currencies relative to the euro (49) (1,553)
Decrease by 15% of GBP currencies relative to the euro (27) (538)
Increase by 15% of USD currencies relative to the euro 83 2,038
Decrease by 15% of other non-euro currencies relative to the euro (81) (2,202) 1 The effect of currency exchange movements is reflected as a one-time shift up or down in the value of the non-euro currencies relative to the euro on December 31. 2 For the sensitivity analysis the book loss of Canada in 2015 has not been taken into account.
The sensitivity analysis in the table below shows an estimate of the effect of a parallel shift in the yield curves on net income and shareholders' equity arising from the impact on general account investments and offset due to liabilities from insurance and investment contracts. In general, increases in interest rates are beneficial to Aegon. However, timing and valuation differences between assets and liabilities may cause short-term reductions in net income or solvency ratios as rates rise. The rising interest rates would also cause the fair value of the available-for-sale bond portfolio to decline and the level of unrealized gains could become too low to support recoverability of the full deferred tax asset triggering an allowance charge to income. The offsetting economic gain on the insurance and investment contracts is however not fully reflected in the sensitivities because many of these liabilities are not measured at fair value. Over time, the medium-term reduction in net income due to rising interest rates would be offset by higher net income in later years, all else being equal. Therefore, higher interest rates are not considered a long-term risk to the Group. However, a long sustained period of low interest rates will erode net income due to lower returns earned on reinvestments.
Credit risk As premiums and deposits are received, these funds are invested to pay for future policyholder obligations. For general account products, Aegon typically bears the risk for investment performance which is equal to the the return of principal and interest. Aegon is exposed to credit risk on its general account fixed-income portfolio (debt securities, mortgages and private placements), over-thecounter derivatives and reinsurance contracts. Some issuers have defaulted on their financial obligations for various reasons, including bankruptcy, lack of liquidity, downturns in the economy, downturns in real estate values, operational failure and fraud. During financial downturns, Aegon can incur defaults or other reductions in the value of these securities and loans, which could have a materially adverse effect on Aegon’s business, results of operations and financial condition.
Debt securities - carried at fair value 107,390 - - 470 - - - 470 - 106,920
Private loans - carried at amortized cost 2,847 - - - - - - - - 2,847
Debt securities - carried at fair value 103,324 - - 500 - - - 500 - 102,824
Mortgage loans - carried at amortized cost 32,164 1,911 - 1,688 41,337 - 1 44,938 13,933 1,160
Other loans - carried at amortized cost 2,516 - - - - - 2,018 2,018 1,305 1,803
A substantial part of Aegon’s Dutch residential mortgage loan portfolio benefits from guarantees by a Dutch government-backed trust
The collateral included in the other column represents the policyholders account value for policy loans. The excess of the account value over the loan value is included in the surplus collateral column. For further information on the policy loans refer to note 22.1 Financial assets, excluding derivatives.
Aegon operates a Credit Name Limit Policy (CNLP) under which limits are placed on the aggregate exposure that it has to any one counterparty. Limits are placed on the exposure at both group level and individual country units. The limits also vary by a rating system, which is a composite of the main rating agencies (S&P, Moody’s and Fitch) and Aegon’s internal rating of the counterparty. If an exposure exceeds the stated limit, then the exposure must be reduced to the limit for the country unit and rating category as soon as possible. Exceptions to these limits can only be made after explicit approval from Aegon’s Group Risk and Capital Committee (GRCC).
UK and Austria. Highly rated sovereign assets, that is AAA rated by all three agencies, and sovereign exposure domestically issued and owned in local currency are excluded from the Credit Name Limit Policy.
Aegon group level long-term counterparty exposure limits are as follows: Group limit Amounts in EUR million 2015 2014
Past due and / or impaired assets 23 1,479 520 119 - 1 154 56 697 1,655 2,352 1 Includes investments of Holding and other activities.
Credit risk concentrations – debt securities and money market investments 2015 Americas
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans 959 2,055 - 28 3,041 7 1 Includes investments of Holding and other activities.
Asset-backed securities (ABSs) - CDOs backed by ABS, Corp. bonds, Bank loans 784 1,859 - 4 2,647 8 1 Includes investments of Holding and other activities.
The fair value of Aegon Americas commercial and agricultural mortgage loan portfolio as per December 31, 2015, amounted to
(2014: EUR 16 million) of real estate. The 2015 additional impairments associated with these loans at the time of foreclosure amounted to EUR 3 million (2014: impairment recoveries of EUR 1 million).
The fair value of Aegon the Netherlands mortgage loan portfolio as per December 31, 2015, amounted to EUR 29,181 million (2014: EUR 28,758 million). The LTV amounted to approximately 90% (2014: 95%). A significant part of the portfolio (60%; 2014: 60%) is government guaranteed. Of the portfolio, 0.8% (2014: 0.9%) is in delinquency (defined as 60 days in arrears). Impairments in 2015 amounted to EUR 9 million (2014: EUR 4 million). During the last ten years defaults of the portfolio have been 5 basis points on average.
Total income for the year ended December 31, 2014 December 31, 2014 2014 Interest income
Monoline insurers About EUR 0.5 billion of the bonds in Aegon USA’s portfolio are insured by monoline insurers (2014: EUR 0.5 billion), of which
EUR 265 million of bonds (2014: EUR 261 million) in the EUR 0.9 billion subprime portfolio (2014: EUR 0.9 billion). Expected claims against the monolines amounted to EUR 72 million (2014: EUR 68 million), although an insolvency by one of the monolines could create significant market price volatility for the affected holdings.
Association, Inc. (MBIA), 14% to Ambac Financial Group, inc. (AMBAC), and 38% to Financial Security Assurance Inc. (FSA) (2014: 40%
At the end of 2015, Aegon USA had one indirect exposure of EUR 24 million via wrapped bonds via holdings in monoline insurers and derivative counterparty exposure where monoline insurers are Aegon’s counterparty (2014: EUR 22 million).
portfolios, are as follows as of December 31, 2015, and December 31, 2014: Amortized cost Unrealized gains Unrealized losses Total fair value
EUR 1,710 million (December 31, 2014: EUR 713 million) of gross unrealized losses in the AFS debt securities portfolio of Aegon
The unrealized loss is EUR 140 million and relates to securities issued by the government of the United States of America.
Financial and credit market conditions were mixed over the course of 2015. Developed-world growth remains positive, but generally below potential, despite policy-makers’ efforts to generate a strong recovery. Emerging Market growth, including China, has fallen, generating weak market returns in those countries. US equity markets had modest returns, while global markets were mixed. The US